Options for risk mitigation and management

A5.26 The public sector's risk exposure arises as a result of public policy decisions. Therefore, to optimise social value, risk must be consciously and proportionately managed. Good practice involves:

  identifying possible risks in advance

  putting mechanisms in place to minimise the likelihood risks materialise with adverse effects

  having processes in place to monitor risks and access reliable, up-to-date information

  having the right balance of control in place to mitigate the adverse consequences of risks if they materialise

  having decision making processes supported by a framework of risk analysis and evaluation

  early consultation with stakeholders - experience suggests costs tend to increase as more requirements to mitigate risk are identified. Early consultation will help to identify what those requirements are and how they may be addressed

  avoidance of irreversible decisions and a full assessment of costs, including the potential to delay decisions, allowing more time for the investigation of risks or alternative options

  pilot studies - acquiring more information about risks affecting a project through pilots allows steps to be taken to mitigate risk or increase the benefits

 design flexibility - where future demand and relative prices are uncertain, it may be worth choosing a flexible design. Breaking a project into stages, with reviews at points when it could be stopped or changed, can increase flexibility

 precautionary principle - precautionary action can be taken to mitigate risk. The precautionary principle states that because some outcomes are so undesirable, even though they may be very unlikely, precautionary action is justified. In cases where such risks have been identified, they should be drawn to the attention of senior management and expert advice sought

 procurement contractual risk - that can be contractually transferred to other parties and maintained through good contractual relationships e.g. insurance

 use of proven, rather than leading edge, technology - should be preferred if it reduces risk significantly while providing a proportion of the benefits of higher risk alternatives

 reinstating or developing different options - following the risk analysis, it may be desirable to reinstate options, or develop alternatives that are either less inherently risky or which deal with the risks more efficiently

 abandoning the proposal - finally, the proposal may be so risky that, whatever option is considered, it has to be abandoned

A5.27 Additional guidance on risk management can be obtained from The Orange Book Management of Risk - Principles and Concepts and further background information can be found in Risk Analysis and Management for Projects (RAMP).