Strategy development of contractor with Contractor Full Pre-Finance (CPF) scheme using risk-based approach to increase cost performance of toll road development projects

Abstract

The construction of the toll road in Indonesia is currently being carried out very intensively and is also highly prioritized, marked by the status of the National Strategic Project (NSP) which oversees it. One of the efforts made to accelerate and increase attractiveness is to use the Contractor’s Full Pre-Finance (CPF) scheme. However, the CPF contract scheme burdens the contractor with risks that were previously owned by the project owner. To overcome these problems, this research was conducted to develop a contractor implementation strategy to mitigate and reduce the impact of each risk on toll road projects with the CPF scheme. Through expert opinion, this research validates 22 risk indicators which are divided into 5 risk categories (Politics, Economics, Construction, Contracts, and Project Management) in toll road projects with CPF schemes that affect cost performance. Then, the dominant risk indicators were identified through case studies of remaining work items on the XYZ Toll Road Project. It was later discovered that these dominant risk indicators had an effect on the project’s Cost Overrun rate of 18.41%, 21.56%, 23.03%, and 24 .08% based on PERT analysis and Monte Carlo simulation at the confidence level p = 80%, 90%, and 95%. To reduce the level of the risk, a strategy was carried out with 16 preventive and 13 corrective actions for “vital few” work items with the potential to reduce the project’s Cost Overrun rate to 11.01%, 13.28%, 14.46%, and 15.35%.

Keywords:

• contractor Full Pre-Finance
• cost performance
• PERT
• Monte Carlo simulation

1. Introduction

Infrastructure development in Indonesia is being carried out intensively, especially toll road infrastructure. Currently, the government has increased the infrastructure budget allocation to IDR 1,739 trillion in the last 5 years from 2015 to 2019 (Sudarwan & Maulana, 2020). In the period of 5 years until the end of 2019, the government has succeeded in building around 2,200 km of toll roads which are targeted in 2024 to be around 4,700 to 5,200 km (Handoyo, 2019). President Joko Widodo, through Presidential Regulation No. 109 of 2020 concerning the Acceleration of the Implementation of National Strategic Projects (NSP), states that NSPs are projects and/or programs implemented by the Government, Regional Governments, and/or business entities that have strategic nature for increasing growth and equitable development to improve people’s welfare and regional development (Presiden Republik Indonesia, 2020). The Toll Road Project itself is a project included in the NSP which is included in the Roads and Bridges Sector. Registering the development of toll road infrastructure in the NSP program, making these toll road projects a priority and their construction must be carried out optimally and quickly so that the impact of the development can immediately provide benefits and prosperity for the community (Hutagalung, 2021). To accelerate NSP development, the use of the Contractor Full Pre-Finance (CPF) contract scheme is one of the efforts that can be made and can be done.

Several reasons underlying the use of CPF provide a much higher return opportunity for contractors compared to using a standard payment contract system or in this case the Monthly Certificate (MC) (Sigit, 2017). Contractors take jobs with standard payment contracts, so the potential margin that can be obtained is ±10%, whereas if you use a CPF or turnkey project scheme, the potential margin you can get can be above ±15% (Sigit, 2017). In addition, the contractor has a better bargaining position from the point of view of the project owner when applying for the CPF contract scheme. However, the use of CPF contracts makes contractor companies experience financial burdens that are quite heavy to bear. The CPF contract causes a large transfer of risk from the owner to the contractor (Sigit, 2017). The transfer of risk from the owner to the contractors needs to be anticipated by the contractor because the risks that were previously unique to the owner will become the responsibility of the contractor. So the contractor needs to carry out the right and specific strategy in carrying out this type of contract. To improve project performance, the risks involved in the implementation of toll road projects under the CPF scheme must be managed effectively and efficiently. Risks that impact project cost performance need to be controlled to maximize project objectives. Therefore, all potential risks that may affect the project must be identified, planned, and managed with a control strategy. The purpose of this research is to identify any risk factors that affect the cost performance of toll road projects with the CPF contract scheme, identify the dominant risk factors for toll road projects under the CPF contract scheme, know the Estimated to Complete (ETC) value of toll road projects with the CPF scheme due to the influence of identified risks that have a dominant effect on the performance of toll road projects with the CPF scheme, and develop a contractor implementation strategy for identified risks that have a dominant influence on the performance of toll road projects with the CPF scheme and determine their impact on project cost performance.

2. Literature review

2.1. Contractor’s Full Pre-Finance (CPF)

CPF is a type of contract where the contractor carries out the construction and maintenance using their funds and only receives payment from the owner after the project is handed over to the owner. In this type of contract, the contractor only carries out construction according to the drawings and technical specifications provided or published by the owner (Kementrian Pekerjaan Umum Dan Perumahan Rakyat, 2016).

By using this type of contract, the owner is only responsible until the project planning, construction, and maintenance phases of the project are handed over to the contractor. In the construction phase, the financing burden until the project is completed or the finished building that previously belonged to the owner is transferred to the contractor. In other words, there is a delegation or transfer of risk, especially in terms of finance or project funding from the owner to the contractor. The trade-off for the contractor for this transfer of risk is the potential for higher margins. The CPF scheme provides a much higher return opportunity than using a standard payment contract system, where the payment contract only provides a maximum margin of 10%, while the CPF contract scheme has the potential to provide margins of up to above 15% (Sigit, 2017).

2.2. Inherent and residual risk

Inherent and residual risk is a measure used to describe the level of influence of risk. Inherent risk and residual risk will differ in terms of their level of measurement. Inherent risk is the level of risk without action and/or control over this risk (CRMS Indonesia, 2022). Residual risk is the risk that remains after mitigation measures and/or preparedness for related risks have been implemented, adopted, and implemented. Assessment of residual risk can help reveal information about the remaining vulnerabilities or risks after implementing action against these risks (Frazier et al., 2020).

