Risk is "the chance of an event occurring which would cause actual project circumstances to differ from those assumed while forecasting project benefit and costs." Management of risks holds the key to project success or failure. The Contract Management process must thus, identify, mitigate and monitor the key potential risks over the life of the project to achieve targeted project outcomes.
Risk monitoring and reporting structures will depend on the duration, size and complexity of PPP projects. As with performance monitoring, risk monitoring is also particularly important in projects which depend heavily on the exchequer, as in VGF projects or annuity based projects. The intensity of risk monitoring also depends on the nature of the services provided by the project. Analysis and management of risk should be able to effectively answer the following questions for each risk identified:
a. Which contracting party is best able to control events leading to risk occurrence?
b. Which contracting party is best able to manage the risk?
c. What is the level of end-user involvement anticipated in managing the risk?
d. If the risk is not successfully managed, which contracting party will be impacted the most?
e. Does the risk transfer to the private partner have an adverse impact of cost of service to the end-user?
More details on types of risks and mitigation measures is set out in Module 10 of the PPP Guide for Practitioners on 'Risks Analysis'