The steps outlined above are typically carried out in a series of risk workshops that result in the development of a project risk matrix, which is the primary tool used by Partnerships BC to manage risks throughout its involvement in a project. To effectively capture the nature of the risks being evaluated, the risk matrix will usually comprise the following components:
• Risk Category - identifies a broad category for the type of risks (e.g., design risk or construction risk);
• Risk Description - identifies individual risks and summarizes the potential loss if the risk event occurs;
• Risk Rating - identifies the likelihood of a risk occurring (e.g., high, moderate, low);
• Risk Valuation - identifies the potential financial risk premium based on the consequence and likelihood of a risk occurrence;
• Allocation of Risks - describes whether the risk is transferred, shared or retained; and
• Treatment Options - summarizes actions that can reduce the likelihood or consequences of a particular risk.
During a risk workshop, the project team will first identify all possible risks and brainstorm a detailed description of the actual risk event. The results of this work for each risk are documented into a risk template. A sample risk template is provided in Appendix 2.
Once the templates are complete for each risk, the results are summarized in a risk matrix for the entire project. A completed risk matrix for a large project can include as many as 50 risks.
The first column of the risk matrix categorizes the risk by number, the second column identifies the risk by its name, while the third column provides a detailed description of the risk. An example of some typical risks and their descriptions is shown below in Figure 1.
Figure 1: Sample Risk Identification
| No. | Risk | Description |
| T1 | Patent Defect Existing Asset | Patent defect is any defect that is identifiable and could reasonably be discovered by inspection. While the project is primarily a greenfield project, there are some existing assets which include several lane-km of pavement, structures and drainage works. |
| T2 | Patent Defect New Asset | Patent defect identified during construction of a new asset. Examples include non-complying materials or poor construction requiring immediate retrofitting or replacement. Estimate excludes defects related to settlement, which are quantified under a separate risk. |
| T3 | Latent Defect New Asset | Latent Defect (any asset defect existing at the contract commencement date which could not reasonably have been discovered, ascertained or anticipated by a competent person acting in accordance with good industry practice during an inspection and examination of the asset or from an analysis of all relevant information available to the Contractor prior to the contract commencement date). Defect identified in a new asset may include running surfaces, structures, drainage and electrical assets. |
Next, the proposed cause, and potential consequences of the risk are identified. This is achieved based on determining the overall likelihood and potential consequences of a risk, in order to establish its risk ranking. Figure 2 below provides a general description of the various categories used for this type of risk ranking.
Figure 2: Risk Ranking Categories
| LIKELIHOOD | ||||||||||||
| Descriptor | Approximate Probability range / single value) | Frequency (for example, in a 30-year context) | ||||||||||
| 5 | Almost Certain | .90 - 1.00 | [.95] | e.g. Once a year or more | ||||||||
| 4 | Likely | .55 - .89 | [72] | e.g. Once every three years | ||||||||
| 3 | Possible | .25 - .54 | [.40] | e.g. Once every ten years | ||||||||
| 2 | Unlikely | .05 - .24 | [.15] | e.g. Once every thirty years | ||||||||
| 1 | Insignificant | .00 - .04 | [.02] | e.g. Once every hundred years | ||||||||
| CONSEQUENCE | ||||||||||||
| Descriptor | Effect | |||||||||||
| 5 | Catastrophic | Project or program irrevocably finished. | ||||||||||
| 4 | Major | Program or project re-design, re-approval; i.e., fundamental re-work. | ||||||||||
| 3 | Significant | Delay in accomplishing program or project objectives. | ||||||||||
| 2 | Minor | Normal administrative difficulties. | ||||||||||
| 1 | Insignificant | Negligible effects. | ||||||||||
| RISK RANKING | ||||||||||||
| 5 | LOW | MED | HIGH | EXIT | EXIT |
| ||||||
| 4 | LOW | MED | HIGH | HIGH | HIGH | |||||||
| 3 | LOW | MED | MED | HIGH | HIGH | |||||||
| 2 | LOW | LOW | MED | MED | MED | |||||||
| 1 | LOW | LOW | LOW | LOW | LOW | |||||||
| LIKELIHOOD | 1 | 2 | 3 | 4 | 5 | |||||||
| CONSEQUENCE | ||||||||||||
In the risk matrix, the results of this risk ranking analysis are documented in corresponding columns, and are presented below in Figure 3 for the same three risk examples provided in Figure 1.
Figure 3: Sample Risk Rankings
| No. | Likelihood | Consequence | Ranking | Allocation | Mitigation Strategy |
| T1 | Unlikely | Minor | LOW | Transferred | Undertake specific Advanced Asset Inventory Condition Studies (AICS), review all historic condition assessments and maintenance information. Provide this information to Proponents. |
| T2 | Unlikely | Minor | LOW | Transferred | Review design and construction data during design build phase relative to the asset preservation performance measures. Ensure that a comprehensive construction quality management system is developed and implemented. |
| T3 | Unlikely | Minor | LOW | Transferred | Review design and construction data during design build phase. Ensure that a comprehensive construction quality management system is developed and implemented. This requirement needs to be incorporated into the contract agreement. |
Once the risks are identified, the associated allocations are assigned in one of three ways:
1. Transferred Risk - risks are fully transferred to the private sector. Latent defect of a new asset (T3) is an example of a transferred risk.
2. Retained Risk - risks impact the government (the government bears the costs). The risk of delay in gaining project approvals is an example of retained risk.
3. Shared Risk - risks are shared based on a combination of the above two allocations using assumptions regarding the nature of the risk. An example of shared risk would be earthquake risk as the private sector may be only partially responsible for repairing the asset, depending on the extent of damage.
The next section of the risk matrix provides additional information related to the probability of the risk, assumptions about the nature of its distribution, outcomes and timing. These categories are identified below in Figure 4 for the same three risks.
Figure 4: Sample Risk Matrix - Quantification
| No. | Probability Risk Occurs | Distribution | Range of values after probability risk occurs (Nominal, $ thousands) | Timing of Risks1 | ||
| % | 5% | Most likely | 95% | |||
| T1 | Under DB Warranty | Triangular | 0 | 0 | 0 | n/a |
| T2 | In capital estimate | Triangular | 0 | 0 | 0 | n/a |
| T3 | 20% | Triangular | 0 | 152 | 610 | 2013 - 2033 |