System Dynamics (SD) -based concession pricing model for PPP highway projects

Yelin Xu, Chengshuang Sun, Miroslaw J. Skibniewski, Ping Chuen Chan, John F Y Yeung, Hu Cheng

Research output: Journal article publicationJournal articleAcademic researchpeer-review

57 Citations (Scopus)

Abstract

The design of concession price is essential to financial viability of Public-Private Partnership (PPP) highway projects. It is one of the most important variables that need to be determined during the negotiation period. However, there are few methods available for calculating the value of this variable. Research described in this paper aims to develop a reliable, objective, and systematic model for determining a rational concession price for PPP highway projects based on pro forma financial statements developed during the feasibility study period. The pricing parameters and price risk factors of PPP highway project were first identified and compiled through a comprehensive literature review. A concession pricing model using System Dynamics technique was then developed based on concession pricing parameters and the effectiveness of the proposed SD-based concession pricing model was verified by a real toll tunnel project located in China. The test result shows that the proposed model is reliable, accurate, and suitable for the application by practitioners for concession price determination. To overcome the effect of risk factors on concession price, a pricing adjustment model using Case-base Reasoning (CBR) technique was proposed to consider the unquantifiable risk factors. It is believed that a rational and practical concession pricing model can create a 'win-win' situation for both the private investor and the host government. This research framework can also be used as a reference to study other facilities' pricing models.
Original languageEnglish
Pages (from-to)240-251
Number of pages12
JournalInternational Journal of Project Management
Volume30
Issue number2
DOIs
Publication statusPublished - 1 Feb 2012

Keywords

  • Case-base Reasoning
  • Concession pricing
  • Highway
  • Public-private partnership
  • System dynamics

ASJC Scopus subject areas

  • Business and International Management
  • Management of Technology and Innovation
  • Management, Monitoring, Policy and Law

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