What drives value creation in investment projects? An application of sensitivity analysis to project finance transactions

Borgonovo, Emanuele; Gatti, Stefano; Peccati, Lorenzo

doi:10.1016/j.ejor.2009.12.006

Cited by 51 publications

(40 citation statements)

References 26 publications

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“…an investment tailored specifically towards the buyer-supplier-relationship), where the invested capital cannot be easily reallocated for another purpose, which increases the investment risk as there are limited recovery values in case of an investment default. Under these circumstances, lenders pay particular attention to investment performance, and the modeling effort requires considerable accuracy (Borgonovo, et al, 2010). Ojala and Hallikas (2006) provided insights into investment decision-making under uncertainty and risks in buyer-dominated supply networks, where 'risk' refers to the possiblility of a landee not paying its loan on time or not paying it at all.…”

Section: Introductionmentioning

confidence: 99%

A joint economic lot size model with financial collaboration and uncertain investment opportunity

Marchi

Ries

Zanoni

et al. 2016

International Journal of Production Economics

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Establishing long-term relationships among the members of a supply chain has become necessary to enhance the supply chain's competitiveness in a globalized environment. Besides coordinating operational decisions, such as how much and when to produce or to order, the members of a supply chain may also share financial resources or act jointly on the capital market. This is important especially when companies have unequal access to capital, for example because they are located in countries with different economic conditions and banking policies and/or ratings. The joint financing of investments across the supply chain may thus ensure the stability of production and of the flow of products to the customers. In addition, it strengthens the established relationships among the supply chain members. This study takes up these issues and presents an integrated inventory model that considers investments jointly financed by the members of a supply chain. In particular, it considers a two-stage supply chain with a single vendor and a single buyer and assumes that the vendor has the option to invest in increasing its production rate. The buyer, however, is assumed to have better access to capital, and therefore has the option to give a credit to the vendor to invest in its productivity, which is beneficial for both parties. To consider uncertainties of the production improvement investments, a success probability for the investment is considered and modeled using a beta distribution.

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Section: Introductionmentioning

confidence: 99%

A joint economic lot size model with financial collaboration and uncertain investment opportunity

Marchi

Ries

Zanoni

et al. 2016

International Journal of Production Economics

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“…The calculation of the correlation coefficient among Savage scores allows us to study the accordance among different rankings. (133) Such a technique emphasizes the agreement/disagreement for the most important variables and places reduced weight on agreement/disagreement for the variables of low In the simple configuration of the model, the correlation coefficients suggest that most measures agree with the ranking of inputs. The Savage scores for the measures δ B , δ KS and δ KU strongly correlate to one another (ß1).…”

Section: Step 4: Results Evaluationmentioning

confidence: 99%

“…The inputs for both configurations of the model did not have the same influence with respect to the global sensitivity measures used. The calculation of the correlation coefficient among Savage scores allows us to study the accordance among different rankings . Such a technique emphasizes the agreement/disagreement for the most important variables and places reduced weight on agreement/disagreement for the variables of low importance.…”

Section: Literature Reviewmentioning

confidence: 99%

A Protocol for the Global Sensitivity Analysis of Impact Assessment Models in Life Cycle Assessment

2015

Self Cite

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The life cycle assessment (LCA) framework has established itself as the leading tool for the assessment of the environmental impact of products. Several works have established the need of integrating the LCA and risk analysis methodologies, due to the several common aspects. One of the ways to reach such integration is through guaranteeing that uncertainties in LCA modeling are carefully treated. It has been claimed that more attention should be paid to quantifying the uncertainties present in the various phases of LCA. Though the topic has been attracting increasing attention of practitioners and experts in LCA, there is still a lack of understanding and a limited use of the available statistical tools. In this work, we introduce a protocol to conduct global sensitivity analysis in LCA. The article focuses on the life cycle impact assessment (LCIA), and particularly on the relevance of global techniques for the development of trustable impact assessment models. We use a novel characterization model developed for the quantification of the impacts of noise on humans as a test case. We show that global SA is fundamental to guarantee that the modeler has a complete understanding of: (i) the structure of the model and (ii) the importance of uncertain model inputs and the interaction among them.

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“…Interactions between different risk factors can take place and be identified using either sensitivity analyses [11]11, changing one parameter at a time (e.g., impact of a decrease in the availability payment 12 on the overall economic and financial plan, from sustainability to bankability and profitability …) or more complex what-if scenario analyses, where different parameters change simultaneously, producing possible future events by considering alternative outcomes13.…”

Section: Assessing and Mitigating Riskmentioning

confidence: 99%

“…A number of peculiar features of project finance structures, such as high leverage, non-recourse debt, long-term political risk guarantees and the timing of project cash flows, might underlie this finding. 11 Sensitivity analysis is a means of gauging the impact of individual risks on a financing. Key risks can occur in three time periods: -Feasibility, engineering and construction phase; -Start up phase (usually through completion); -Operating phase (post completion).…”

Section: Assessing and Mitigating Riskmentioning

confidence: 99%

Evaluating a Project Finance SPV: Combining Operating Leverage with Debt Service, Shadow Dividends and Discounted Cash Flows

Visconti¹

2013

IJEFM

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Project finance (PF) investments have consistently grown in the last years, especially if they concern infrastructural Public -Private Partnerships. PF is a long termed and capital intensive investment, guaranteed by expected cash flows, rather than the assets of the project sponsor. Private entities, normally created as ad hoc Special Purpose Vehicles, are typically highly leveraged with non-recourse loans. Since the shareholders may be likely to sell off their stake well before the expiring date of the concession, a professional evaluation of the SPV at different stages of the project's life seems increasingly important. Innovative considerations about the impact of cash generating EBITDA are linked to operating leverage changes, following continuous remixing of fixed and variable costs, Debt service and shadow dividends payout are also critically investigated, analyzing their impact on leverage, risk and valuation. Fair appraisals fuel and keep alive a still infant secondary market, where investment funds and private equity intermediaries start having an active role. Being PF a cash flow based investment, DCF evaluation techniques are generally used; even if the method may seem straightforward, several awkward factors interact -and sensitivity to different parameters, such as inflation or interest rates, greatly matters. To the extent that it can be professionally managed by specialized agents, risk sharing or transmission is not a zero sum game, so positively affecting both the equity and the enterprise value.

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What drives value creation in investment projects? An application of sensitivity analysis to project finance transactions

Cited by 51 publications

References 26 publications

A joint economic lot size model with financial collaboration and uncertain investment opportunity

A joint economic lot size model with financial collaboration and uncertain investment opportunity

A Protocol for the Global Sensitivity Analysis of Impact Assessment Models in Life Cycle Assessment

Evaluating a Project Finance SPV: Combining Operating Leverage with Debt Service, Shadow Dividends and Discounted Cash Flows

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