10.3 Risk-adjusted PSC (simple probability valuation technique)
Guidance notes - Risk-adjusted PSC (simple probability technique) Please note that the percentage of risk as a proportion of the total PSC in the simple and advanced evaluation technique worked examples below are for illustrative purposes only, and each PPP project will have different risk profiles. This section explains and provides examples of the use of both the simple and advanced probability valuation techniques. The technique adopted for a particular project,or a particular risk depends on the significance of the project and the complexity of the risks within it. For further guidance refer to Appendix C and Appendix D of Part Two. |
Table 10-2 details the results of the simple probability analysis.
Table 10-2: Simple probability analysis
NPC | % of risk-adjusted PSC | |
Total non-risk-adjusted project cost (incl. Competitive Neutrality but excl. GST) | 335.8 | 72 |
11.1 | 2 | |
119.4 | 26 | |
Total risk-adjusted project costs (excl. GST) | 466.3 | 100 |
Table 10-2 shows that Retained Risk represents two per cent of the total risk-adjusted PSC, comprising regulatory risk and maintenance risk relating to patient areas. Chapter 11 outlines the detail behind the numbers and the simple risk evaluation.
The majority of risk is transferred and represents 26 per cent of the risk-adjusted PSC with total project risk estimated to be 28 per cent of the total cost of the project. The total risk-adjusted PSC figure is $466.3 million. This is the best single-point PSC estimate.
Sensitivity analysis of the effect of movement of key cost components is summarised in Table 10-3. It indicates that the PSC estimate is particularly sensitive to movement in capital cost estimates.
Table 10-3: Sensitivity analysis of the effect of movement of cost components on project cost
Movement in assumption | Capital cost | Operating cost | Discount rate | Inflation rate | Maintenance and refurbishment |
-15% | 418.1 | 448.6 | 479.9 | 466.1 | 455.2 |
-10% | 434.1 | 454.4 | 475.2 | 466.1 | 458.8 |
-5% | 450.1 | 460.2 | 470.6 | 466.1 | 462.5 |
Base case | 466.3 | 466.3 | 466.3 | 466.3 | 466.3 |
5% | 482.1 | 471.9 | 461.6 | 466.0 | 469.7 |
10% | 498.0 | 477.7 | 457.2 | 466.0 | 473.3 |
15% | 514.0 | 483.5 | 453.0 | 466.0 | 477.0 |