All of the significant risks associated with a project should be tabulated and categorised in a risk matrix, which also provides a description of the risk and mitigation measures and identifies the preferred risk allocation.
The risk matrix can be a useful mechanism for Government and the private sector. During both pre-tender and tender phases, the risk matrix can assist Government practitioners to define relevant project risks and their proposed allocation, whether allocated implicitly through the structure or by way of a take-back by Government.
During negotiations the matrix can work as a checklist to ensure all risks are addressed. After the contract has been signed, the matrix can be a useful summary of the risk allocation effected by the contract. The value and usefulness of the risk matrix is directly related to the way the risks are treated.
While commonplace in the market, risk matrices have their limitations. If used in their simplified form, the actual allocation of risk accomplished by both the structure and detail of the contract can be misrepresented.
For example, the use of ticks to identify the existence of a particular risk in both Government and private party columns gives little indication of the detail of the allocation. The project structure and the contract, and not the risk matrix, are the tools by which risk allocation is achieved.
A risk matrix should be developed and maintained for each PFP and included in the submission to the BCC at each stage of the approval process.
Appendix 3 of these Guidelines provides further guidance on risks and risk allocation.