2.3. PERT & Monte Carlo simulation

PERT (program evaluation and review technique) is a statistical tool designed and used to analyze and describe activities in a project completion activity and is used in project management to estimate and evaluate the possibility of completing a project (Deshmukh & Rajhans, 2018). PERT considers three levels of measurement, namely: pessimistic, most-likely, and optimistic. The basic PERT formula used is as follows:

$\mathrm{PERT}=\left(\mathrm{Pesimistic}+\left(4\times \mathrm{Most}-\mathrm{Likely}\right)+\mathrm{Optimistic}\right)/6$

Monte Carlo Simulation, otherwise known as the Monte Carlo Method or multiple probability simulation, is a mathematical technique used to estimate the likely outcome of an uncertain event (IBM Cloud Education, 2020). Unlike normal estimation models, Monte Carlo Simulation estimates results based on an estimated range of values compared to fixed input values. In other words, Monte Carlo Simulation builds a model of the possible outcomes by making use of a probability distribution, such as a uniform or normal distribution, for each variable that has an inherent uncertainty. It then recalculates the result, each time using a different set of random numbers between the minimum and maximum values. In Monte Carlo simulation, the simulation can be repeated thousands of times to produce a very large number of possible outcomes.

2.4. Pareto principle

The Pareto principle or what is commonly called the 20–80 principle in an entity prioritizes the efficient use of the best assets to provide the maximum possible value. However, this principle is often misunderstood, where the numbers 20 and 80 are not an exact measure of the application of this principle. Where the numbers 20% and 80% are a coincidence which, when added up, becomes 100%. The input figure does not have to be absolute at 20%, and the output figure is not absolute at 80%. The most important thing about the Pareto Principle is that inputs with a small percentage (vital few) will affect a large part of the output of an environment/system (Ariyanto, 2021).

2.5. Risk factor on CPF toll road construction project

Based on the process of studying the literature, the authors identified 25 risk factors that might be impacting toll road construction projects with the CPF contract scheme. The risk factor literature study was carried out in four literatures (i.e. Adnan & Redza Rosman, 2018; Bakr et al., 2012; Kolhatkar & Dutta, 2013; Memon et al., 2012).

3. Research method

The four problem formulations in this study were answered through four research stages:

1. To answer the first problem formulation, the authors conducted a literature study to identify risk factors in toll road projects with CPF schemes that affect cost performance. After that, the authors validate the risks with five experts with the criteria of having experience as a project manager or equivalent to a minimum of 10 years of experience and the last education was a bachelor’s degree. The validation was carried out through a questionnaire survey, in which experts were asked to approve (yes/no) each risk factor and whether or not the influence of the risk factors has on cost performance in toll road projects with the CPF scheme. The assessment is carried out descriptively where the mode of the answer (yes/no) then determines whether the risk factor is eliminated or not.

2. In the second stage of the study, the authors conducted an assessment of the dominant risk factors against previously validated risk factors. The assessment was carried out through a case study of the XYZ toll road project through a focus group discussion (FGD) with five experts on the same terms.

3. After the dominant risk factor assessment was carried out, in the third stage, through FGD co-authors of five experts with the same provisions carried out a quantitative assessment to measure the inherent risk level in the form of the influence of dominant risk factors on each work item of the remaining XYZ toll road project on the potential cost overrun by using three probabilistic measures, namely pessimistic (P), most-likely (ML), and optimistic (O). The authors then perform calculations using the PERT formula and Monte Carlo simulations using the PERT distribution.

4. In the fourth research stage, the author conducted a qualitative assessment through FGD with five experts with the same conditions to develop an implementation strategy in the form of preventive and corrective actions for the “vital few” remaining work items. In addition, after developing a contractor implementation strategy, through the FGD, a quantitative assessment was again carried out to measure the level of residual risk due to the implementation strategy implemented at the dominant risk in each of the “vital few” remaining work items.

The experts involved in this research FGD are experts with high experience in the toll road construction industry, especially the construction of toll roads under the CPF scheme. In addition, the involvement of experts in FGDs also takes into account the willingness of experts to be involved continuously in one questionnaire survey and three FGDs in this study to ensure a common understanding regarding the objectives and scope of the research in each FGD session.

4. Results

4.1. Validated risk factor that impacts CPF toll road project’s cost performance

Based on the process of the literature study, the authors identified 25 risk factors as shown in Table 1. Three risk factors were eliminated from the process of validation through a questionnaire survey, followed by five experts. The three risk factors eliminated were changes in bank regulations (IRF03), insurance risk (IRF06), and disagreements on job allocation (IRF19). The remaining 22 risks which are then called “validated risk factors” in this research are shown in Table 2.

