❑ Active risk management - Effective management of risks involves:

❑ identifying possible risks in advance and putting mechanisms in place to minimize the likelihood of their materialising with adverse effects;

❑ having processes in place to monitor risks, and access to reliable, up-to-date information about risks;

❑ the right balance of control in place to mitigate the adverse consequences of the risks, if they should materialise; and,

❑ decision-making processes supported by a framework of risk analysis and evaluation.

❑ Early consultation - Experience suggests that costs tend to increase as more requirements are identified. Early consultation will help to identify what those needs are and how they may be addressed.

❑ Avoidance of irreversible decisions - Where lead options involve irreversibility, a full assessment of costs should include the possibility of delay, allowing more time for investigation of alternative ways to achieve the objectives.

❑ Pilot Studies - Acquiring more information about risks affecting a project through pilots allows steps to be taken to mitigate either the adverse consequences of bad outcomes, or increase the benefits of good outcomes.

❑ Design Flexibility - Where future demand and relative prices are uncertain, it may be worth choosing a flexible design adaptable to future changes, rather than a design suited to only one particular outcome. For example, different types of fuel can be used to fire a dual fired boiler, depending on future relative prices of alternative fuels. Breaking a project into stages, with successive review points at which the project could be stopped or changed, can also increase flexibility.

❑ Precautionary Principle - Precautionary action can be taken to mitigate a perceived risk. The precautionary principle states that because some outcomes are so bad, even though they may be very unlikely, precautionary action is justified. In cases where such risks have been identified, they should be drawn to the attention of senior management and expert advice sought.

❑ Procurement / contractual - risk can be contractually transferred to other parties and maintained through good contractual relationships, both formal and informal. Insurance is the most obvious example of risk transfer. The main text of this annex provides further information about the types of risk that can, and often are, transferred.

❑ Making less use of leading edge technology - If complex technology is involved, alternative, simpler methods should also be considered, especially if these reduce risk considerably whilst providing many of the benefits of the option involving leading edge technology.

❑ Reinstate, or develop different options - Following the risk analysis, the appraiser may want to reinstate or options, or develop alternative ones that are either less inherently risky or deal with the risks more efficiently.

❑ Abandon proposal - Finally, the proposal may be so risky that, whatever option is considered, it has to be abandoned.