Nguyen, N; Almarri, K and Boussabaine, H (2021) A risk-adjusted decoupled-net-present-value model to determine the optimal concession period of BOT projects. Built Environment Project and Asset Management, 11(1), pp. 4-21. ISSN 2044-124X
Abstract
The net-present-value (NPV) method is well-known for its drawbacks. To overcome some of these NPV weaknesses this paper aims to provide a methodology to determine an optimal concession period that treats risk and time separately. The purpose of this paper is to apply the notion of risk-adjusted decoupled net present value (risk-adjusted DNPV) to determine a conception period taken into consideration synthetic insurance premiums as compensation for risks. This paper conducts theoretical and empirical analysis and provides an integrated model for deriving concession periods of any PPP projects. The model is able to capture several contractual issues such risks costing and other contractual scenarios. Methodologically, the paper addressees both the issues of risk-based cost-benefit analysis and cash flow analysis bearing an emphasis of risk-adjusted DNPV to compute an optimum concession period. The results show that using DNPV will produce a shorter concession period comparatively to NPV. The consequence of this is that the public sector will gain financially from an earlier transfer of the concession. This paper contributes to the PPP literature by combing DNPV and risk to determine the PPP concession period for the mutual benefits both the private and public sectors. The decoupling of risk from traditional NPV computation will allow for risk pricing and tradability through insurance and allocation. The attempt to decouple time and risk in the computation of NPV is the added value to the body of knowledge.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | build own transter; concession period; Monte Carlo simulation; net present value; insurance; cost benefit analysis; build operate transfer; game theory; public sector |
| Index terms: | pricing, cash flow analysis, build-operate-transfer, cost benefit analysis, concession period, Monte Carlo simulation, game theory, integrated model, methodology, insurance, computation, added value, public sector, body of knowledge, net present value, decoupling, costing, compensation |
| Subjects: | modelling and simulation, decision models, dispute resolution, systems engineering, analytical methods, research methods, economic analysis, financial analysis, administrative law, contractual arrangements, data analysis and analytics, contract structure, knowledge management, accounting and finance, computational methods |
| Topics: | Business Strategy, Cost Management, Engineering Principles, Procurement, Legal Issues, Digital Applications, Research Practice, Information Management |
| Descriptive scope: | 4 PCTA |
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