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Cho, Y, Kabassi, K, Pyeon, J, Choi, K, Wang, C and Norton, T (2013) Effectiveness Study of Methods for Removing Temporary Pavement Markings in Roadway Construction Zones. Journal of Construction Engineering and Management, 139(03), 257–66.
Comu, S, Iorio, J, Taylor, J E and Dossick, C S (2013) Quantifying the Impact of Facilitation on Transactive Memory System Formation in Global Virtual Project Networks. Journal of Construction Engineering and Management, 139(03), 294–303.
Doan, P and Menyah, K (2013) Impact of Irreversibility and Uncertainty on the Timing of Infrastructure Projects. Journal of Construction Engineering and Management, 139(03), 331–8.
- Type: Journal Article
- Keywords: Tolls; Highways and roads; Infrastructure; Uncertainty principles; Toll road; Real option; Binomial lattice model; Deferral option;
- ISBN/ISSN: 0733-9364
- URL: https://doi.org/10.1061/(ASCE)CO.1943-7862.0000615
- Abstract:
This paper argues that because of the irreversibility and uncertainty associated with build—operate—transfer (BOT) infrastructure projects, their financial evaluation should also routinely include the determination of the value of the option to defer the construction start-up. This ensures that project viability is comprehensively assessed before any revenue or loan guarantees are considered by project sponsors to support the project. This paper shows that the framework can be used even in the context of the intuitive binomial lattice model. This requires estimating volatility directly from the evolution of the net operating income while accounting for the correlation between the revenue and costs functions. This approach ensures that the uncertainties usually associated with toll revenues, in particular, are thoroughly investigated and their impact on project viability is thoroughly assessed. This paper illustrates the usefulness of the framework with data from an actual (BOT) toll road project. The results show that by postponing the project for a couple of years the project turns out to be viable, whereas it was not without the deferral. The evaluation approach proposed therefore provides a better framework for determining when and the extent of government financial support, if any, that may be needed to support a BOT project on the basis of project economics. The analysis may also be applicable to private sector investment projects, which are characterized by irreversibility and a high rate of uncertainty.
Doloi, H (2013) Cost Overruns and Failure in Project Management: Understanding the Roles of Key Stakeholders in Construction Projects. Journal of Construction Engineering and Management, 139(03), 267–79.
Kim, B, Lee, H, Park, H and Kim, H (2013) Estimation of Greenhouse Gas Emissions from Land-Use Changes due to Road Construction in the Republic of Korea. Journal of Construction Engineering and Management, 139(03), 339–46.
Li, F, Phoon, K K, Du, X and Zhang, M (2013) Improved AHP Method and Its Application in Risk Identification. Journal of Construction Engineering and Management, 139(03), 312–20.
Lin, Y and Ho, S P (2013) Impacts of Governance Structure Strategies on the Performance of Construction Joint Ventures. Journal of Construction Engineering and Management, 139(03), 304–11.
Love, P E D, Wang, X, Sing, C and Tiong, R L K (2013) Determining the Probability of Project Cost Overruns. Journal of Construction Engineering and Management, 139(03), 321–30.
Lu, W, Liu, A M M, Rowlinson, S and Poon, S W (2013) Sharpening Competitive Edge through Procurement Innovation: Perspectives from Chinese International Construction Companies. Journal of Construction Engineering and Management, 139(03), 347–51.
Zhang, P and Ng, F F (2013) Explaining Knowledge-Sharing Intention in Construction Teams in Hong Kong. Journal of Construction Engineering and Management, 139(03), 280–93.