Validation of the Financial Model in the System Dynamic Model

Abstract

In Malaysia, projects involving Public Private Partnerships (PPPs) for Higher Educational Institutions are often valued using the financial model. As a consequence, there would be a disagreement over value assessment among different financial models as well as a conflict between the partnerships. The System Dynamic Model (SDM) is developed to improve the financial model in order to settle disagreements. It applies to dynamic problems in a complex system of PPP financial models by simplifying it into one picture diagram. This article's primary focus is the validation of the financial model in the System Dynamic Model of the Public Private Partnership (PPP) of Higher Educational Institution Projects in Malaysia. It also focuses on several validation methodologies and their results. There are three methods of validation. Firstly, the structures, variables and flows are checked. Secondly, the real data (financial model) are compared with the System Dynamic Model and thirdly, interviews are conducted. The research findings showed a significant degree of similarity between the system dynamic model and financial model outputs. The percentage changes for projects are less than 5%, which is not significantly different from the output of the financial model. According to the interview findings, each of the six interviewees supported the model and validated the System Dynamic Model. The partnership typically the public and private sectors can use the SDM by inserting the amount cost or rate to run the financial feasibility evaluation of projects. Thus, it might reduce the conflict between both parties. Another implication is the pattern of economic activities can be expanded, and new funders and private investment can be involved. The System Dynamic Model can attract new funders since the SDM has transparent accountability.