Life cycle oriented risk management for PPP-projects in public real estate

1. EUROPEAN REAL ESTATE SOCIETY Conferences 2009 STOCKHOLM, JUNE24-27TH 2009 Life cycle oriented risk management for PPP-projects in public real estate June 26th, Workshop Session 5K - PPPK. Leidel, Bauhaus-Universität Weimar Royal Institute of Technology (KTH), Stockholm

2. Introduction Risk management is ‘the culture, process and structure, which come together to optimise the management of potential opportunities and adverse effects’ part of the definition of risk management by the Australian/New Zealand Risk Management Standard (AS/NZS 4360:2004)

3. Outline 1 Need for action 2 Areas of investigation I Research methodology 3 Overall concept and next steps Discussion

4. Need for action - status quo • Risk management in PPP projects: • Complexity of life cycle oriented projects • Lack of historical data and information • Insufficient risk awareness of project stakeholders • Lack of common understanding of risk • High uncertainty in application of techniques and methods • Low transparency of decision criteria and the decision-making process • Lack of consistency in dealing with risk

5. Areas of investigation Projectlife cycle Project stakeholders • Project stakeholders differ in their: • Objectives • Functions throughout the project lifecycle • Risk perception • Risk willingness to take risks • Risk capability to bear risk • Stage-specific risk profile at different project stages: • Amount of risk expense • Capability to influence risk • Consistency of revenue • Upside potential PPP Risk management Risk management process • Sub-processes differ in: • Organisational and operational requirements • The extend of available information and data • Applicability of reasonable methods and techniques

6. Research methodology • Literature research • Few available literature/previous studies in Germany, e.g. • Elbing, Risikomanagementfür PPP-Projekte, 2006 • Pfnür , Risiken immobilienwirtschaftlicher PPPs aus Sicht der beteiligten Akteure, BPPP, 2006 • Pfnür/ Schetter/ Schöbener, RisikomanagementöffentlicherInfrastrukturinvestitionen in Public Private Partnerships – wissenschaftlichesGutachtenimAuftragder Initiative Finanzstandort Deutschland, 2008 • Qualitative content analysis to identify risk

7. Research methodology • Empirical study: qualitative and quantitative survey • 12 expert interviews • Questionnaire for all principal PPP stakeholders in Germany • 577 respondents invited to participate • 53 completed the survey • response rate: 9% • Stakeholders’ specific structure and process of risk management • Application of methods • willingness to bear relevant risk • risk management strategies

8. Public principal Public sector Project agreement/PPP contract Private sector Lending banks Sponsors Project company/ SPV Equity provider Debt funder Loan agreement Shareholder agreement Institutional investors Development finance institution Service contract Construction contract Operation/ FM contract Operator Designer/ Consultant (General) Contractor Areas of investigation – stakeholder perspectives • Who are the principal stakeholders?

9. Areas of investigation – stakeholder perspectives

10. Areas of investigation – project life cycle

11. Areas of investigation – risk management process

12. Overall concept for PPP risk management Life cycleof a PPP project Preparation & Conception Tendering & Awarding Construction Operation Exploitation Principal stakeholders Public principal Public principal Public principal Public principal Public principal Debt funder Debt funder Debt funder Debt funder Debt funder Equity provider Equity provider Equity provider Equity provider Equity provider Contractor & Operator Contractor & Operator Contractor & Operator Contractor & Operator Contractor & Operator Processes of risk management

13. Next steps • Further investigations • Development of a risk management process  definition of sub-processes, e.g. detailed risk allocation process • Assignment of responsibilities • Identification and describing reasonable techniques and methods to deal with risks • Allocation of risk strategies available to risks and stakeholders • Increasing risk awareness among the participants

14. Discussion Thank you for your attention!

15. Research methodology • Empirical study