Risk analysis of a build-operate-transfer (B.O.T.) power plant project

Abstract

The aim of this paper is to illustrate the risk analysis of a build-operate-transfer (BOT) power project. A software package known as DynRisk, which is based on influence diagram representation, is used to model the project's cash flow over the concession period. In analysing risks, three techniques are employed: probability analysis; sensitivity analysis; and variance analysis. Probability analysis requires the uncertain variables of the cash flow model expressed as probability distributions with a defined spread. The model is then subjected to Monte Carlo simulation in order to produce a range of likely project outcomes. Sensitivity analysis and variance analysis are techniques to aid decision-making in the management of risks. Sensitivity analysis considers the effect on the project of changes in the value of each variable which poses potential serious risk to the project. On the other hand variance analysis indicates how much the uncertainty in a variable affects the goal's (i.e., NPV) uncertainty.