Financial analysis of road project delivery systems

Pertti Lahdenperä, Tiina Koppinen

Research output: Contribution to journalArticleScientificpeer-review

6 Citations (Scopus)

Abstract

Purpose – A project delivery system (PDS) refers to the organizational framework of a project that defines the control mechanisms and the relationships between actors and their incentives. It is of major importance to the project owner as it, for instance, contributes to the project's level of efficiency. This paper aims to define indicative, relative cost performances of different PDSs in a road management context to support the road owner's strategy development.

Design/methodology/approach – This study compares the costs of design‐bid‐build, construction management at‐fee, design‐build, design‐build‐operate and design‐build‐finance‐operate based on an international data capture focusing on the operational performance of these PDSs. A financial analysis was made to determine the systems' present costs to a road authority based on relevant market estimates. Moreover, a step towards understanding their overall efficiency was taken by focusing also on differences in speed of delivery which result in expenses or savings to the user community.

Findings – Although the applicability of a PDS depends on project properties and constraints, the study concludes that, in general, the broader the scope of services supplied by a single contract, the lower the system's present cost to the owner. The inclusion of private finance and early commissioning advantage, however, change the ranking so that universal conclusions cannot be drawn. DBFO seems to be commonly in the middle category.

Research limitations/implications – Here, PDSs are applied to a relatively large project, minimum size €30‐60m, in well‐known conditions and involving no factors of uncertainty due to third parties. The results are not valid in smaller and/or more constrained projects.

Originality/value – The study provided new knowledge of the owner's and society's average comparable cost performances in the case of five different PDSs. Since a single‐value, exclusive solution hardly exists, the study on the sensitivity of different PDSs to key financial parameters is also valuable.
Original languageEnglish
Pages (from-to)61 - 78
Number of pages18
JournalJournal of Financial Management of Property and Construction
Volume14
Issue number1
DOIs
Publication statusPublished - 2009
MoE publication typeA1 Journal article-refereed

Fingerprint

Owners
Project delivery
Costs
Roads
Financial analysis
Control mechanism
Inclusion
Ranking
Uncertainty
Average cost
Incentives
Savings
Business performance
Design methodology
Private finance
Relevant market
Strategy development
Construction management
Expenses
Design/build

Keywords

  • financial analysis
  • Finland
  • project finance
  • project management
  • roads

Cite this

@article{860e7cb0b8b342c696bf02ddbcfcfc28,
title = "Financial analysis of road project delivery systems",
abstract = "Purpose – A project delivery system (PDS) refers to the organizational framework of a project that defines the control mechanisms and the relationships between actors and their incentives. It is of major importance to the project owner as it, for instance, contributes to the project's level of efficiency. This paper aims to define indicative, relative cost performances of different PDSs in a road management context to support the road owner's strategy development.Design/methodology/approach – This study compares the costs of design‐bid‐build, construction management at‐fee, design‐build, design‐build‐operate and design‐build‐finance‐operate based on an international data capture focusing on the operational performance of these PDSs. A financial analysis was made to determine the systems' present costs to a road authority based on relevant market estimates. Moreover, a step towards understanding their overall efficiency was taken by focusing also on differences in speed of delivery which result in expenses or savings to the user community.Findings – Although the applicability of a PDS depends on project properties and constraints, the study concludes that, in general, the broader the scope of services supplied by a single contract, the lower the system's present cost to the owner. The inclusion of private finance and early commissioning advantage, however, change the ranking so that universal conclusions cannot be drawn. DBFO seems to be commonly in the middle category.Research limitations/implications – Here, PDSs are applied to a relatively large project, minimum size €30‐60m, in well‐known conditions and involving no factors of uncertainty due to third parties. The results are not valid in smaller and/or more constrained projects.Originality/value – The study provided new knowledge of the owner's and society's average comparable cost performances in the case of five different PDSs. Since a single‐value, exclusive solution hardly exists, the study on the sensitivity of different PDSs to key financial parameters is also valuable.",
keywords = "financial analysis, Finland, project finance, project management, roads",
author = "Pertti Lahdenper{\"a} and Tiina Koppinen",
year = "2009",
doi = "10.1108/13664380910942644",
language = "English",
volume = "14",
pages = "61 -- 78",
journal = "Journal of Financial Management of Property and Construction",
issn = "1366-4387",
publisher = "Emerald Publishing Limited",
number = "1",

}

Financial analysis of road project delivery systems. / Lahdenperä, Pertti; Koppinen, Tiina.