Table 1. Identified risk factor

Code	Identified risk factor	Description
IRF01	Public problems	Demonstrations, riots, and other public uncertainties cause market prices to rise
IRF02	Government intervention	Intervention from the government on project plans and a realization that causes changes in the scope and contract
IRF03	Changes in bank regulations	Changes in bank regulations cause uncertainty in funding from bank loans which can affect project liquidity
IRF04	Uncertainty of policy, legal, and regulatory	Uncertainty causes changes in market prices and project delays
IRF05	Losses due to fluctuations in interest rates	Fluctuations in interest rates on bank loans cause borrowing costs to increase
IRF06	Insurance risk	The insurer suffers a financial loss so that it cannot fulfill its obligations (compensation for losses suffered by the contractor)
IRF07	Losses of foreign exchange transactions due to currency exchange differences	Losses on exchange differences due to loans made from foreign lenders (using foreign currency) while revenue paid by the owner uses a local currency so that the contractor suffers exchange losses due to differences in currency to make debt payments
IRF08	Contractor finance (liquidity)	Contractor liquidity problems affect the performance of project capital
IRF09	Inflation fluctuation	Inflation affects the increase in the unit price of workers, materials, and equipment
IRF10	Exchange rate fluctuations	Exchange rate fluctuations affect unit prices for transactions with foreign currencies
IRF11	Restricted location access	Obstacles related to land acquisition and inadequate existing infrastructure
IRF12	Uncertainty of work volume	Changes in work volume due to measurement inaccuracies
IRF13	Work delay	Delays in the implementation of work and completion of work
IRF14	Subcontractor incompetence	The Incompetence of sub-contractors leads to work errors (poor quantity and quality)
IRF15	Labor problems	Worker problems related to low productivity, low availability, high costs, and low attendance rates
IRF16	Material problems	Material problems related to low quality, low availability, high costs, and late delivery
IRF17	Tools & equipment problems	Equipment problems related to low productivity, low availability, high costs, and delays in delivery
IRF18	Payment problems with sub-contractors/suppliers	Delay/failure of payment to sub-contractors or suppliers
IRF19	Disagreement on job allocation	There is a disagreement between the contractor and the owner regarding the allocation of work that has been done or that has not been done
IRF20	Owner intervention (change order)	Intervention from the owner during project implementation causes changes in work and contracts
IRF21	Owner’s financial problems	The owner experiences bankruptcy or liquidity problems resulting in payment problems for contractors
IRF22	Management incompetence	Resource incompetence at the management level is related to the ability to manage projects
IRF23	Obstacles in funding preparation	Project funding by contractors is hampered causing delays in work
IRF24	Bad coordination	Coordination with internal and external stakeholders is rare or slow
IRF25	Poor site management and supervision	Poor site management and supervision lead to work errors (poor quantity and quality)

Table 2. Validated risk factor

Code	Validated risk factor
VRF01	Public problems
VRF02	Government intervention
VRF03	Uncertainty of policy, legal, and regulatory
VRF04	Losses due to fluctuations in interest rates
VRF05	Losses of foreign exchange transactions due to currency exchange differences
VRF06	Contractor finance (liquidity)
VRF07	Inflation fluctuation
VRF08	Exchange rate fluctuations
VRF09	Restricted location access
VRF10	Uncertainty of work volume
VRF11	Work delay
VRF12	Subcontractor incompetence
VRF13	Labor problems
VRF14	Material problems
VRF15	Tools & equipment problems
VRF16	Payment problems with subcontractors/suppliers
VRF17	Owner intervention (change order)
VRF18	Owner’s financial problems
VRF19	Management incompetence
VRF20	Obstacles in funding preparation
VRF21	Bad coordination
VRF22	Poor site management and supervision

4.2. Dominant risk factors that impact cost performance in the case study of the XYZ toll road project

At this stage, the author first conducts an archival analysis of the XYZ toll road project data to identify remaining work items on the project. The XYZ toll road project is a toll road project with the CPF scheme with a main road length of 11.9 KM and has achieved project progress of 77.5%. Then, the author conducted a qualitative assessment with five experts through focus group discussions (FGD) to identify the dominant risk factors for each remaining work item on the XYZ toll road project. As we can see in the table 3 below, there are 25 remaining work items for the XYZ Toll Road Construction Project which has the total cost of the remaining work item around 443 billion rupiah. The major work items based on their cost of construction analyzed by using Pareto tools of analysis are Rigid Pavement (WI15), Road Fences & Boundaries (WI22), Drainage Works (WI11), Soil Excavation (WI08), Concrete Works Structure (WI16), Structural Steel Work (WI21), and P.C.I. Girder Work (WI17). Later on in the next chapter, the Pareto tools of analysis will be used to analyze the residual risk of the project.

Table 3. List of remaining work items for the XYZ toll road project and the dominant risk factors

Code	Remaining work items	Cost of remaining work items			Dominant risk factor
		Value		%
WI01	Traffic Maintenance and Protection	$	176.972,03	0.60%	Poor site management and supervision
WI02	Laboratory & Mobilization	$	126.888,01	0.43%	Contractor finance (liquidity)
WI03	Work and Handling of Existing Water Streams	$	2.837,99	0.01%	Uncertainty of work volume
WI04	Workplace Cleaning	$	40.001,40	0.13%	Subcontractor incompetence
WI05	Demolition of Masonry	$	20.542,67	0.07%	Tools & equipment problems
WI06	Demolition of Asphalt or Concrete Roads	$	19.241,64	0.06%	Public problems
WI07	House demolition	$	40.569,73	0.14%	Public problems
WI08	Soil excavation	$	2.798.115,21	9.44%	Tools & equipment problems
WI09	Grained Material Fill	$	243.044,39	0.82%	Tools & equipment problems
WI10	Structural Excavation	$	34.263,12	0.12%	Tools & equipment problems
WI11	Drainage Work	$	3.055.459,13	10.31%	Contractor finance (liquidity)
WI12	Basic Soil Preparation	$	51.459,53	0.17%	Material problems
WI13	Class A Aggregate Underlay A	$	668.898,48	2.26%	Material problems
WI14	Asphalt Pavement	$	438.198,58	1.48%	Contractor finance (liquidity)
WI15	Rigid Pavement	$	10.051.824,89	33.90%	Contractor finance (liquidity)
WI16	Structural Concrete Work	$	2.714.529,57	9.16%	Contractor finance (liquidity)
WI17	P.C.I Girder Work	$	2.186.627,60	7.38%	Contractor finance (liquidity)
WI18	Road Structure Security & Safety Equipment	$	492.808,58	1.66%	Labor problems
WI19	Cast-In-Place Concrete Bore Pile	$	92.598,30	0.31%	Subcontractor incompetence
WI20	Testing & Commissioning	$	35.485,01	0.12%	Subcontractor incompetence
WI21	Structural Steel Works	$	2.388.460,27	8.06%	Contractor finance (liquidity)
WI22	Fence & Road Barrier	$	3.411.295,55	11.51%	Inflation fluctuation
WI23	Traffic Signs and Road Markings	$	332.370,46	1.12%	Material problems
WI24	Toll Plaza Works	$	178.950,02	0.60%	Subcontractor incompetence
WI25	Provisional Sum for Redirection and Existing Utility Protection	$	46.125,86	0.16%	Uncertainty of policy, legal, and regulatory
TOTAL		$	29.647.568,02	100%

