Construction Project Financing: A Risk-based Model

Abstract

The project risk is a given, which influences major management and financing decision. Choosing an optimum financing instrument has posed serious challenges to decision makers. Modern project systems rely on project financing strategy but the situation exasperates when factoring in the project risk and selecting a fitting debt-equity ratio. This research identifies and analyses the risks involved in project finance. Based on mathematical modelling, optimum debt ratio is estimated under project risk conditions. The findings are validated on two local case studies of road infrastructure projects. It is found that the local project participants are more risk averse owing to higher political risk, and potential cost and time overruns. The practical implications of this study involve decision support for project finance by offering risk-based debt-equity mix