P3 Toolkit

Analytical Tools

P3-VALUE: Risk Assessment Tool User Manual

April 19, 2013

« Previous | Table of Contents | Next »

Chapter 1. Overview

The Federal Highway Administration's (FHWA) Office of Innovative Program Delivery (OIPD) is producing a P3 Toolkit comprising tools and guidance documents to assist in educating public sector policymakers, legislative and executive staff and transportation professionals. The P3 Toolkit forms the base of a broader P3 capacity-building program which includes a curriculum of P3 courses and webinars. The P3 Toolkit will address Federal requirements related to P3s and four key phases in P3 implementation: (1) Legislation and Policy; (2) Planning and Evaluation; (3) Procurement; and (4) Monitoring and Oversight.

The target audiences for the P3 Toolkit resources are decisionmakers and technical staff in public sector agencies such as:

• State Executive and Legislative Offices;
• State Departments of Transportation (DOT);
• Metropolitan Planning Organizations (MPOs);
• Regional Planning Agencies;
• Tolling Authorities;
• Local jurisdictions; and
• FHWA Division Offices.

Purpose of P3-VALUE

P3-VALUE (Public-Private Partnership Value-for-Money Analysis for Learning and Understanding Evaluation) is a key component of FHWA's P3 Toolkit. It is a suite of educational tools that introduces users to public-private partnerships (P3s) and the methods used in P3 evaluation, discusses limitations, and explains how public agencies may evaluate different procurement options for a particular project. P3-VALUE can help users understand the processes and considerations that go into a rigorous quantitative analysis of P3 procurement options for transportation projects. P3-VALUE is based on the experience of the U.S. P3 market and therefore reflects the terminology and methodology practiced in the United States. The focus of FHWA's Office of Innovative Program Delivery and its P3-VALUE tools is on long-term P3 contracts that involve designing, operating, constructing, operating and maintaining new highway facilities, also known as greenfield projects.

P3-VALUE is based in Microsoft Excel, and is supported by primers, user guides and other guidebooks, some of which are under development. Practitioners can use P3-VALUE to better understand the concepts, inputs, assumptions and outputs from evaluations of risk, financial feasibility and "value for money" analyses, which are used to evaluate the potential of P3s to generate value in comparison with conventional methods of project delivery. Users are cautioned that P3-VALUE has been designed for educational purposes only and is not intended to guide decisions on actual projects. The complexity of the analyses for specific projects requires that they be performed by experts using more detailed modeling; however, P3-VALUE provides hands-on instruction in how such detailed modeling analyses are conducted and can help government officials understand the importance of the inputs and assumptions used by modeling experts and the extent to which key assumptions can affect the analysis results.

Structure of P3-VALUE

Under a public-private partnership (P3) for a highway project, a private partner may participate in some combination of design, construction, financing, operations and maintenance, including collection of toll revenues. Value for Money (VfM) analysis is a process used to compare the financial impacts of a P3 project against those for the traditional public delivery alternative. The methodology for carrying out a VfM analysis that is incorporated in P3-VALUE involves:

• Creating a Public Sector Comparator which estimates the risk-adjusted whole-life cost of carrying out the project through a traditional approach;
• Estimating the risk-adjusted whole-life cost of the P3 alternative (either as proposed by a private bidder, or a hypothetical "shadow bid" at the pre-procurement stage); and
• Completing an "apples-to-apples" comparison of the present values of costs under the two approaches.

As depicted in Figure 1, P3-VALUE is comprised of four interactive, integrated spreadsheet-based analytical tools that allow users to explore different components of Value for Money Analysis (VfM) including:

• Risk Assessment Tool - This tool allows users to document project risks and risk management strategies and to estimate the costs of risks under different procurement structures.
• Public Sector Comparator (PSC) Tool - This tool allows users to calculate the risk-adjusted costs for a project that is designed, financed, constructed, maintained and operated under a traditional public sector delivery model.
• Shadow Bid Tool - This tool allows users to calculate the costs of payments to a private partner for delivering a project as a P3 concession.
• Financial Assessment Tool - This tool allows users to compare the PSC and Shadow Bid costs for procuring a project and to assess the financial subsidies required using different procurement methods.

Figure 1: P3-VALUE Overview

View larger image

Accompanying Evaluation Resources

P3-VALUE is supported by several other tools and guides, including:

• An Orientation Guide that summarizes the issues and factors that are evaluated when considering a P3 as a financing and procurement mechanism;
• Three Primers, one each on Risk Assessment (reference for Risk Assessment Tool), Value for Money Analysis (reference for Public Sector Comparator and Shadow Bid tools) and Financial Structuring and Assessment (reference for Financial Assessment Tool);
• User guides for each analytical tool in the P3-VALUE suite that explain how to use the tools;
• Frequently Asked Questions and a Troubleshooting Guide that provide technical advice in support of the P3-VALUE tools;
• Evaluation Guidebooks (under development) for practitioners seeking a deeper understanding of evaluation processes and data sources as well as the concepts, assumptions, inputs and outputs involved in the above analyses; and
• P3-SCREEN, an Excel-based project screening tool along with a supporting user guide to assist practitioners seeking to perform a preliminary screening evaluation of the suitability of a P3 for high-cost highway projects.

P3-VALUE and its accompanying evaluation resources serve as a reference for decisionmakers and practitioners seeking to understand P3s as a financing alternative for major capital projects. Practitioners can use P3-VALUE and its accompanying resources to familiarize themselves with the process of evaluating procurement decisions, the data required to conduct quantitative assessments of procurement options and the impact that various assumptions can have on the desirability and feasibility of different procurement structures.

Risk Assessment Tool

This User Manual, the Risk Assessment Tool User Manual (User Manual) dated April 19, 2013, corresponds to version 1.0 of the FHWA Risk Assessment Tool (Risk Tool) and both are part of FHWA's P3-VALUE tool suite. FHWA designed the Risk Tool and User Manual as educational materials to demonstrate how a DOT might identify, assess, allocate, and mitigate project risks when considering a project for P3 procurement. Although the Risk Tool is interactive, FHWA does not intend for the users to conduct a risk assessment for a real-world project using the tool. FHWA expects that appropriate experts will perform such analyses for a project sponsor. Actual requirements will vary for each project and project data assumptions necessary to conduct a risk assessment process must reflect a specific project.

The basic concepts involved in risk assessment are provided in FHWA's Primer on Risk Assessment for Public-Private Partnerships (Primer), which is accessible at www.fhwa.dot.gov/ipd/p3/toolkit/guidance_documents/risk_assessment/toc.htm . The Risk Assessment & Allocation for Public-Private Partnerships Guidebook, which is currently under development, will build upon the Primer to provide an advanced understanding of the practical applications and challenges of assessing project life cycle risks associated with P3 projects.

System Requirements

The P3-VALUE tools are Microsoft Excel spreadsheets that are best viewed in Microsoft Excel 2007 or later editions. Users may not be able to access the tools when using an earlier version of Excel or when using a different operating system, such as Macintosh.

 

« Previous | Table of Contents | Next »