A5.28 Risks can be assigned to 3 main categories which are not mutually exclusive - business, service and external risks.
A5.29 Business risks (Box 24) remain with the public sector and cannot be transferred. These include the loss of opportunity and poor Value for Money that occurs when schemes under-deliver or fail completely.
Box 24. Business Risks
Non-transferable risks of failure to the organisation. | |
Business risk | The risk an organisation fails to deliver its commitments and cannot meet its business objectives. |
Reputational risk | The risk confidence in an organisation's ability to fulfil its business objectives will be undermined. |
A5.30 Service related risks may be shared between the public and private sectors. These are listed in Box 25.
Box 25. Service Risks
Service risks | The risk a service is not fit for purpose. |
Design risk | The risk a design cannot deliver services to required quality standards. |
Planning risk | The risk implementation of a project fails to meet planning permission conditions, planning permission cannot be obtained or if obtained, can only be implemented at costs greater than in the original budget. |
Build risk | The risk the construction of physical assets is not completed on time, to budget and specification. |
Decant risk | The risk in accommodation projects of needing to decant staff/clients from one site to another. |
Environmental risk | The risk the nature of the project has a major impact on an adjacent area and there is a strong likelihood of objection from the public. |
Contractual risk | The risk from the contractual arrangements between two parties. |
Operational risk | The risk operating costs vary from budget and that performance standards slip, or a service cannot be provided. |
Availability and performance risk | The risk the amount of service provided is less than required under the contract. |
Demand risk | The risk the demand for a service does not match the levels planned, projected or assumed. As the demand for a service may be partially controllable by the public body concerned, the risk to the public sector may be less than perceived by the private sector. |
Volume risk | The risk actual usage of the service varies from the levels forecast. |
Maintenance risk | The risk that the costs of keeping the assets in good condition vary from budget. |
Technology risk | The risk that changes in technology result in services being provided using old technology. |
Funding risk | The risk that the availability of funding leads to delays and reductions in scope. |
Residual value risk | The risk due to the uncertainty of the physical asset at the end of the contract period. |
A5.31 External risks (Box 26 below) arise from the wider environment, not the intervention being appraised.
Box 26. External Risks
External Risk | The risks that are not connected to the proposal being considered. |
Catastrophe risks | These unpredictable risks, which may be related to changes in economic growth, are allowed for in the social discount rate and do not have to be costed separately e.g. technological disruption, natural disasters, unexpected policy changes and other unforeseeable occurrences. |
Regulatory risk | The risk a change in law or regulations will affect the costs or benefits of a project. |