Identification of Factors Affecting Project Financing Risk

Document Type : Research Paper

Authors

1 PhD Candidate, Department of Industrial Management, Qeshm Branch, Islamic Azad University, Qeshm, Iran.

2 Assistant Prof., Department of Industrial Management, Qeshm Branch, Islamic Azad University, Qeshm, Iran.

Abstract

Objective
During project management, certain risks need to be effectively mitigated. While risks are an inevitable part of every project, their perception, analysis, and management help organizations achieve goals. Risk management is now an important part of project management and has a specific function for improving the efficiency of implementing the project, saving prices, and improving the profitability of projects. Theories have demonstrated risk management as an influential and scientific management instrument to decrease risk levels. Accordingly, investigating the new methods of eliminating financial risk and financial risk management of projects is necessary to develop and improve risk management.
 
Methods
In this study, the related models and variables were introduced to identify the factors influencing project financing risk. Subsequently, general criteria were derived from the examined models and their associated variables. The study samples were drawn from experts and professionals within Iranian mining companies who had direct involvement in the subject matter. Variables were identified using the content analysis method, which involved utilizing MAXQDA software for theoretical and qualitative data analysis.
 
Results
Financing methods, social risk, contractor risk, construction risk, political risk, design risk, legal risk, financial risk, management risk, customer risk, and sub-contracts are the categories governing the current research. Each item is composed of one or several concepts that represent “features,” “conditions,” and the current or desirable “situation” of the item in the country. Another important point is the synchronicity of “description” and “prescription” in secondary or pivotal items of the research. It means that the constituted items not only represent the descriptive meaning that reflects the description of the current or the desirable situation but also represent the prescriptive meaning. The highest-ranking item is "financing methods," with 99 allocated codes. Following that is "financial risk" in the second rank, with 86 codes, and "management risk" secures the third rank with 26 codes. Ultimately, the categorized items can be approached through a model. Therefore, one of the most important results of the country's economic enterprise challenges is the lack of proper modeling for the financing method. A specific model should be created for financing, based on the risk and return of financing. In addition, it should be noted that the structure used to finance the project in one country may not be effective due to the differences in its laws and conditions, while it is used effectively in another country. according to the conditions of each project and the host country of the project.
 
Conclusion
In this study, the influential items or factors affecting project financing risk are investigated. The results of the study showed that financing methods, social risks, contractor risks, construction risks, political risks, designing risks, legal risks, financial risks, management risks, customer risks, and secondary contracts have influential impacts on project financing risk. After project formation and establishment, project financing emerges as a key determinant. Effectively managing a project to successfully achieve its goals within defined time, cost, and quality parameters demands a holistic understanding of the project's stakeholders and its environmental context. Contract frameworks dictate how foreign companies can leverage their financial capabilities to execute operations within different countries.

