Scholarly article on topic 'The risk assessment model of BT construction engineering project financing'

The risk assessment model of BT construction engineering project financing Academic research paper on "Agriculture, forestry, and fisheries"

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Systems Engineering Procedia
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{"BT construction engineering projects" / "Risk assessment"}

Abstract of research paper on Agriculture, forestry, and fisheries, author of scientific article — Luo Fu-zhou, Gao Hong-yuan

Abstract In this paper the BT construction engineering project financing model is analyzed to identify the 5 major factors that affect the risk of financing, and to formulate the questionnaire report. It applies the standardization processing and model application to data after investigating, and get the risk synthesis value, then judge the risk level of the project A. It provides the advantageous basis for BT construction engineering projects related parties in the risk management.

Academic research paper on topic "The risk assessment model of BT construction engineering project financing"

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Systems Engineering Procedia 1 (2011) 169-173

2011 International Conference on Risk and Project Management

The risk assessment model of BT construction engineering project

financing

Luo Fu-zhoua, Gao Hong-yuanb*

aXi'an University of Architecture and Technology, Xi'an 710055, China bXi'an University of Architecture and Technology, Xi'an 710055, China

Abstract

In this paper the BT construction engineering project financing model is analyzed to identify the 5 major factors that affect the risk of financing, and to formulate the questionnaire report. It applies the standardization processing and model application to data after investigating, and get the risk synthesis value, then judge the risk level of the project A. It provides the advantageous basis for BT construction engineering projects related parties in the risk management.

Keywords: BT construction engineering projects; Risk assessment

1. Introduction

At present, the risk management has become the important part of project management. In other countries, each industries risk management practice indicates that the risk management has the obvious function for improving the efficiency of project implementation, saving the cost and improving the project profitability. Theory and practice had proved that the risk management is a scientific and effective management tool to reduce risk and loss.

As a new financing mode, BT has been increasingly applied in the municipal administration construction process. The implication of BT project finance was refers to: The government related department selects the appropriate investors through the bidding. The project will be directly transfered to the government department after completing, then the government pays the assignment fee. The investment way is suitable in those infrastructure project needs to use the exterior technical and fund. But in the actual operation process, both bidding sides to consider the risk of BT project financing is not comprehensive, and the risk management consciousness is light. We should pay attention to the risk evaluation of BT construction engineering project financing, thus more effectively carry on the risk management.

2. Establish the risk evaluation index system

Supported by the key discipline of Shaanxi Province.

* Corresponding author. Tel.:13772463521. E-mail address: lglove. 101@163.com.

2211-3819 © 2011 Published by Elsevier B.V. Selection and/or peer-review under responsibility of the Organising Committee of The International

Conference of Risk and Engineering Management.

doi:10.1016/j.sepro.2011.08.028

2.1. Economic risk

In the project implementation process, interest rates and exchange rates may lead to increase the financing cost. Funding sources are insufficient or interrupted that result in delaying the construction period even shutting down. In the case of using floating interest rates, the buy-back costs will increase if interest rates rise in the repurchase period, which are difficult to control changes for project investors. Thus project investors must carefully analysis and forecast these risks during making the financing.

2.2. Political risk

As a new financing model, BT has special legal nature, contract subject, investment object, also has complex legal relationship, which needed to gradually improve in the future. In addition, domestic and international political conditions changed importantly or government policy adjusted apparently, which can make the project original goals be difficult to achieve even be unable to achieve.

2.3. Construction risk

In the project implementation process, because fundamental technical data such as hydrology, meteorology and address provided the project owners is not detailed, and in the tender documents declaring which is for reference. They are not responsible for the accuracy and usefulness of the information. The tender drawings are poorly designed, there is a big oversight, resulting in undergoing major design change during construction process. Safety construction operation rules, construction technology and procedure fails to achieve standards. Construction poorly organized or construction scheme changed. The instructions of the project owners construction site representative or supervision engineer are wrong. Various causes make the project delay or not completed, even if completed it can not achieve design operational standards. These risks are likely to lead to increase cost expenditure and extend loan repayment period.

2.4. Management risk

Because the financial strength of most of the construction unit is not enough, the bidders of BT project are often the commonwealth of consortium and construction unit. In this case, when the construction unit is in a weak position in the association, or the qualification of construction unit selected as the partner is not enough, these may lead that the project construction management ability of successful bidder are weakened. In order to pursue profit, construction unit raises project cost. Even the contractor may cut corners and adulterate, resulting in emerging project quality risks if the regulation is not effective. On the other hand, the investors can not guarantee proper construction quality for their interests, there may be problems in the management aspects of construction standards, building contents, construction schedule of BT project.

