Risk is defined as, "the chance of an event occurring that would cause actual project circumstances to differ from those assumed when forecasting project benefit and costs of that project." The effective management of risk is critical to the success of a project, and particularly to long-term projects such as public private partnerships.
There exists a need to identify, evaluate and allocate project risks effectively, regardless of the project procurement process. A risk allocation and qualitative comparative analysis is required in respect of each of the project delivery options. preliminary risk analysis and allocation is likely to have been undertaken during the preliminary assessment. These should be revisited to ensure appropriate and rigorous analyses have been undertaken.
A thorough analysis of all project risks will be required during business case development. As outlined in the risk management supporting document, this analysis should commence with risk identification. The analysis will, in the first instance, provide information regarding the preferred risk allocation for each project delivery option.
Further detail on how to undertake risk identification, allocation and quantification is contained in Appendix 1 of this document. A detailed discussion of project risk and government's likely preferred position regarding each set of risks relating to privately financed public private partnerships is provided in the risk management supporting document. An example of a risk allocation matrix is provided in Appendix A of the risk management supporting document.
The next step in risk allocation is to compare the allocation between the different project delivery options. During this comparison, any specific issues pertaining to each project delivery option and the manner by which these may be managed or mitigated should be identified. This analysis may include:
• analysis of major risks such as scope and design risk, some of which are not able to be quantitatively evaluated, (for example, public interest risks, policy risks)
• consideration of the integration of services, where different services are procured from different service providers (as is the case in a mixed service model)
• consideration of pertinent macro issues such as funding allocation.