Risk

 "Risk is the chance of an event occurring which would cause actual project circumstances to differ from those assumed when forecasting project benefit and costs". 1 Because management of risks holds the key to project success or failure, "projects are about risks, about their evaluation and their subsequent acceptance or avoidance".2

The 'science' of risk management seeks to identify, prevent, contain and mitigate risks in the interests of the project.

Typical risk categories for infrastructure and service delivery projects (in general) and in public private partnership projects (in particular) are:

•  site risk

•  design, construction and commissioning risk

•  sponsor and financial risk

•  operating risk

•  market risk

•  network and interface risk

•  industrial relations risk

•  legislative and government policy risk

•  force majeure risk

•  asset ownership risk.

The Risk management supporting document aims to:

•  identify all major risks relevant to public private partnership projects and outline the commercial issues associated with them;

•  increase agencies' understanding of risk allocation and the likely objectives of public and private parties when negotiating risk allocation; and

•  indicate the government's likely preferred position on allocating major risks and offer guidance to government practitioners on how each of these risks may be best addressed in their particular project, recognising that each project has unique features.

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1  Chris Furnell, Risk identification and risk allocation in project finance transactions, Paper presented at the Faculty of Law, The University of Melbourne, May 2000, p. 1.

2  Allen & Overy, from Furnell, ibid., p.7.