4.3. Cost Overrun Inherent Risk Level

At this stage, the author conducted a quantitative assessment to measure the level of inherent cost overrun risk, namely the impact of the dominant risk on each remaining work item. The assessment was carried out through FGD with five experts. Experts were asked to assess the possible percentage of cost overrun of each remaining work item as the impact of the dominant risk occurrence. The percentage value is made in three categories, namely pessimistic, most likely, and optimistic. By using the PERT analysis formula discussed in the previous chapter, the data obtained is then calculated to find out the amount of inherent risk cost overrun of PERT Analysis, and Monte Carlo Simulation with confidence levels of 80%, 90%, and 95%. In this study, the determination of the confidence level value is based on various other studies that have been conducted, where several amounts of confidence have been used in those studies, namely 80% (Mubin et al., 2019; Sadeghi et al., 2010); dan 83.5%, 84.9%, 97.2%, dan 100% (Purnus & Bodea, 2013).

As we can see from the table 4 and 5 above, the four categories of results give different values, where the greater the value or percentage of the confidence level, the greater the total cost overrun value, which means the smaller the error value given.

Table 4. Result of the assessment of inherent risk cost overrun level

Work item	Cost of remaining work items		Dom risk factor	Risk impact (cost overrun) – inherent risk
				Pessimistic (P)			Most-likely (ML)			Optimistic (O)
WI01	$	176.972,03	VRF22	50%	$	88.486,02	30%	$	53.091,61	10%	$	17.697,20
WI02	$	126.888,01	VRF06	30%	$	38.066,40	15%	$	19.033,20	5%	$	6.344,40
WI03	$	2.837,99	VRF10	50%	$	1.418,99	30%	$	851,40	15%	$	425,70
WI04	$	40.001,40	VRF12	10%	$	4.000,14	5%	$	2.000,07	3%	$	1.200,04
WI05	$	20.542,67	VRF15	30%	$	6.162,80	20%	$	4.108,53	10%	$	2.054,27
WI06	$	19.241,64	VRF01	30%	$	5.772,49	20%	$	3.848,33	10%	$	1.924,16
WI07	$	40.569,73	VRF01	50%	$	20.284,86	30%	$	12.170,92	15%	$	6.085,46
WI08	$	2.798.115,21	VRF15	35%	$	979.340,32	25%	$	699.528,80	10%	$	279.811,52
WI09	$	243.044,39	VRF15	35%	$	85.065,54	25%	$	60.761,10	10%	$	24.304,44
WI10	$	34.263,12	VRF15	35%	$	11.992,09	25%	$	8.565,78	10%	$	3.426,31
WI11	$	3.055.459,13	VRF06	25%	$	763.864,78	15%	$	458.318,87	10%	$	305.545,91
WI12	$	51.459,53	VRF14	20%	$	10.291,91	15%	$	7.718,93	10%	$	5.145,95
WI13	$	668.898,48	VRF14	20%	$	133.779,70	15%	$	100.334,77	10%	$	66.889,85
WI14	$	438.198,58	VRF06	40%	$	175.279,43	30%	$	131.459,58	10%	$	43.819,86
WI15	$	10.051.824,89	VRF06	30%	$	3.015.547,47	20%	$	2.010.364,98	10%	$	1.005.182,49
WI16	$	2.714.529,57	VRF06	30%	$	814.358,87	20%	$	542.905,91	10%	$	271.452,96
WI17	$	2.186.627,60	VRF06	20%	$	437.325,52	15%	$	327.994,14	10%	$	218.662,76
WI18	$	492.808,58	VRF13	20%	$	98.561,72	15%	$	73.921,29	10%	$	49.280,86
WI19	$	92.598,30	VRF12	30%	$	27.779,49	20%	$	18.519,66	10%	$	9.259,83
WI20	$	35.485,01	VRF12	15%	$	5.322,75	10%	$	3.548,50	5%	$	1.774,25
WI21	$	2.388.460,27	VRF06	35%	$	835.961,10	20%	$	477.692,05	10%	$	238.846,03
WI22	$	3.411.295,55	VRF07	15%	$	511.694,33	10%	$	341.129,55	5%	$	170.564,78
WI23	$	332.370,46	VRF14	15%	$	49.855,57	10%	$	33.237,05	5%	$	16.618,52
WI24	$	178.950,02	VRF12	30%	$	53.685,01	20%	$	35.790,00	10%	$	17.895,00
WI25	$	46.125,86	VRF03	50%	$	23.062,93	40%	$	18.450,34	30%	$	13.837,76

