Purpose of the Project Risk Assessment Section:
The Project Risk Assessment Section provides the reader with an understanding of the risks that are related to the P3 and traditional model alternatives and how these risks may vary by viable alternative. This section includes a risk mitigation strategy for each risk.
Description:
Identify and allocate all risks that may relate to each alternative (P3, traditional). A risk is a factor or event that may jeopardize the project from achieving the anticipated benefits or increase the cost of the project.
Risk Identification
Project risks have been identified and categorized by other agencies. The following table provides a checklist in helping to identify the risks a project can present.
| Risk Category | Description of risk |
| Commissioning risk | The risk that the infrastructure will not receive all approvals to satisfy an output specification, such as expected changes in legislation which allow for a specific output specification not materializing |
| Construction risk | The risk that the construction of the assets required for the project will not be completed on time, budget or to specification |
| Demand (usage) risk | The risk that actual demand for a service is lower than planned |
| Design risk | The risk that the proposed design will be unable to meet the performance and service requirements in the output specification |
| Environmental risk | The risks that the project could have an adverse environmental impact, which affects project costs not foreseen in the environmental impact assessment |
| Financial risk | The risk that the private sector overstresses a project by inappropriate financial structuring |
| Force majeure risk | An act occasioned by an unanticipated, unnatural or natural disaster such as war, earthquake or flood of such magnitude that it delays or destroys the project and cannot be mitigated |
| Industrial relations risk | The risk that industrial relations issues will adversely affect construction costs, timetable and service delivery |
| Latent defect risk | The risk that an inherent defect exists in the structure being built or equipment used, which is not identified upfront and which will inhibit provision of the required service |
| Operating risk (service under-performance) | The risks associated with the daily operation of the project, including an unexpected change in operation costs over budget |
| Performance risk | The risk that the operator will not perform to the specified service level, such as a power generator supplying less power than demanded |
| Change in law risk | The risk that the current regulatory regime will change materially over the project or produce unexpected results |
| Residual value risk | The risk that the expected realizable value of the underlying assets at the end of the project will be less than expected |
| Technology obsolescence risk | The risk that the technology used will be unexpectedly superseded during the term of the project and will not be able to satisfy the requirements in the output specification |
| Upgrade risk | The risks associated with the need for upgrade of the assets over the term of the project to meet performance requirements |
Having identified and allocated the risks engendered by a project the next task is to establish the expected value of those risks. A possible approach to estimating the value of the risks could include assessing their costs and probability of the risks. These costs should be reflected in the Value Analysis Section.
For each risk, identify the probability of the risk occurring and the financial impact it may have on each alternative, using the following guidelines:
Impact of Risk ($)
High indicates that the event has a significant impact to the project
Medium indicates that the event will impact the project
Low indicates that the impact is relatively minor to the project
None indicates that the risk will not impact the project
Probability of Risk (%)
High indicates that the event is high likely to occur
Medium indicates that the event is likely to occur
Low indicates that the event is not likely to occur
Expected Value ($)
Is the weighted average of dollar value impacts
(i.e. [High Impact ($) x High Probability (%)] + [Med Impact ($) x Med Probability (%)] + [Low Impact ($) x
Low Probability (%)] = Expected Value ($))
Allocation
Government - Government retains responsibility for managing the risk.
Private Sector - Risk is transferred to the Private Sector. They are responsible for managing the risk.
Shares - Government and Private Sector shares responsibility for managing the risk
If necessary, document the rationale for the evaluation. Typical risk to consider in capital projects would be: commission risks, construction risks, demand (usage) risks, design risks, environmental risks, financial risks, force majeure risks, industrial relations risks, latent defect risks, operating (service under-performance) risks, performance risks, change in law risks, residual value risks, technology obsolescence risks, and upgrade risks.
| Risk | Impact ($) | Probability (%) | Expected Value ($) | Allocation | ||||
| High | Med | Low | High | Med | Low | |||
| Risk 1 /Risk 1 Mitigation | ||||||||
| Risk 2 /Risk 2 Mitigation | ||||||||
| Risk 3 /Risk 3 Mitigation | ||||||||
| etc | ||||||||
| Traditional | ||||||||
| Risk 1 /Risk 1 Mitigation | ||||||||
| Risk 2 /Risk 2 Mitigation | ||||||||
| Risk 3 /Risk 3 Mitigation | ||||||||
| etc | ||||||||
Checklist for Project Risk Assessment
1. Have all risks been identified?
2. Have all risks specific to each alternative been identified?
3. For each risk has the specifics of each alternative been taken into consideration when evaluating the probability and impact?
4. Has the value and allocation of each risk been supported?
5. Has a risk mitigation strategy been identified for unacceptable levels of risk?