Abstract
Operation and maintenance (O&M) service contracts for water and sewer systems have increased considerably in the United States over the last 20 years. Successful O&M contract establishment requires a reasonable estimation of the O&M service contract coupled with a reliable risk-hedging mechanism, such as a ceiling agreement. Because the accurate valuation of an O&M contract is substantially influenced by the future O&M cost, which is subject to the future performance of the system, it is crucial that contracting parties develop realistic O&M cost scenarios based on a sound deterioration model. This study provides a real option-based methodology for the valuation of O&M contracts by modeling future O&M cost scenarios using deterioration models. Using sensitivity analyses, this study also investigates how surrounding conditions and negotiation options could affect the valuation of O&M contracts. The proposed methodology is expected to assist contracting parties in developing a fair and attractive O&M service contract.
| Original language | English |
|---|---|
| Pages (from-to) | 2973-2989 |
| Number of pages | 17 |
| Journal | Water Resources Management |
| Volume | 26 |
| Issue number | 10 |
| DOIs | |
| Publication status | Published - 2012 Aug 1 |
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All Science Journal Classification (ASJC) codes
- Civil and Structural Engineering
- Water Science and Technology
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Impact of Deterioration and Negotiation on Sewer System O&M Contracts from the Real Option Perspective. / Park, Taeil; Kim, Byungil; Kim, Hyoungkwan.
In: Water Resources Management, Vol. 26, No. 10, 01.08.2012, p. 2973-2989.Research output: Contribution to journal › Article
TY - JOUR
T1 - Impact of Deterioration and Negotiation on Sewer System O&M Contracts from the Real Option Perspective
AU - Park, Taeil
AU - Kim, Byungil
AU - Kim, Hyoungkwan
PY - 2012/8/1
Y1 - 2012/8/1
N2 - Operation and maintenance (O&M) service contracts for water and sewer systems have increased considerably in the United States over the last 20 years. Successful O&M contract establishment requires a reasonable estimation of the O&M service contract coupled with a reliable risk-hedging mechanism, such as a ceiling agreement. Because the accurate valuation of an O&M contract is substantially influenced by the future O&M cost, which is subject to the future performance of the system, it is crucial that contracting parties develop realistic O&M cost scenarios based on a sound deterioration model. This study provides a real option-based methodology for the valuation of O&M contracts by modeling future O&M cost scenarios using deterioration models. Using sensitivity analyses, this study also investigates how surrounding conditions and negotiation options could affect the valuation of O&M contracts. The proposed methodology is expected to assist contracting parties in developing a fair and attractive O&M service contract.
AB - Operation and maintenance (O&M) service contracts for water and sewer systems have increased considerably in the United States over the last 20 years. Successful O&M contract establishment requires a reasonable estimation of the O&M service contract coupled with a reliable risk-hedging mechanism, such as a ceiling agreement. Because the accurate valuation of an O&M contract is substantially influenced by the future O&M cost, which is subject to the future performance of the system, it is crucial that contracting parties develop realistic O&M cost scenarios based on a sound deterioration model. This study provides a real option-based methodology for the valuation of O&M contracts by modeling future O&M cost scenarios using deterioration models. Using sensitivity analyses, this study also investigates how surrounding conditions and negotiation options could affect the valuation of O&M contracts. The proposed methodology is expected to assist contracting parties in developing a fair and attractive O&M service contract.
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U2 - 10.1007/s11269-012-0059-4
DO - 10.1007/s11269-012-0059-4
M3 - Article
VL - 26
SP - 2973
EP - 2989
JO - Water Resources Management
JF - Water Resources Management
SN - 0920-4741
IS - 10
ER -