In: Journal of Financial Management of Property and Construction, Vol. 14, No. 1, 2009, p. 61 - 78.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Financial analysis of road project delivery systems

AU - Lahdenperä, Pertti

AU - Koppinen, Tiina

PY - 2009

Y1 - 2009

N2 - Purpose – A project delivery system (PDS) refers to the organizational framework of a project that defines the control mechanisms and the relationships between actors and their incentives. It is of major importance to the project owner as it, for instance, contributes to the project's level of efficiency. This paper aims to define indicative, relative cost performances of different PDSs in a road management context to support the road owner's strategy development.Design/methodology/approach – This study compares the costs of design‐bid‐build, construction management at‐fee, design‐build, design‐build‐operate and design‐build‐finance‐operate based on an international data capture focusing on the operational performance of these PDSs. A financial analysis was made to determine the systems' present costs to a road authority based on relevant market estimates. Moreover, a step towards understanding their overall efficiency was taken by focusing also on differences in speed of delivery which result in expenses or savings to the user community.Findings – Although the applicability of a PDS depends on project properties and constraints, the study concludes that, in general, the broader the scope of services supplied by a single contract, the lower the system's present cost to the owner. The inclusion of private finance and early commissioning advantage, however, change the ranking so that universal conclusions cannot be drawn. DBFO seems to be commonly in the middle category.Research limitations/implications – Here, PDSs are applied to a relatively large project, minimum size €30‐60m, in well‐known conditions and involving no factors of uncertainty due to third parties. The results are not valid in smaller and/or more constrained projects.Originality/value – The study provided new knowledge of the owner's and society's average comparable cost performances in the case of five different PDSs. Since a single‐value, exclusive solution hardly exists, the study on the sensitivity of different PDSs to key financial parameters is also valuable.

AB - Purpose – A project delivery system (PDS) refers to the organizational framework of a project that defines the control mechanisms and the relationships between actors and their incentives. It is of major importance to the project owner as it, for instance, contributes to the project's level of efficiency. This paper aims to define indicative, relative cost performances of different PDSs in a road management context to support the road owner's strategy development.Design/methodology/approach – This study compares the costs of design‐bid‐build, construction management at‐fee, design‐build, design‐build‐operate and design‐build‐finance‐operate based on an international data capture focusing on the operational performance of these PDSs. A financial analysis was made to determine the systems' present costs to a road authority based on relevant market estimates. Moreover, a step towards understanding their overall efficiency was taken by focusing also on differences in speed of delivery which result in expenses or savings to the user community.Findings – Although the applicability of a PDS depends on project properties and constraints, the study concludes that, in general, the broader the scope of services supplied by a single contract, the lower the system's present cost to the owner. The inclusion of private finance and early commissioning advantage, however, change the ranking so that universal conclusions cannot be drawn. DBFO seems to be commonly in the middle category.Research limitations/implications – Here, PDSs are applied to a relatively large project, minimum size €30‐60m, in well‐known conditions and involving no factors of uncertainty due to third parties. The results are not valid in smaller and/or more constrained projects.Originality/value – The study provided new knowledge of the owner's and society's average comparable cost performances in the case of five different PDSs. Since a single‐value, exclusive solution hardly exists, the study on the sensitivity of different PDSs to key financial parameters is also valuable.

KW - financial analysis

KW - Finland

KW - project finance

KW - project management

KW - roads

U2 - 10.1108/13664380910942644

DO - 10.1108/13664380910942644

M3 - Article

VL - 14

SP - 61

EP - 78

JO - Journal of Financial Management of Property and Construction

JF - Journal of Financial Management of Property and Construction

SN - 1366-4387

IS - 1

ER -