3.8  Risk Assessment

The management of risk is an integral part of all infrastructure projects, and the PPP Project Team must outline, in this section, the generic and procurement method-specific risks that the project will face. Whilst proper allocation of risk can be extremely cost-effective, providing Value for Money in terms of lower financing and construction costs, risk misallocation increases project costs and grievously impacts service delivery quality. Therefore, the PPP Project Team must abide by the key principle of Risk Allocation: ensuring that risk is allocated to the party best able to handle it. To that end, the PPP Project Team is expected to accomplish three critical tasks at the end of this section:

  Build a risk matrix that includes the relevant risks that would impact the feasibility of the project;

  Develop a standard risk evaluation mechanism to assess the impact of potential risks; and,

  Formulate appropriate risk management and mitigation strategies before negotiating with Bidders in order to optimise Risk Allocation.

To execute a proper risk assessment process, the PPP Project Team is advised to follow the following sequential steps: