A good feasibility study provides the basis for identification of risks in a project and assessment of their chances of occurrence. The main categories of risks in a project may include:
• Construction and completion risks (delays in construction or cost overruns);
• Technology risk (new and untried technology, whose performance cannot be checked against existing references);
• Sponsor risk (ability of private sponsor(s) to deliver the project);
• Environmental risk (environmental constraints in construction and operation);
• Commercial risk (lower demand and/or revenues than the ones projected);
• Operating risk (inefficiency in operation leading to higher operating cost);
• Financial risks (change in interest and currency exchange rates, and tax laws);
• Legal risk (change in legal regime);
• Regulatory risk (change in regulatory regimes);
• Political risk (change in government policy or action that affects the business case of the project); and
• Force majeure (risks due to unpredictable natural and man-made events such as earthquake, flood, civil war, etc.).
All such risks may also have many sub-categories. A risk matrix is a useful tool in risk management. The matrix can be developed showing all the identified major categories of risks together with their sub-categories and chances of occurrence over the proposed contract tenure of the project. An example of a simplified risk matrix is shown in table 3.