H.2.2  Risk Review

This activity involves:

•  The identification of risks and the listing of these in a "risk register"

•  The evaluation of the likelihood and possible impact of each risk identified

•  The identification of mitigation measures to:

  Avoid the risk (eliminate the likelihood of occurrence) or reduce the likelihood of occurrence

  Reduce the impact of occurrence

  Transfer the management of a risk, and the consequences of its occurrence, to the party best placed to manage the risk

•  The development of contingency plans to address residual risks

•  Acceptance of the risk

The measures are incorporated in a risk mitigation strategy and a risk response plan is prepared.

The identification of risks can be aided by check-lists, risk matrices and other prompt aids. The project risk areas identified in the Mott MacDonald study act as a check-list that highlights critical risks areas relevant to specific project types. The RAMP process highlights the importance of not eliminating or ignoring any risks, as seemingly minor risks can combine to have a major impact on project outcomes. Similarly, project risk areas that have not been recorded as having an impact on projects, within the Mott MacDonald study, must still be considered when preparing mitigation measures.

The evaluation of the likelihood and impact of risks is known as risk analysis. It is important to determine qualitatively and quantitatively the likelihood, potential consequence and timing of the risk and its impact. In choosing risks for further detailed analysis, it will be necessary to ensure that the likely benefit accruing from refining the estimate is worth the effort and cost involved. This is part of the OGC Gateway Process (discussed in Section 3.3.1) in which a project is approved in stages and costs are only committed to achieving the next stage. The assessment of optimism bias in projects gives the total impact of risks on project outcomes. The relative impacts on optimism bias by project risk areas have also been successfully measured.

If the risks (and optimism bias) are deemed to be unacceptable, then risk mitigation measures must be developed to reduce the likelihood and impact of risks and the optimism bias. The methods of risk mitigation must be financially worthwhile. Risks arising during the implementation stage as well as operating stage have to be mitigated. An example of a mitigation measure for reducing the risk of high maintenance costs would be changing the balance of capital to current costs in the specification of the construction of the project, resulting in the 'over-engineering' the project. Careful analysis would need to be undertaken to determine whether such an over-engineered project is financially worthwhile over the whole life of the project. Some external risks e.g. technological advances, may not have appropriate mitigation strategies and will be considered residual risks. Contingency plans should be prepared to manage residual risks.

The risk review activity should be carried out at key stages or decision points throughout the project life-cycle, just as the assessment of optimism bias should be.