Risk management for build, operate and transfer projects within Kuwait

Infrastructure projects, based on the Build-Operate-Transfer, (BOT), method, have been of interest to governments of developed and developing countries for some time, resulting in their worldwide use. Using the BOT method enables governments to reallocate risks and rewards to the private sector for larger infrastructure projects throughout the projects' operating life. In order to implement a BOT infrastructure project successfully, one of the essential requirements is to carry out a thorough analysis of risks relating to the project including the social, economic, environmental, political, legal, and the financial aspects. Due to the fact that the type of risk study required for large-scale projects is so sophisticated, and therefore expensive and time consuming, the government, due to lack of expertise and time, often obtains a project viability study from the private sector. This can cause problems in that the private sector may incur financial losses or even bankruptcy, unless the host government guarantees compensation to the losers of the bid. Because all parties have different targets which they wish to achieve from the project, a may conflict arise and cause lengthy negotiations, sometimes lasting for years which often result in the death of the project. The greatest opportunity for a successful outcome for a BOT project is obtained when the extensive efforts and costs involved in the risk study process are shared by all parties. The responsibility of the decision maker is to identify, understand and analyze the many risk factors both, qualitative, (linguistic in nature) and quantitative, that will affect funding, procurement, developing, construction and operation, before proceeding with the build stage of the project. Firstly, it is necessary to evaluate the quantitative Risk Factors subjectively, and list them in order of importance. Secondly, conduct an evaluation of the qualitative factors and since the consideration of qualitative factors is subjective, the decision maker will often limit the number of factors being evaluated possibly resulting in inconsistent results. This study proposes a decision framework, which would be useful in determining the influence of the qualitative Risk Factors on the project management of BOT infrastructure projects. A methodology is provided to enable the identification of interrelationships between the Risk Factors and their influence on the project. Using Analytical Hierarchy Process (AHP) techniques, which model the relationships between the Risk Factors, a validation of this approach will be sought using a decomposed evaluation method and also information obtained from three existing case studies, (the Channel Tunnel, Sulaibiya Wastewater Treatment and Reclamation Plant and Marsa Allam Airport). The results of the decomposed approach were compared to experts' holistic evaluations for the same case studies mentioned above. The findings indicate that the decomposed approach showed a strong correlation to the holistic approach. An evaluation of the risks for the Sulaibiya Wastewater Treatment and Reclamation Plant study is provided and suggestions made to highlight risks attached to such a project before it is actually undertaken. Using the decomposed approach enables the decision maker to see the contribution of each risk compared to all of the risks in the total project and will help to determine and subsequently minimize or preventing any risk factors and so considerably improving the risk management of the project

Looking back to see the future: building nuclear power plants in Europe

The so-called ‘nuclear renaissance’ in Europe is promulgated by the execution of two large engineering projects involving the construction of two European Pressurized Reactors (EPRs) in Flamanville, France and Olkiluoto in Finland. As both projects have faced budget overruns and delays, this paper analyses their governance and history to derive lessons useful for the construction of future projects. Analysis indicates that the reasons for these poor outcomes are: overoptimistic estimations, first-of-a-kind (FOAK) issues and undervaluation of regulation requirements. These pitfalls have the potential to impact on many other engineering construction projects and highlight fruitful areas of further research into project performance

Risk Identification and Assessment in PPP Infrastructure Projects using Fuzzy Analytical Hierarchy Process and Life-Cycle Methodology

To fulfil the increasing demands of the public,Public Private Partnership (PPP) has beenincreasingly used to procure infrastructureprojects, such as motor ways, bridges, tunnelsand railways. However, the risks involved inPPP projects are unique and dynamic due tolarge amount of investment and longconcession period. This paper aims to developa risk identification framework from theperspectives of project life cycle, and anassessment framework for risks associatedwith PPP project using fuzzy analyticalhierarchy process (AHP). First the paperreviews the current literature to identifycommon risks in PPP infrastructure projectsand classification methods used. The risksidentified from the literature were classifiedusing project life cycle perspectives. Followingthat, the paper presents the advantages offuzzy AHP. Furthermore, the paper provides aframework for assessment of risks in PPPprojects followed by an illustrative examplewhere the data was obtained from surveyquestionnaires. The paper concludes that risksassociated in PPP infrastructure projects areunique and therefore it is beneficial to classifythem from project life cycle perspectives, andthe proposed fuzzy AHP method is suitable forthe assessment of these risks

Unconscious Bias in Infrastructure Project Finance Decisions

A modern and functioning infrastructure is the key to maintaining the competitiveness of economies. In many countries, however, there are serious gaps in the supply of infrastructure, not least due to public budget bottlenecks. Therefore, the importance of project financing of public infrastructure has strongly increased for theory and practice. Numerous failed projects show that the success of this financing structure depends above all on realistic risk assessment. For this, project risks need to be understood in their full complexity. This includes in particular the risk of investors and lenders to misperceive the uncertainty in the decision-making situation. Heuristics and cognitive bias can lead decision makers to under- and overvalue risks and rewards. The goal of this dissertation was thus to understand the use of unrealistic optimism among investors and lenders in infrastructure project finance to find ways to make the risk assessments more realistic, optimize spending, and contribute to closing the infrastructure finance gap. To achieve this a theoretical causal bias model of individual decision maker unrealistic optimism and a predictive model of company unrealistic optimism were developed and tested with a survey among 102 relevant decision stakeholders. A major finding is that unrealistic optimism influences risk assessment in the financing of European infrastructure projects. Company related factors, personal factors, and overconfidence influence this unrealistic optimism on individual level. Unrealistic optimism on company level is further influenced by the institutional structure and objective company characteristics. The findings of the dissertation result in significant theoretical and practical contributions by showing that unrealistic optimism is at least partly situational and not strictly rooted in the head of the decision maker no matter the circumstance. Companies can thus reduce unrealistic optimism of their employees by applying the right institutional structure and team setting