When forming a PPP, often times part of the appeal is the transfer of risk from the public to the private sector. This transfer of risk will increase the overall value of the private bid, so the financial calculation is an important part of the decision making process. The public sector must identify all risks and value each risk (as described in the "Understanding Risks" section). This step must be completed before continuing with the process.
The optimal transfer of risk will then need to be identified and agreed upon. The appropriate type and amount of risk to be transferred will differ due to the unique conditions in each project. Each sector will be able to manage and minimize certain risks better than the other. If all risks are transferred to the private sector, they could potentially be ill managed and the probability of occurrence will increase (maximum transfer of risk). The sector that is able to best, financially maintain specific risks will receive them during the optimal risk allocation.
Cash flows will need to be adjusted to reflect the values of the transferred risks that have been designated to the private sector. The risk inclusive cash flows must be calculated separately to find their NPV, which will include the assigned monetary value of the risk as well as the expected time of occurrence. Transfer of Risks will greatly enhance the VfM that will be calculated at the end of the PCC process.