Table 5. Results of inherent risk PERT analysis and Monte Carlo simulation

Work item	Cost of remaining work items		Value of inherent risk cost overrun
			PERT analysis		MCS p = 80%		MCS p = 90%		MCS p = 95%
WI01	$	176.972,03	$	53.091,61	$	65.361,67	$	70.994,86	$	75.072,72
WI02	$	126.888,01	$	20.090,60	$	25.476,38	$	28.227,44	$	30.274,75
WI03	$	2.837,99	$	875,05	$	1.045,13	$	1.129,52	$	1.191,59
WI04	$	40.001,40	$	2.200,08	$	2.650,26	$	2.909,08	$	3.109,25
WI05	$	20.542,67	$	4.108,53	$	4.820,94	$	5.149,33	$	5.384,74
WI06	$	19.241,64	$	3.848,33	$	4.515,47	$	4.823,14	$	5.044,02
WI07	$	40.569,73	$	12.509,00	$	14.940,78	$	16.145,87	$	17.034,62
WI08	$	2.798.115,21	$	676.211,18	$	797.522,27	$	847.659,88	$	881.753,45
WI09	$	243.044,39	$	58.735,73	$	69.256,75	$	73.602,01	$	76.610,27
WI10	$	34.263,12	$	8.280,25	$	10.376,41	$	10.798,50	$	11.101,09
WI11	$	3.055.459,13	$	483.781,03	$	559.535,74	$	600.849,13	$	632.402,40
WI12	$	51.459,53	$	7.718,93	$	8.611,07	$	9.022,71	$	9.317,63
WI13	$	668.898,48	$	100.334,77	$	111.907,15	$	117.255,16	$	121.132,47
WI14	$	438.198,58	$	124.156,27	$	146.602,37	$	155.159,19	$	160.841,46
WI15	$	10.051.824,89	$	2.010.364,98	$	2.359.141,72	$	2.519.582,08	$	2.634.564,33
WI16	$	2.714.529,57	$	542.905,91	$	637.015,06	$	680.534,51	$	711.285,58
WI17	$	2.186.627,60	$	327.994,14	$	365.870,86	$	383.385,60	$	395.886,58
WI18	$	492.808,58	$	73.921,29	$	82.493,08	$	86.437,24	$	89.244,95
WI19	$	92.598,30	$	18.519,66	$	21.730,63	$	23.210,83	$	24.272,76
WI20	$	35.485,01	$	.548,50	$	4.163,60	$	4.447,51	$	4.651,18
WI21	$	2.388.460,27	$	497.595,89	$	598.977,33	$	650.786,19	$	689.225,03
WI22	$	3.411.295,55	$	341.129,55	$	400.298,69	$	427.573,55	$	447.093,79
WI23	$	332.370,46	$	33.237,05	$	38.998,70	$	41.656,03	$	43.563,27
WI24	$	178.950,02	$	35.790,00	$	41.994,39	$	44.857,70	$	46.910,45
WI25	$	46.125,86	$	18.450,34	$	20.049,76	$	20.787,07	$	21.315,81
TOTAL	$	29.647.568,02	$	5.459.398,67	$	6.393.356,22	$	6.826.984,11	$	7.138.284,16
Cost Overrun Percentage			18,41%		21,56%		23,03%		24,08%

4.4. Development of Implementation Strategy and Level of Residual Risk Cost Overrun

At this stage, the author first eliminates the remaining work items to identify the “vital few” remaining work items. Elimination of remaining work items is carried out using the Pareto principle with Pareto chart analysis.

Based on the Pareto diagram analysis, by carrying out a graphical analysis, namely by looking at significant changes in the gradient, namely the changes between item 7 and item 8, seven items of remaining work were identified that fall into the “vital few” category, namely Rigid Pavement (WI15), Road Fences & Boundaries (WI22), Drainage Works (WI11), Soil Excavation (WI08), Concrete Works Structure (WI16), Structural Steel Work (WI21), and P.C.I. Girder Work (WI17). For the seven “vital few” remaining work items, the authors conducted a qualitative assessment to identify implementation strategies in the form of necessary preventive and corrective actions as well as a quantitative assessment to measure the impact of cost overrun residual risk due to the implementation of the implementation strategy.

The table 6 above shows the preventive and corrective action for the seven “vital few” work items as the result of a focus group discussion carried out with five experts. The table shows that each work item has an average of 4–7 preventive actions and corrective actions. Several work items with the same dominant risk factors are considered to have the same preventive and corrective actions.

Table 6. Results of the assessment of preventive action and corrective action implementation strategy

