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Operator at risk : a statistical risk management model to assess new operation and maintenance contracts and quantify the associated financial risks

Schutz, I. (2011) Operator at risk : a statistical risk management model to assess new operation and maintenance contracts and quantify the associated financial risks.

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Abstract:This research focuses on operation and maintenance (O&M) contracts in the road infrastructure sector. It specifically addresses the risk management model which is part of the risk dossier in assessing a new O&M contract which will be used to calculate the risk premium. There is currently no formal risk model to assess these contracts and by performing external interviews it became apparent that there are no such methods at other companies. The model needs to be designed such that specific risks are addressed to make a detailed assessment of the risk premium in an O&M contract. Currently, the risk premium is determined by the people responsible for a tender who assign a single ‘risk’ number to the sum of the project based on tacit knowledge. Having projects that cost billions of euros, this is not a desirable situation. The desired situation is a statistical risk model that formalizes the process of calculating the risk premium of an O&M contract and which will support the gut feeling of NedMobiel. It is furthermore convenient that it can be used to build a database for the future. To meet the desired situation, a model is designed which calculates the risk premium for the operator. The model is designed by following a few steps. •a list of thirty risks that should be taken into account is made and specifically tailored to the needs of NedMobiel, where risks can easily be in- and excluded in the model; •from a multi criteria decision analysis it became clear that a probabilistic model will be most suitable to the wishes of NedMobiel; •the parameters impact, chance and timing are calculated per risk and each risk is assigned a statistical distribution which specifies the three aforementioned parameters; •everything is modeled in Excel and Visual Basic for Applications, the risks and the associated parameters are admitted in the model; •NedMobiel can adjust the model to specific needs per project; and •the model calculates the expected risk premium in becoming an operator thereby quantifying the gut feeling of NedMobiel. NedMobiel will be able to add and adjust risks and their parameters to fine-tune the model over the years and make sure that the model can be used in every tender where NedMobiel will act as operator. This ensures that the gut feeling of NedMobiel is quantified and the financial consequence of risks in future O&M contracts are clear, such that NedMobiel will be able to take on the role as operator while still being able to ‘sleep at night’.
Item Type:Essay (Master)
NedMobiel B.V., Breda, the Netherlands
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Industrial Engineering and Management MSc (60029)
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