2.5. Other risks

In the project financing, it may encounter force majeure natural disaster risk, such as non-contractual liability of both parties create accidents-the accident risk of explosions and fire, environment pollution, the impact of adjacent buildings. In addition, it will be affected by external environment interference risks during the project implementation process, such as it may be proceed house demolition and land acquisition before project implementation, the project in the city will involve most of pipeline relocation of water, electricity, gas and traffic organization. If the work was not completed in advance, it will lead to delay schedule and increase cost.

3. Establish the risk evaluation model

3.1. Questionnaire survey

First of all, it conducts a survey for assessing the possibility of BT construction engineering project financing risk and in the event of impact on the target level. The questionnaire survey was done from November 3 to December 15 in 2009. Its participators were project managers who had BT project construction experience, the relevant government department leaders and the professor researches BT project, using the form of electronic mail, telephone and direct access. The informant was asked to grade for each risk. The scope of value is from one to five, it indicates respectively "rare", "scarce", "general", "higher", "highest" and says the risk level from nothing to highest. The informant was asked to grade on the basis of previous the vast majority of the same type BT construction projects. This score represents the average, then the informant scores for a specific BT construction project. The data was shown in table 1.

Table 1: Treatment of risk index data

Risk factors Risk average Project A risk value

Economic risk 2.9 1.6

Political risk 2.2 1.6

Construction risk 3.6 3.3

Management risk 2.8 1.5

Other risks 3.3 2.2

3.2. Data standardization

In the model, it will build a n side of the regular polygon, the radius of each regular polygon (connections between center to fixed-point of polygon) represent a risk indicator value. Therefore, n edge of a regular polygon will represent n risk indicator. However, because the numerical value got in the stage of questionnaire is raw data, it needs to process further. The data in table 1 will be standardized. Standardized approach can be described as follows:

F(X) = a-, a * 0 , X > 0 (1)

f(x)|X=U = "1 f(x)|X=L = + 1 F(X)|X=T =0

L in the formula indicates the minimum floor in the marking scheme. T in the formula indicates the average given by the experts. u in the formula indicates the maximum limit in the marking scheme. Through the above equations obtained the correlation coefficient of equation (1), it gets standard equation:

X. + b

Si = a-i--(2)

i Xi + c

It can get each index relative to the average height in evaluation standard range through the equation (2), and the risk normal value should be in the range between [-1,1]. The central value of n-gon is -1, the vertex value is +1, the radius midpoint value of n-gon is 0, as shown in figure 1 .If the index standardized is from 0 to -1, it is lower than the average and negative. If the index standardized is from 0 to 1, it is higher than the average and positive.

Fig. 1. Regular n-gon legend

Polygon area calculation formula is:

1 2 2n

S = — x n x r x sin(—) (3)

In figure 1, it can build an irregular polygon through connecting each risk index numerical value. The area of irregular polygons can be calculated through the area of internal small triangle. There are n triangles in an n-gon polygon, and each area is calculated as:

S. = -x a. x bi+1 x sin(—) (4)

i 2 i i+1 n

It can calculate the area of irregular polygons determined risk index value through adding n area of triangular. According to the area of polygon and irregular polygon we can calculate the overall risk index. The formula is:

I = 1 --^--(5)

1 2 2n

— x n x r x sin(—)

4. Conclusion

According to the methods and steps described above, we can calculate the standard value of each indicator, as shown in table 2.

Table 2: Each standard value of risk index

Risk factors Risk average Project A risk value Project A risk standard value

Economic risk 2.9 1.6 0.673575

Political risk 2.2 1.6 0.326087

Construction risk 3.6 3.3 0.157068

Management risk 2.8 1.5 0.702703

Other risks 3.3 2.2 0.518868

Index 1

Fig. 2. Regular polygon drawn according to standardized values

Through the data in table 2 we can draw a regular 5-gon and an irregular polygon in regular 5-gon, as shown in figure 2. Through the above conclusions and formulas, we can calculate the overall risk quality of the construction engineering project A:I=0.46.According to previous data and domestic and international standards, it can establish a 4-level distinguish system of comprehensive risk indicator, as shown in table 3:

Table 3: The level of comprehensive risk indicator

Level Numerical value Evaluation

I <0.25 Excellent

II 0.25-0.50 Good

III 0.50-0.75 Medium

IV >0.75 Bad

It can be seen that the comprehensive risk value I of project A is 0.46 in the 0.25-0.5,it belongs to level II, so we can determine that the financing risk level of construction engineering project A is not high.

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