Risk Management and Governance for PFI Project ... - Title Page - MIT

Construction defect risk
(Spopark Matsumori)
Table 10: Risk Allocation using Risk Allocation Cube Model
Case Acceptability 17 Controllability Predictability Total
Demand risk (Omihachiman
City General Hospital)
Demand risk
(Taraso Fukuoka)
60
Preferred
Risk
Allocation
4 5 5 14 Private Public
2 1 5 8
0 4 3 7
Private &
Public
Private &
Public
Here, the points in each category range from 0 to 5. A larger the number indicates a greater degree of each factor.
Actual Case
Public
Private
The criteria of preferred risk allocation (total point) are the following: 0-4: public; 5-10: private & public; and 11-15: private.
Table 10 will be analyzed more in the following sections.
Construction Defect Risk (Spopark Matsumori)
For a construction defect risk, a small risk should be borne by the private side. In the case of
Spopark Matsumori, the ceiling collapsed from the earthquake because of a construction
defect. In this case, all the building damage risk had been borne by the public side and
contributed to the poor construction. However, if the cost of the damage was supposed to be
borne by the private sector, this situation could have been avoided.
The risk of a construction defect can be minimized by strengthening the cooperation of the
design and construction sectors and by improving the supervisory function. In this regard,
the controllability of this risk is high. Also, the predictability that estimates the cost impact
of the strength defect due to poor construction can be considered ”high”. As for the
acceptability, this would depend on the size of the loss. In this case, if the risk was only the
interior collapse, the acceptability would be high because the cost is not big. Thus, in the
case of Supopark Matsumori, the three elements are all high, which would suggest that the
building damage risk should be borne by the private sector (regarding only the small-scale
collapse 18 ).
17 From the viewpoint of bankruptcy risk, it would be important to consider the relative risk size according to the
operator’s management scale. Thus, one possible idea is that the indicator should reflect the sensitivity to the Net Present
Value (NPV) of the overall project.
18 In the case of large-scale damage risk (such as building collapse caused by the earthquake), the loss cost is very high
and acceptability is low. In addition, predictability is also very low. Therefore, it would be preferable to be borne by
public side.