Portfolio Analysis for a Bundle of Projects

Abstract

In both the United Kingdom and Germany under the relevant Private Finance Initiatives (PFIs), usually on the basis of Public Private Partnerships (PPPs), projects now are being procured or considered in bundles rather than on an individual, stand-alone basis. For the purpose of financial analysis, bundled projects can be considered as portfolios of projects. When projects are considered individually, some may be commercially viable as stand-alone projects and others may not. However, when projects are bundled together, an overall portfolio of projects may meet a promoter's minimum acceptable rate of return (MARR) and be deemed commercially viable. The authors suggest that when projects are undertaken as commercially viable projects under the PFI, they should piggyback non-commercially-viable projects to ensure such projects are privately financed. These non-commercially-viable projects can be financed with the help of cross-collateralization to make them viable as parts of project portfolios.