Risk Of A Highway Project: Risks In Highway Projects

Risks in Highway Projects

Infrastructure and specifically transportation projects are complex endeavors and risk assessment for them is a complicated process. Risks are often interrelated or correlated to each other and occurrence of some might cause other risks to occur. For example, technical risk usually carries cost and schedule consequences. Schedule risks typically impact cost escalation and project overhead. Consequently, likelihood of a risk’s occurrence and its impact on the scope of a specific context of the project, must be carefully considered.

Over the last 10 years, there has been an accelerating global trend towards the execution of major public infrastructure projects on a privatized basis. Public-Private-Partnership (PPP) financing modalities, with the capability of

Traditionally, point estimate method have been used through cost-benefit analysis in order to clarify the uncertainties in a decision planning. Since all projects are vulnerable to degrees of uncertainties concerning cost, schedule and output price, traditional deterministic cost-benefit analysis does not provide sufficient information. Therefore, Monte Carlo simulation method is popularly used to measure the value at risk (VaR).

Value-at-risk and the Monte Carlo simulation

VaR is a methodology developed by the finance industry to provide quantitative data in order to support a company’s exposure to risk. VaR measures the worst expected loss over a given horizon under normal market conditions at a given level of confidence. In other words, if “c” is selected as the confidence level, VaR corresponds to the “1-c” lower tail of the projected distribution of gains and losses over the target horizon. In other words, we are c percent certain that we will lose not more than V dollars in the next N