2.3.11  How to Integrate Risks into the Financial Model

Once the inputs for all risks are obtained, they can be integrated into both the PSC and Shadow Bid financial models. The preferred approach for integrating the risks is to have separate sheets in the financial model, with at least two sheets required in the input section. These include:

•  Timing - this sheet will indicate when each risk occurs and is typically shown as a percentage of occurrence in each period; and

•  Inputs of Risks - this sheet will contain the raw inputs collected at the risk workshops and will also include the expected value calculated using a statistical software program. In many cases it is easier to have a separate input sheet for the construction and operating risks given the different approaches to calculating these risks and their different time horizons.

In the calculation or output section of the model one sheet will be required containing the Risk Output. The Risk Output sheet takes the information from the Timing sheet and Input of Risks sheet and creates nominal values for each risk for each period in the model.

Each risk should be calculated separately and grouped under construction or operating and transferred and retained. Columns should be added on the right hand side of the page for NPV, real and nominal totals. This is illustrated in Figure 15. One of the benefits of calculating risks separately is that it allows an analysis of individual risks in comparison to the total value of risks.

Figure 15:  Extract from sample Risk Output sheet in financial model.