BauhausUniversitt Weimar Lifecycleoriented Risk Management for PPPProjects in
Bauhaus-Universität Weimar Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate EUROPEAN REAL ESTATE SOCIETY Conferences 2009 STOCKHOLM, JUNE 24 -27 TH 2009 Life cycle oriented risk management for PPP-projects in public real estate June 26 th, Workshop Session 5 K - PPP K. Leidel, Bauhaus-Universität Weimar Royal Institute of Technology (KTH), Stockholm © Chair Construction Economics - Bauhaus-Universität Weimar 2008 1
Introduction Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate Bauhaus-Universität Weimar Risk management is ‘the culture, process and structure, which come together to optimise the management of potential opportunities and adverse effects’ part of the definition of risk management by the Australian/New Zealand Risk Management Standard (AS/NZS 4360: 2004) © Chair Construction Economics - Bauhaus-Universität Weimar 2008 2
Outline Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate Bauhaus-Universität Weimar 1 Need for action 2 Areas of investigation I Research methodology 3 Overall concept and next steps Discussion © Chair Construction Economics - Bauhaus-Universität Weimar 2008 3
Need for action - status quo Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate Bauhaus-Universität Weimar Risk management in PPP projects: Complexity of life cycle oriented projects Lack of historical data and information Insufficient risk awareness of project stakeholders Lack of common understanding of risk High uncertainty in application of techniques and methods Low transparency of decision criteria and the decision-making process Lack of consistency in dealing with risk © Chair Construction Economics - Bauhaus-Universität Weimar 2008 4
Areas of investigation Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate Stage-specific risk profile at different project stages: Amount of risk expense Capability to influence risk Consistency of revenue Upside potential Project life cycle Project stakeholders PPP Risk management Bauhaus-Universität Weimar Project stakeholders differ in their: Objectives Functions throughout the project lifecycle Risk perception Risk willingness to take risks Risk capability to bear risk Risk management process Sub-processes differ in: Organisational and operational requirements The extend of available information and data Applicability of reasonable methods and techniques © Chair Construction Economics - Bauhaus-Universität Weimar 2008 5
Research methodology Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate Bauhaus-Universität Weimar ► Literature research Few available literature/previous studies in Germany, e. g. - Elbing, Risikomanagement für PPP-Projekte, 2006 - Pfnür , Risiken immobilienwirtschaftlicher PPPs aus Sicht der beteiligten Akteure, BPPP, 2006 - Pfnür/ Schetter/ Schöbener, Risikomanagement öffentlicher Infrastrukturinvestitionen in Public Private Partnerships – wissenschaftliches Gutachten im Auftrag der Initiative Finanzstandort Deutschland, 2008 ► Qualitative content analysis to identify risk © Chair Construction Economics - Bauhaus-Universität Weimar 2008 6
Research methodology Bauhaus-Universität Weimar Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate ► Empirical study: qualitative and quantitative survey - 12 expert interviews - Questionnaire for all principal PPP stakeholders in Germany 577 respondents invited to participate 53 completed the survey response rate: 9% Stakeholders’ specific structure and process of risk management Application of methods willingness to bear relevant risk management strategies © Chair Construction Economics - Bauhaus-Universität Weimar 2008 7
Areas of investigation – stakeholder perspectives Bauhaus-Universität Weimar Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate ► Who are the principal stakeholders? Public principal Public sector Project agreement/PPP contract Private sector Lending banks Sponsors Equity provider Shareholder agreement Project company/ SPV Loan agreement Development finance institution Institutional investors Service contract Construction contract Designer/ Consultant Debt funder (General) Contractor © Chair Construction Economics - Bauhaus-Universität Weimar 2008 Operation/ FM contract Operator 8
Areas of investigation – stakeholder perspectives Bauhaus-Universität Weimar Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate Stakeholder Public principal Equity provider Sponsors Investors Debt funder Lending banks Development finance institutions Objectives Contributions Efficiency gain Leveraging of government budget Acceleration of the project Better service quality Compliance with requirement and regulations Adequate rate of return Strategic potential (e. g. extension of business, diversification of project-or risk portfolio) Maximising of return Diversification Loan repayment Careful financial evaluation Loan repayment Support of development goals Contractor/ facility manager and operator (incl. design) Construction/ general contractor Sufficient margin Facility manager and operator Concession/ licences Service fee Equity or mezzanine capital Project development, management and professional competence and experience Private equity Quality control Financial competence Debt Monitoring of quality Financial competence Required construction work Turnkey fixed-price contract Required service Fixed-price contract © Chair Construction Economics - Bauhaus-Universität Weimar 2008 9
Areas of investigation – project life cycle Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate © Chair Construction Economics - Bauhaus-Universität Weimar 2008 Bauhaus-Universität Weimar 10
Areas of investigation – risk management process Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate © Chair Construction Economics - Bauhaus-Universität Weimar 2008 Bauhaus-Universität Weimar 11
Overall concept for PPP risk management Bauhaus-Universität Weimar Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate ho ld er s Life cycle of a PPP project Tendering & Awarding Construction Operation Exploitation Pr in ci pa ls ta ke Preparation & Conception Public principal Public principal Debt funder Debt funder Equity provider Equity provider Contractor & Operator Contractor & Operator Risk identification Risk allocation Risk control & monitoring Processes of risk management Risk analysis & assessment © Chair Construction Economics - Bauhaus-Universität Weimar 2008 12
Next steps Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate Bauhaus-Universität Weimar ► Further investigations Development of a risk management process definition of subprocesses, e. g. detailed risk allocation process Assignment of responsibilities Identification and describing reasonable techniques and methods to deal with risks Allocation of risk strategies available to risks and stakeholders Increasing risk awareness among the participants © Chair Construction Economics - Bauhaus-Universität Weimar 2008 13
Discussion Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate Bauhaus-Universität Weimar Thank you for your attention! © Chair Construction Economics - Bauhaus-Universität Weimar 2008 14
Research methodology Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate Bauhaus-Universität Weimar ► Empirical study © Chair Construction Economics - Bauhaus-Universität Weimar 2008 16
Bauhaus-Universität Weimar Lifecycle-oriented Risk Management for PPP-Projects in Public Real Estate Risks’ importance based on the perception of Rank Public principal Debt funder Equity provider Contractor-Operator 1 Demand risks Risk of Insolvency of the contractors Technical implementation risks Design risks 2 Tendering and awarding risks Risk of the insolvency of the principal Insolvency risks of the contractors Management risks 3 Site risks Income risks Management risks Approval risks 4 Force majeure Demand risks Financial risks Tendering and awarding risks 5 Risks of changes in law Financing risks Operating risks Contract risks © Chair Construction Economics - Bauhaus-Universität Weimar 2008 17
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