Work item	Dom risk factor	Preventive action	Corrective action
WI15	RF06	Monitoring equipment & material orders by preventing material waste and minimizing double handling Monitoring compliance with equipment & material specifications Equipment & material planning is detailed to specifications related to productivity Monitoring vendor productivity in carrying out work (speed of work and the effect of interruptions/late payments) Ensuring the accuracy of payments to vendors by following payment terms to maintain vendor productivity Conduct routine evaluation of loan term payments	Replace the foreman to correct the existence of cost overruns and increase work productivity Dividing the foreman’s work volume to increase the productivity of work completion Looking for funding sources for bailout funds (banks/private/investors/partnerships) Submitting a change in the time of loan payment to the party giving the loan Submitting claims against bank credit guarantees Improve the strategy and implementation of cost control and cash flow Re-offer prices to vendors
WI22	RF07	Construction is carried out as soon as possible after the contract with the vendor is concluded, to prevent an increase in world iron prices Doing umbrella contracts with vendors who carry out work on metal materials Monitoring equipment & material orders by preventing material waste and minimizing double handling Specifically the installation of guardrails and road safety barriers, is carried out at the end of the project to prevent two installations due to theft which causes two contracts with different prices	Dividing the foreman’s work volume to increase the productivity of work completion Looking for funding sources for bailout funds (banks/private/investors/partnerships) Contracts with vendors are carried out through gradual volumes to prevent sustainable over budgets Submit a claim on exchange rate changes to the client
WI11	RF06	Monitoring equipment & material orders by preventing material waste and minimizing double handling Monitoring compliance with equipment & material specifications Equipment & material planning is detailed to specifications related to productivity Monitoring vendor productivity in carrying out work (speed of work and the effect of interruptions/late payments) Ensuring the accuracy of payments to vendors by following payment terms to maintain vendor productivity Conduct routine evaluation of loan term payments	Replace the foreman to correct the existence of cost overruns and increase work productivity Dividing the foreman’s work volume to increase the productivity of work completion Looking for funding sources for bailout funds (banks/private/investors/partnerships) Submitting a change in the time of loan payment to the party giving the loan Submitting claims against bank credit guarantees Improve the strategy and implementation of cost control and cash flow Re-offer prices to vendors
WI8	RF15	Carry out a direct inspection of the workshop to verify the feasibility of the vendor’s equipment Verify SILO (Operation Worthy Permit) on each piece of equipment Verify SIO (Operator License) for each operator During vendor tenders, verify company profiles and track records regarding experience, ability, and ownership of equipment and operators to fulfill each job Conduct an inventory of the routes used to mobilize equipment by mapping the road network and coordinating with relevant agencies Monitor & evaluate the implementation of the master schedule for mobilization & preparation of equipment regularly Conduct routine evaluations related to the productivity of the tools used and routine equipment servicing	If a problem occurs in a job that is included in the critical path, then immediately switch the operation of the equipment from another work point that is not included in the critical path Operate backup equipment that has been prepared (stored on site) to minimize work stoppages Making claims to vendors for the impact of equipment problems Evaluate and improve vendor selection procedures so that a similar impact does not recur
WI16	RF6	Monitoring equipment & material orders by preventing material waste and minimizing double handling Monitoring compliance with equipment & material specifications Equipment & material planning is detailed to specifications related to productivity Monitoring vendor productivity in carrying out work (speed of work and the effect of interruptions/late payments) Ensuring the accuracy of payments to vendors by following payment terms to maintain vendor productivity Conduct routine evaluation of loan term payments	Replace the foreman to correct the existence of cost overruns and increase work productivity Dividing the foreman’s work volume to increase the productivity of work completion Looking for funding sources for bailout funds (banks/private/investors/partnerships) Submitting a change in the time of loan payment to the party giving the loan Submitting claims against bank credit guarantees Improve the strategy and implementation of cost control and cash flow Re-offer prices to vendors
WI21	RF06	Monitoring equipment & material orders by preventing material waste and minimizing double handling Monitoring compliance with equipment & material specifications Equipment & material planning is detailed to specifications related to productivity Monitoring vendor productivity in carrying out work (speed of work and the effect of interruptions/late payments) Ensuring the accuracy of payments to vendors by following payment terms to maintain vendor productivity Conduct routine evaluation of loan term payments	Replace the foreman to correct the existence of cost overruns and increase work productivity Dividing the foreman’s work volume to increase the productivity of work completion Looking for funding sources for bailout funds (banks/private/investors/partnerships) Submitting a change in the time of loan payment to the party giving the loan Submitting claims against bank credit guarantees Improve the strategy and implementation of cost control and cash flow Re-offer prices to vendors
WI17	RF06	Monitoring equipment & material orders by preventing material waste and minimizing double handling Monitoring compliance with equipment & material specifications Equipment & material planning is detailed to specifications related to productivity Monitoring vendor productivity in carrying out work (speed of work and the effect of interruptions/late payments) Ensuring the accuracy of payments to vendors by following payment terms to maintain vendor productivity Conduct routine evaluation of loan term payments	Replace the foreman to correct the existence of cost overruns and increase work productivity Dividing the foreman’s work volume to increase the productivity of work completion Looking for funding sources for bailout funds (banks/private/investors/partnerships) Submitting a change in the time of loan payment to the party giving the loan Submitting claims against bank credit guarantees Improve the strategy and implementation of cost control and cash flow Re-offer prices to vendors

Tables 7 and 8 show the result of the reassessment process for the seven “vital few” work items and the recalculation on PERT analysis and Monte Carlo simulation for the residual risk re-assessment output. The re-assessment process was only carried out for the seven “vital few” work items, namely Rigid Pavement (WI15), Road Fences & Boundaries (WI22), Drainage Works (WI11), Soil Excavation (WI08), Concrete Works Structure (WI16), Structural Steel Work (WI21), and P.C.I. Girder Work (WI17). Based on the results of the PERT analysis and Monte Carlo simulation of residual risk, it shows a decrease in the value of potential cost overrun, namely the PERT analysis results from 18.41% to 11.01%, Monte Carlo simulation at p = 80% from 21.56% to 13.28%, Monte Carlo simulation at p = 90% from 23.03% to 14.46%, and Monte Carlo simulation at p = 95% from 24.08% to 15.35%

