LONG TERM INFRASTRUCTURE RISK MANAGEMENT PROBLEMS IN THE USE OF THE NET PRESENT VALUE CRITERION
One of the problems in the management of infrastructures is the replacement of the constituting components because of ageing. Replacement is very costly, however, not replacing them but running them until failure can be very risky. In determining the optimal replacement moment two major problems exist. The first is how to compare the costs of replacement with the non financial risks. The simplest way around this is treating the non-financials as a financial risk by monetizing the effects, like Essent Netwerk does. The second problem is the method to use to calculate the optimum. For financial optimization a net present value approach is best used. However, using the NPV criterion in a replacement decision is not straightforward. One can decide to replace the asset at age x, but the asset could fail beforehand. This can be resolved by using a probabilistic approach, trying out different moments and choosing the moment with the lowest total costs. However, if an asset base consists many different asset types this is vary labour intensive, especially if a sensitivity analysis is to be performed. A simpler alternative for determining the replacement moment is the marginal approach. This means comparing the risk of failure for the next year with the cost of advancing the replacement one year. If a parameterized failure model is used, the optimal replacement moment can even be determined analytically. In theory, this should yield exactly the same outcome as the NPV approach. Surprisingly, if this moment is applied in a probabilistic model on a population of infrastructure assets, one typically finds that this does not result in the lowest NPV for the population. Analysis of this anomaly showed that this appears in case the life expectancy of the assets is long relative to the interest rate, because the present value of the risk then only builds after what is generally accepted as a reasonable cut-off point for the NPV calculation. Therefore, for long term risk management decisions it is better to use the marginal approach instead. If a Net Present Value model is used to determine the required investment programme one should be careful to take a discounting period long enough, which can be more than 100 years.
-Asset Management Risk Management Monetization Optimization portfolio
Ype C. Wijnia Paulien Herder Martijn Korn Else Veldman Marco Poorts
Partner, D-Cision b.v., PO Box 44, 8000 AA Zwolle, The Netherlands; Faculty of Technology, Policy an Faculty of Technology, Policy and Management, Delft University of Technology, Jaffalaan 5, 2628BX De Partner, D-Cision b.v., PO Box 44, 8000 AA Zwolle, The Netherlands Asset Management, Essent Netwerk B.V., PO Box 856, 5201 AW s Hertogenbosch, The Netherlands
国际会议
北京
英文
1747-1759
2008-10-27（万方平台首次上网日期，不代表论文的发表时间）