Risk Assessment Template for Projects

Preamble The Investor desires a quantitative means of assessing project risk as an aid to making investment decisions which include both initial funding and also the release of stagegate funding tranches. Quantifying risk putting numbers to the words 5 severe risk means that associated deliverables (either explicit or implied) for the next stage gate will likely not be achieved. Major redirection of the project is necessary in order to avoid commercial failure. 4 significant risk means that associated deliverables (either explicit or implied) for the next stage gate will only be achieved with an unanticipated breakthrough or game changing scenario. Breakthrough or game changing scenario, although not guaranteed, can possibly be achieved with significant effort. 3 moderate risk means that associated deliverables (either explicit or implied) for the next stage have a 50 / 50 chance of achievement with no more effort than has been applied previously. Moderate risk is almost entirely manageable through level of effort and resource allocation. 2 low risk means that associated deliverables (either explicit or implied) for the next stage have reasonable to good chance of being achieved with the current level of effort. 1 minimal risk means that associated deliverables (either explicit or implied) for the next stage are nearly guaranteed. Only an unanticipated setback or game changing scenario can reduce or wipe out chances of achievement. Quantifying rewards Some measure of return on investment should also be made. We accept, however, that reward is project specific because not all projects are funded the same way. Standard measures of reward include payback period and return on investment, but even these rewards are only financially based and do not include job creation and/or capacity building. Clearly more thought is required on how to quantify the return that the Investor earns on its investments. For the time being a financially based rate of return will be calculated with some appropriate inclusion of the time value of money. Methodology how we examine individual projects Fund the release of stage gate funding tranches, the scoring system above is applied to the next stage gate (viz. the current one that is already funded and where money has already been spent). The deliverables are stated in the broadest terms. A weighting factor of between 10% and 30% is assigned to each area of risk in the table below. The composite score is applied to the amount of money currently at risk, i.e., money required

for the next stage gate. Decisions NOT taken based on money already spent. The composite score is used to place a Rand value on the risk. Composite score of 1 means 10% chance of losing investment at risk Composite score of 2 means 30% chance of losing investment at risk Composite score of 3 means 50% chance of losing investment at risk Composite score of 4 means 70% chance of losing investment at risk Composite score of 5 means 90% chance of losing investment at risk Actionable intelligence is applied to minimizing losses across all projects going forward. Remember, decisions are NOT taken based on money already spent. Projects presenting the least probabilistic losses going forward receive preferential funding. Example -- the aspirin project, Next stage gate is building a commercial plant and launching a business Risk Factor Broad Deliverable Risk Score Note

Technical

20%

Commercial IP

30% 10%

Cost of manufacture 4 competitive; product meets all specifications Find partner to take project 5 forward Commercial entity sued for 1 stealing technology Product gets CE mark CAPEX secured 2 3 3.4

Regulatory Financial Composite

20% 20%

Technoeconometrics not convincing Will need to be existing player CSIR tech package is textbook Will take two years IDC can be convinced

Amount of money currently at risk is perhaps R 0,5 million the amount of money The Investor will need to invest in order to secure a commercial partner. Composite score of 3.4 means about 60% chance of losing it all, i.e., loss of 0.6 x R 0.5 million or R 0.3 million. Example Bakers Yeasts, Next stage is building a commercial plant and launching a business Risk Technical Factor 30% Risk Score Cost of manufacture 2 competitive; product meets all specifications There will be a market for 4 the products AY loses strain to a 3 competitor who then steals Broad Deliverable Note No novel production technology Probably new competition in the same space 50 / 50 in my opinion

Commercial

30%

IP

10%

Regulatory Financial

10% 20%

Bakers yeast is accepted 1 food ingredient CAPEX secured 3

Non-issue 50 / 50 depending on how a larger funding entity views market risk

Composite

2.8

Amount of money at risk would be R 6.5 million (Phase 1 + CAPEX). Composite score of 2.8 means about 50% chance of losing it all, i.e., loss of 0.5 x R 7 million or R 3.5 million. Considering these two examples, it makes more sense for The Investor to spend money trying to secure a commercial partner for aspirin than it does for the Investor to invest in the Bakers Yeast project. The key reason for this is that very little investment is required to search for a commercial aspirin partner. Obviously, the decision to invest in the Bakers Yeasts project ALSO depends as well on other investment options currently in the portfolio.