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

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    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.",
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    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

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    JO - Journal of Financial Management of Property and Construction

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