Table 7. Result of the assessment of residual risk cost overrun level

Work item	Cost of remaining work item		Risk impact (cost overrun) – residual risk
			Pessimistic (P)			Most-likely (ML)			Optimistic (O)
WI01	$	176.972,03	50%	$	88.486,02	30%	$	53.091,61	10%	$	17.697,20
WI02	$	126.888,01	30%	$	38.066,40	15%	$	19.033,20	5%	$	6.344,40
WI03	$	2.837,99	50%	$	1.418,99	30%	$	851,40	15%	$	425,70
WI04	$	40.001,40	10%	$	4.000,14	5%	$	2.000,07	3%	$	1.200,04
WI05	$	20.542,67	30%	$	6.162,80	20%	$	4.108,53	10%	$	2.054,27
WI06	$	19.241,64	30%	$	5.772,49	20%	$	3.848,33	10%	$	1.924,16
WI07	$	40.569,73	50%	$	20.284,86	30%	$	12.170,92	15%	$	6.085,46
WI08	$	2.798.115,21	25%	$	699.528,80	15%	$	419.717,28	7%	$	195.868,06
WI09	$	243.044,39	35%	$	85.065,54	25%	$	60.761,10	10%	$	24.304,44
WI10	$	34.263,12	35%	$	11.992,09	25%	$	8.565,78	10%	$	3.426,31
WI11	$	3.055.459,13	15%	$	458.318,87	10%	$	305.545,91	7%	$	213.882,14
WI12	$	51.459,53	20%	$	10.291,91	15%	$	7.718,93	10%	$	5.145,95
WI13	$	668.898,48	20%	$	133.779,70	15%	$	100.334,77	10%	$	66.889,85
WI14	$	438.198,58	40%	$	175.279,43	30%	$	131.459,58	10%	$	43.819,86
WI15	$	10.051.824,89	20%	$	2.010.364,98	10%	$	1.005.182,49	5%	$	502.591,24
WI16	$	2.714.529,57	20%	$	542.905,91	10%	$	271.452,96	5%	$	135.726,48
WI17	$	2.186.627,60	10%	$	218.662,76	5%	$	109.331,38	2%	$	43.732,55
WI18	$	492.808,58	20%	$	98.561,72	15%	$	73.921,29	10%	$	49.280,86
WI19	$	92.598,30	30%	$	27.779,49	20%	$	18.519,66	10%	$	9.259,83
WI20	$	35.485,01	15%	$	5.322,75	10%	$	3.548,50	5%	$	1.774,25
WI21	$	2.388.460,27	20%	$	477.692,05	10%	$	238.846,03	5%	$	119.423,01
WI22	$	3.411.295,55	10%	$	341.129,55	5%	$	170.564,78	2%	$	68.225,91
WI23	$	332.370,46	15%	$	49.855,57	10%	$	33.237,05	5%	$	16.618,52
WI24	$	178.950,02	30%	$	53.685,01	20%	$	35.790,00	10%	$	17.895,00
WI25	$	46.125,86	50%	$	23.062,93	40%	$	18.450,34	30%	$	13.837,76

Table 8. Results of residual risk PERT analysis and Monte Carlo simulation

Work item	Cost of remaining work items		Value of residual risk cost overrun
			PERT analysis		MCS p = 80%		MCS p = 90%		MCS p = 95%
WI01	$	176.972,03	$	53.091,61	$	65.361,67	$	70.994,86	$	75.072,72
WI02	$	126.888,01	$	20.090,60	$	25.476,38	$	28.227,44	$	30.274,75
WI03	$	2.837,99	$	875,05	$	1.045,13	$	1.129,52	$	1.191,59
WI04	$	40.001,40	$	2.200,08	$	2.650,26	$	2.909,08	$	3.109,25
WI05	$	20.542,67	$	4.108,53	$	4.820,94	$	5.149,33	$	5.384,74
WI06	$	19.241,64	$	3.848,33	$	4.515,47	$	4.823,14	$	5.044,02
WI07	$	40.569,73	$	12.509,00	$	14.940,78	$	16.145,87	$	17.034,62
WI08	$	2.798.115,21	$	429.044,33	$	515.615,19	$	557.864,49	$	588.816,10
WI09	$	243.044,39	$	58.735,73	$	69.256,75	$	73.602,01	$	76.610,27
WI10	$	34.263,12	$	8.280,25	$	10.376,41	$	10.798,50	$	11.101,09
WI11	$	3.055.459,13	$	315.730,78	$	356.846,09	$	378.438,69	$	394.549,57
WI12	$	51.459,53	$	7.718,93	$	8.611,07	$	9.022,71	$	9.317,63
WI13	$	668.898,48	$	100.334,77	$	111.907,15	$	117.255,16	$	121.132,47
WI14	$	438.198,58	$	124.156,27	$	146.602,37	$	155.159,19	$	160.841,46
WI15	$	10.051.824,89	$	1.088.947,70	$	1.338.339,96	$	1.474.045,76	$	1.577.663,49
WI16	$	2.714.529,57	$	294.074,04	$	361.325,05	$	398.092,63	$	426.169,69
WI17	$	2.186.627,60	$	116.620,14	$	146.067,57	$	161.509,96	$	173.075,03
WI18	$	492.808,58	$	73.921,29	$	82.493,08	$	86.437,24	$	89.244,95
WI19	$	92.598,30	$	18.519,66	$	21.730,63	$	23.210,83	$	24.272,76
WI20	$	35.485,01	$	3.548,50	$	4.163,60	$	4.447,51	$	4.651,18
WI21	$	2.388.460,27	$	258.749,86	$	317.939,30	$	350.294,78	$	374.962,48
WI22	$	3.411.295,55	$	181.935,76	$	227.892,15	$	251.891,36	$	270.007,75
WI23	$	332.370,46	$	33.237,05	$	38.998,70	$	41.656,03	$	43.563,27
WI24	$	178.950,02	$	35.790,00	$	41.994,39	$	44.857,70	$	46.910,45
WI25	$	46.125,86	$	18.450,34	$	20.049,76	$	20.787,07	$	21.315,81
TOTAL	$	29.647.568,02	$	3.264.518,59	$	3.938.411,30	$	4.288.324,65	$	4.551.082,31
Persentase Cost Overrun			11,01%		13,28%		14,46%		15,35%