Keywords

Main Subjects

References

 
Agrawal, A. (2012). Risk Mitigation Strategies for Renewable Energy Project Financing. Strategic Planning for Energy and the Environment, 32(2), 9–20. doi:10.1080/10485236.2012.10554231
Al Amri, T. & Marey-Pérez, M. (2020). Towards a sustainable construction industry: Delays and cost overrun causes in construction projects of Oman. Journal of Project Management, 5: 87–102.
Almarri, K., & Blackwell, P. (2014). Improving Risk Sharing and Investment Appraisal for PPP Procurement Success in Large Green Projects. Procedia - Social and Behavioral Sciences, 119, 847–856.
Makajić-Nikolić, D., Jednak, S., Benković, S. & Poznanićb, V. (2011). Project finance risk evaluation of the Electric power industry of Serbia. Energy Policy, 39(10), 6168-6177.
Ansell, C., Sørensen, E. & Torfing, J. (2022). Funding and Financing Local Cocreation Projects, Co-Creation for Sustainability. Emerald Publishing Limited, Bingley, pp. 121-136. https://doi.org/10.1108/978-1-80043-798-220220009
Chen Z., Yuan J. & Li Q. (2017). Financing Risk Analysis and Case Study of Public-Private Partnerships Infrastructure Project. In: Wu Y., Zheng S., Luo J., Wang W., Mo Z., Shan L. (eds) Proceedings of the 20th International Symposium on Advancement of Construction Management and Real Estate. Springer, Singapore.
Choudhary, A. (2019). What are Risk Management Techniques in Project Financing? https://www.lsbf.org.uk/blog/news/risk-management-techniques-project-financing/ 145285
Danai Fard, H., Alvani, S.M. & Azar, A. (2021). Qualitative research methodology in management: a comprehensive approach, Tehran: Safar, Eshraghi. (in Persian)
De Marco, A. & Mangano, G. (2017). Risk factors influencing the debt leverage of project financing initiatives in the energy industry. International Journal of Energy Sector Management, 11(3), 444–462. Doi: 10.1108/ijesm-02-2017-0006
Dionne, G. (2013). Risk management: History, definition, and critique. Risk Management and Insurance Review, 16(2), 147–166.
Eskander, R. F. A. (2018). Risk assessment influencing factors for Arabian construction projects using analytic hierarchy process. Alexandria Engineering Journal, 57(4), 4207-4218. doi:10.1016/j.aej.2018.10.018
Fu-zhou, L. & Hong-yuan, G. (2011). The risk assessment model of BT construction engineering project financing. Systems Engineering Procedia, 1, 169–173. doi:10.1016/j.sepro.2011.08.028.
Gatti, S. (2018). Project Finance in Theory and Practice: Designing, Structuring, and Financing Private and Public Projects (2th ed.). https://www.elsevier.com/books/project-finance-in-theory-and-practice/gatti/978-0-12-811401-8
Hagigi, M., & Sivakumar, K. (2009). Managing diverse risks: An integrative framework. Journal of International Management, 15(3), 286–295.
Hemati, M., & Bahoo, A. (2018). R‌e‌p‌r‌e‌s‌e‌n‌t‌i‌n‌g a m‌u‌l‌t‌i- a‌t‌t‌r‌i‌b‌u‌t‌e f‌u‌z‌z‌y a‌h‌p a‌n‌d f‌u‌z‌z‌y d‌e‌m‌a‌t‌e‌l a‌p‌p‌r‌o‌a‌c‌h i‌n o‌r‌d‌e‌r t‌o r‌a‌n‌k r‌i‌s‌k e‌f‌f‌e‌c‌t‌i‌v‌e f‌a‌c‌t‌o‌r‌s i‌n p‌o‌w‌e‌r‌h‌o‌u‌s‌e p‌r‌o‌j‌e‌c‌t‌s. Industrial Engineering & Management, 1(33), 63-74. doi: 10.24200/j65.2018.5514 (in Persian)
Hoskisson, R.E., Chirico, F., Zyung, J. & Gambeta, E. (2017). Managerial risk taking: a multitheoretical review and future research agenda. Journal of Management, 43(1), 137-169.
Khmel. V., Zhao, S. (2015). Arrangement of financing for highway infrastructure projects under the conditions of Public–Private Partnership. IATSS Research, 39(2), 138-145.
Khorsand, A., Amini, J. & Sigheli, M. (2018). Investigating the impact of risk on financing methods for the development of oil and gas fields in the upstream sector of the oil industry; Case study: Asalouye gas field. The fourth national conference in management, accounting and economics with an emphasis on regional and global marketing, Tehran, https://civilica.com/doc/915619. (in Persian)
Leal, C. (2017). Key Risks in Project Finance, https://www.linkedin.com/pulse/key-risks-project-finance-part-ii-carlos-leal
Mahdi, I. & Soliman, E. (2019). Significant and top ranked delay factors in Arabic Gulf countries. International Journal of Construction Management, 21(14): 167–180.
Pinto João, M. (2017). What is project finance? Investment Management and Financial Innovations, 14(1-1), 200-210.
Rajan Annamalai, T., & Jain, N. (2013). Project finance and investments in risky environments: evidence from the infrastructure sector. Journal of Financial Management of Property and Construction, 18(3), 251–267. doi:10.1108/jfmpc-08-2012-0033
Rauzana, A. (2016). The effect of the risk factors on the performance of contractors in Banda Aceh, indonesia. ARPN Journal of Engineering and Applied Sciences, 11(15), 9496-9502.
Shen-fa, W., & Xiao-ping, W. (2009). The rule and method of risk allocation in project finance. Procedia Earth and Planetary Science, 1(1), 1757–1763.
Shidai, A. (2017). Identifying and ranking the factors affecting the risk of the leasing industry using the Analytical Hierarchy Process (AHP) method, a case study of Vaspari Mellat Company (Public Stock), Investing Science Research Quarterly, 6(24), 21-37. (in Persian)
Steffen, B. (2018). The importance of project finance for renewable energy projects. Energy Economics, 69, 280-294.
Taylan, O., Bafail, A.O., Abdulaal, R.M.S. & Kabli, M.R. (2014). Construction projects selection and risk assessment by fuzzy AHP and fuzzy TOPSIS methodologies. Applied Soft Computing, 17(6), 105–116.
Vahidi Arbabi, A. & Malik, Sh. (2019). Investigating and identifying the factors affecting the success of the project (a case study on astronaut structures projects in Iran). The 6th National Congress of Civil Engineering, Semnan, Semnan University. Access at: https://www.civilica.com/Paper-NCCE06-NCCE06_1129.html (in Persian)
Wang, J.F. & Li, W. (2012). Risk Measurement of Rail Transit Investment and Financing. In: Zhang L., Zhang C. (eds) Engineering Education and Management. Lecture Notes in Electrical Engineering, vol 111. Springer, Berlin, Heidelberg.
Wu, Q., Yu, L., & Wang, M. (2015). Power Project Financing Risk Assessment with AHP-grey Vague CIM Model.2nd International Conference on Education Reform and Modern Management (ERMM 2015).
Yousefi, V., Rahimi, A., Sarmad Kiani, G., Haji Yakhchali, S., & Mehrabanfar, E. (2015). Ranking of Financing Methods in Iran Construction Renovation Projects: A Sensitivity Analysis Approach. Mediterranean Journal of Social Sciences, 6(5), 303-309.
Zolghadr, M., Hamidi, N., Alvani, S. M., & Memarzadeh Tehran, G. (2023). Nonlinear models, an evolution in black box optimization in the relationship between human resource practices and organizational performance. Journal of Development & Evolution Mnagement, 14(51), 1-18. (in Persian)
Financial Research Journal
Volume 25, Issue 3
2023
Pages 485-507

Files

Share

How to cite

Statistics