Profitability analysis vis-à-vis associated Risks for Infrastructure Projects in India

The identified risks for the EPC players as indicated in above section can be listed as under:-exhibit-01-weights-allocated-to-risks-vis-a-vis-epc-projects

  • Financial Risks
  • Project selection risk
  • Contractual risk
  • Environmental & technical risk
  • Geo-political risk

These risks have different degree of impacts on the EPC projects which may be under different stage i.e. pre-bid stage, bidding stage and post bid stage. The associated weights for these risks can be depicted in Exhibit 01.

For better profitability of the projects the associated risks will follow Pareto principle where in the top 3 risks would lay 80% impact on the profitability of the project. These risks would namely be following:-

  • Financial Risk
  • Project Selection Risk
  • Contractual Risk

The risk matrix evaluation can be done and the overall profitability associated with an infrastructure project can be assessed as indicated below sections as per Case 1, Case 2 and Case 3 respectively.

Case 1:- Under Case 1 we have assumed following:-

  • When financial risk is high, the contractual and project selection risks are low and the remaining two risks i.e. geo-political and environmental & technical risks are high
  • When contractual risk is high, the financial and project selection risks are low and the remaining two risks i.e. geo-political and environmental & technical risks are high
  • When project selection risk is high, the contractual and financial risks are low and the remaining two risks i.e. geo-political and environmental & technical risks are high

The risk matrix depicting the associated profitability for Case 1 is shown in Exhibit 02.

exhibit-02-case-1-profitability-analysis-vis-a-vis-associated-risks-for-infrastructure-projectsCase 2:- Under Case 2 we have assumed following:-

  • When financial risk is high, the contractual and project selection risks are low and the remaining two risks i.e. geo-political and environmental & technical risks are medium
  • When contractual risk is high, the financial and project selection risks are low and the remaining two risks i.e. geo-political and environmental & technical risks are medium
  • When project selection risk is high, the contractual and financial risks are low and the remaining two risks i.e. geo-political and environmental & technical risks are medium

The risk matrix depicting the associated profitability for Case 2 is shown in Exhibit 03.

exhibit-03-case-2-profitability-analysis-vis-a-vis-associated-risks-for-infrastructure-projectsCase 3:- Under Case 3 we have assumed following:-

  • When financial risk is high, the contractual and project selection risks are low and the remaining two risks i.e. geo-political and environmental & technical risks are low
  • When contractual risk is high, the financial and project selection risks are low and the remaining two risks i.e. geo-political and environmental & technical risks are low
  • When project selection risk is high, the contractual and financial risks are low and the remaining two risks i.e. geo-political and environmental & technical risks are low

The risk matrix depicting the associated profitability for Case 3 is shown in Exhibit 04.

exhibit-04-case-3-profitability-analysis-vis-a-vis-associated-risks-for-infrastructure-projects

*The views expressed in this article are solely those of enincon perspectives and do not necessarily represent those of Enincon LLP.

Leave a Reply