5. Discussion

The main findings of this research are the developed contractor strategies which give us the impact in reducing the potential cost overrun of the project caused by the occurrence of the risk factors. The implementation of contractor strategies in terms of preventive and corrective action may reduce the potential cost overrun stated as cost overrun caused by inherent risk into cost overrun caused by residual risk. The reduction of potential cost overrun is analyzed in four methods, namely PERT analysis, and Monte Carlo simulation at 80%, 90%, and 95% confidence levels. The reduction in the value of potential cost overrun, namely the PERT analysis results from 18.41% to 11.01%, Monte Carlo simulation at p = 80% from 21.56% to 13.28%, Monte Carlo simulation at p = 90% from 23.03% to 14.46%, and Monte Carlo simulation at p = 95% from 24.08% to 15.35%. These figure 1 demonstrate the success of the implementation strategy developed to reduce potential cost overrun due to dominant risks.

Figure 1. Pareto chart analysis Results.

The sequential combination approach of qualitative and quantitative has been successfully done. Those methods have not been found in previous research on cost performance analysis on CPF toll road projects. The qualitative analysis revealed to us the validated risk factors and the dominant risk factors that occurred on each of the remaining work items of the projects, while the quantitative analysis using PERT methods and Monte Carlo simulations in several levels of confidence give us the exact amount of the potential cost overrun either caused by the inherent risk or residual risk factors.

6. Conclusion

Twenty-two validated risk factors that affect the cost performance of toll road projects with the CPF scheme based on the risk identification process. Of the 22 risk factors, it was identified that 9 risk factors were included in the category of dominant risk factors for remaining work items in the case study of the XYZ toll road project which is a toll road project with the CPF scheme. Based on the results of PERT analysis and Monte Carlo simulation using the PERT distribution, the seven dominant risk factors affect the cost overrun of remaining work items by 18.41% (PERT), 21.56% (MCS p = 80%), 23.03% (MCS p = 90%), and 24.08% (MCS p = 95%). There are 16 preventive actions and 13 corrective actions that can be implemented for 7 “vital few” work items to reduce the impact of existing risks into residual risks. This implementation strategy has an impact on reducing potential cost overrun by 11.01% (PERT), 13.28% (MCS p = 80%), 14.46% (MCS p = 90%), and 15.35% (MCS p = 95%).

7. Recommendations

Research can be further developed with different objects and aspects of project performance. Each remaining work item can be reviewed with more than one risk factor that influences the project performance of the remaining work item by considering the contribution weight of each risk on the remaining work item. The development of an implementation strategy can be carried out without eliminating the “useful many” remaining work items to provide more accurate results. The development of an implementation strategy can be carried out through a literature study in advance to provide an overview of broader actions. From the results of the strategy development, it can be made more practical by compiling implementation guidelines. The distribution model used for simulation can be used with other distribution models besides the PERT distribution model or at a confidence level with a wider and more thorough range.

Research consent

This research has received approval from the parties involved in this case, the project and the respondents, namely focus group discussion participants, that it is ethically permissible to collect data

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Wisnu Isvara

Wisnu Isvara is an Assistant Professor in the Civil Engineering Department Faculty of Engineering Universitas Indonesia. He has been lecturing in subjects of project management, construction management, cost management, procurement management, and engineering system. He completed his bachelor’s degree in civil engineering from Universitas Indonesia. He has continued his study and received his master’s degree and completed his doctorate degree majoring in Construction Management from Universitas Indonesia. Dr Wisnu Isvara also served as General Manager of Institute of Technology's Faculty of Engineering Universitas Indonesia since 2007 until now.

Mohammad Ichsan

Mohammad Ichsan is an Assistant Professor in the Binus Business School of Bina Nusantara University. He has pursued his Diplom Ingenieur in Electrical Engineering from the Hochschule Darmstadt, Germany, prior to obtaining his master’s in project management from the University of Indonesia. He has continued his study and received his Doctoral in Strategic Management. His teaching area is project management and operations management, meanwhile his research domain is project portfolio management, project management office practices, and project risk management.

Farras Ammar Muhammad

Farras A. Muhammad is a graduate in the field of civil engineering and project management where in his undergraduate program he took research in buton rock asphalt mixtures and in his master’s program he took research in project risk management, both from the University of Indonesia. Currently working as an operational supervisor in the oil and gas industry and has interests in project management and operations management.

Jodi Noor Handibyanto

Jodi Noor Handibyanto is a civil servant at the Ministry of Public Works and Housing, Republic of Indonesia. He holds a bachelor’s degree in civil engineering from the University of Indonesia and a Master of Engineering in Project Management from the University of Indonesia. Some of his research objects include research on buton rock asphalt mixtures and project management in toll road projects.

Sri Bramantoro Abdinagoro

Sri Bramantoro Abdinagoro is a Deputy Head of Doctor of Research in Management Program – BINUS Business School at Bina Nusantara University, Jakarta. He completed the Undergraduate Program at the Department of Metallurgy, Faculty of Engineering, University of Indonesia, then continued to the MM program at the PPM Management College. Finally, completed his Doctor of Management at the Postgraduate Program of the Faculty of Economics, University of Indonesia. Teaching experience in the Department of Metallurgy and Materials FTUI for Industrial Management and Project Management (2002-present) courses, as well as Entrepreneurship & Innovation courses, as well as Consumer Behavior and Research Methodology at BINUS University. His research interest is in the fields of marketing management, consumer behavior, strategic marketing, entrepreneurship & innovation, and strategic management. Dr Abdinagoro has been written some featured books based on his expertise and experiences.