Risk assessment in the public investment projects: impact of empirically-grounded methodology on measured values of intangible obligations in Lithuania

Linas Jasiukevicius

Abstract


Relevance. During the 2007–2013 programming period, due to a lack of empirical researches, the measurement of risk estimates in the PIPs (public investment projects) was more based on theoretical approach than empirically-grounded data in Lithuania. This determined the uncertainty about values of intangible obligations the government had to assume. The authors of this paper did a research of which the results have been applied in the official confirmed methodology for the cost-overrun risk assessment in the 2014-2020 period. Therefore, it is relevant to evaluate how the applied new methodology of risk assessment has changed the values of intangible obligations related with cost-overrun risk in the PIPs in the country.

Problem. How has the application of the empirically-grounded methodology impacted the measured values of intangible obligations related with cost-overrun risk in the PIPs in Lithuania?

Purpose. To evaluate the impact of the empirically-grounded methodology on the measured values of intangible obligations related with cost-overrun risk in the PIPs in Lithuania.

Methodology. The paper starts with an introduction in application of probability to assess risk. Later theoretical aspects of application of probability distributions are analysed. In the practical part, the impact of empirically-grounded methodology on the measured values of intangible obligations is evaluated. The evaluation is based on comparison of risk estimates calculated under the old and new empirically-grounded methodologies. Due to this reason, also the main differences between these methodologies are explained and the grounding of distributions and their parameters used in every methodology is provided.

Results. The main results presents the changes of measured values of intangible obligations related with cost-overrun risk in the PIPs caused by the application of the new methodology of risk assessment in Lithuania.

The theoretical contribution. The paper contributes a theoretical knowledge in the field of risk assessment in the PIPs by analysing theoretical aspects of application of probability to assess the risk as well as disclosing the probability distributions and their parameters the best able to assess the cost-overrun risk in such type of projects.

Practical implications. The paper shows the impact of application of empirically-grounded methodology on the values of risk estimates in the PIPs. These results disclose more realistic demand on public reserves to manage intangible obligations related with cost-overrun risk in the PIPs in the Lithuania.

Keywords: cost-overrun risk, risk assessment, public investment projects, probability distributions, loglogistics distribution.

Paper type: Research paper.


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