Risks in Highway Projects
Infrastructure and specifically transportation projects are complex endeavors and risk assessment for them is a complicated process. Risks are often interrelated or correlated to each other and occurrence of some might cause other risks to occur. For example, technical risk usually carries cost and schedule consequences. Schedule risks typically impact cost escalation and project overhead. Consequently, likelihood of a risk’s occurrence and its impact on the scope of a specific context of the project, must be carefully considered.
Over the last 10 years, there has been an accelerating global trend towards the execution of major public infrastructure projects on a privatized basis. Public-Private-Partnership (PPP) financing modalities, with the capability of
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Traditionally, point estimate method have been used through cost-benefit analysis in order to clarify the uncertainties in a decision planning. Since all projects are vulnerable to degrees of uncertainties concerning cost, schedule and output price, traditional deterministic cost-benefit analysis does not provide sufficient information. Therefore, Monte Carlo simulation method is popularly used to measure the value at risk (VaR).
Value-at-risk and the Monte Carlo simulation
VaR is a methodology developed by the finance industry to provide quantitative data in order to support a company’s exposure to risk. VaR measures the worst expected loss over a given horizon under normal market conditions at a given level of confidence. In other words, if “c” is selected as the confidence level, VaR corresponds to the “1-c” lower tail of the projected distribution of gains and losses over the target horizon. In other words, we are c percent certain that we will lose not more than V dollars in the next N
If the cash inflow of the first investment has a probability of occurrence of 96% and that of the second investment is 73%, then risk analysis would indicate that the first investment is better. Risk analysis refers to the chance that the selection of this project will prove to be unacceptable. In capital budgeting, risk analysis is almost entirely based upon how well we can predict cash inflows since the initial investment is usually known with some degree of
...hanges were made, and thus the government has allowed the private stakeholders to undertake construction of infrastructure. This was the aftermath of the adoption of public-private partnership policy in 2009.
Hillson, D, & Simon, P. (2012). Practical project risk management: The ATOM methodology (2nd ed.). Vienna, VA.: Management Concepts.
... recommendation is that better protection should be provided for the management of financial risk. Benkol could use the Net Present Value technique to cover that. Benkol also lacks a proper risk assessment method. Benkol does not use a risk assessment matrix, nor scenario analysis and probability analysis is done by the project manager using subjective assumptions. This can be refined by implementing proper probability analysis and risk assessment matrix.
Molenaar, K. R., Anderson, S. D., Schexnayder, C. J., National Research Council (U.S.)., National Cooperative Highway Research Program., American Association of State Highway and Transportation Officials., & United States. (2010). Guidebook on risk analysis tools and management practices to control transportation project costs. Washington, D.C: Transportation Research Board.
Although risk management can be implemented in practically every type of project, this paper focuses mainly on IT projects. Risk management
The key purpose for managing risk is to evaluate the risk and improve the performances of consolidated value of a firm to achieve profitability. Currently the benchmark tool for measuring the risk is VAR (Value at Risk). VAR evaluate the maximum loss a value of a portfolio has for a given interval on a pre-determined period of time. It is commonly used in brokerage houses, investment banks and institutions to measure a risk on their portfolios.
In Capital Budgeting Simulation, Net Present Value (NPV), Internal Rate of Return (IRR), and Profitability Index (PI) can be analyzed two mutually exclusive capital investment proposals. Silicon Arts Inc. (SAI) is a four-year-old company, manufactures digital imaging integrated Circuits (ICs) that need to analyze two capital investment proposals to pursue its growth plans. "SAI’s Chairman is planning to increase market share and keep pace with technology, which can be done by either expanding the existing Digital Imaging market share or entering the Wireless Communication market," (Simulation, UOP). An analysis reveals that an expansion into the Wireless communication can be beneficial than Dig-Image. However, a number of risks, internal and external are inherent in joining this industry. This paper will analyze investment risk decisions and mitigation of risks by using a number of strategies.
Therefore the cost overruns demand requires adequate building infrastructure facilities at optimum cost (The India Infrastructure Report 1998). Indian government has attached high priority to the building sector (UK Trade and Investment). Rapid growth in the construction industry in india over the past few years has considerably strained its infrastructure. India needs significant investment in the infrastructure sector as many corporate leaders feel that the current infrastructure is inadequate to support their business needs and long term growth in india . India has been a little slow in creating building infrastructure ahead of demand, and it has typically turned into action when bottlenecks become apparent (Survey report of KPMG International and Economist Intelligence Unit). Investment requirement for housing in urban areas has been estimated at Rs.556000 million (US$ 13.4 billion) in the9th five year plan (1997-2002). The Market size, material market potential, labour required skills are the most important factors for considering Foreign Direct Investment in Construction and Engineering in India. Foreign investors in India expect high rates of return on their investments (FDI Confidence
Commencing since the mid-1990s a measure of risk recognized as value-at-risk (VaR) has appeared as the prevalent risk measure for financiers in financial securities, banks and investment companies and the controlling powers that standardize these institutions. VaR is also an important part of both the Basel I and Basel II suggestions upon banking rules published by the Basel Committee on Banking Supervision. Security and Exchange Commission of Pakistan (SECP) also emphasized the significance of VaR measures for financial institutions to quantity the risk.
Privatization of infrastructure assets: financial structures, participant motivations, and lessee tax benefits. Khalid A. Razaki, Raymond Pollastrini, Robert J. Moreland. Journal of Finance and Accountancy http://www.aabri.com/manuscripts/121265.pdf
Seyedshohadaie, S., Damnjanovic, I., & Butenko, S. (2010). Risk-based Maintenance and Rehabilitation Decisions for Transportation Infrastructure Networks. Transportation Research Part A, 44, 236-248.
This paper will reflect on the different uses of Project Risk Management and ways in which it can benefit organizations to have the ability to identify potential problems prior to the problem occurring. Risk, this is not something to be taken lightly whilst dealing with matters that include high end projects meeting specific details, deadlines and expectations for the end client. Project risk management teaches one to be aggressive early on in the phases of planning and implementing the tools for a project. This is usually easier as costs are less and the turnaround time to solve the issues at that present moment is beneficial rather than later. The result in a successful project for one’s self and other key people involved in the process is also another requirement. Stakeholder satisfaction is important because the
In this competitive world, companies have to deal with various types of risk all the time with there projects. Generally, it affects the budget and schedule of the project. So it is important to keep in mind the risk management strategies while creating an initial project plan.
A public private partnership (PPP) is an concurrence between the government and private sector for the motive of provisioning of public services or infrastructure. With a general apparition in place, the public and private sector bring to the table their own experiences and strengths ensuing in achievement of mutual objectives. The Government of India (GoI) has been focusing on the expansion of enabling tools and activities to persuade private sector investments in the country through the PPP format. Private funds amounting to US$150 billion is unsurprising to bridge the infrastructure gap of US$500 billion over the period 2007-20121. As a part of gathering this financing gap, the PPP model is slowly more been seen as a means of harnessing private sector in vestment and looking for operational efficiencies in the provision of public assets and services .The extent to which the GoI envisages a remarkable role played by PPP in improving the level and quality of economic and social infrastructure services is more and more evident from the rising reliance on the PPP model in the current past.