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RISKS

RISKS

“Risk” is a word often seen in information related to infrastructure development. Nevertheless, this broad term is rarely explained and it is often overlooked, which leaves the door open for misinterpretations. Moreover, despite of the big scale and importance of PPP infrastructure projects, risks and their management practices remain highly variable, intuitive, subjective and unsophisticated [1].

Definition

In this community we will understand “Risk” according to the definition given by the Project Management Institute:

an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives…” [2].

Risks allocation in PPP projects

All the provision of public services, like education, defense, health and justice involve a certain form of risk. It shapes as non-achieved objectives, delays, financial losses, corruption, inefficiency or cost of opportunity of having delivered the same service in another way [3].

PPP projects differ from the traditional procurement methods in the way risks are shared between the Private and the Public sectors, or with the end-users of the project on whose behalf the Public sector will negotiate its terms.

In order to achieve proper risk allocation, there are factors that need to be considered [4]:

  1. What risk will be allocated?

  2. Who has the best capabilities to accept the risk?

  3. When is the right time to allocate it?

  4. How is the best way to allocate that risk? Meaning looking for the best strategy to prevent or minimize the consequences of occurrence. 

“An identified risk is a management problem”[5]

 

[1]Akintoye, A., Beck Hardcastle, C., Chinyio, E., Assenova, D. (2001). Framework for risk assessment and management of private finance initiative projects. Glasgow, Scotland, UK: Glasgow Caledonian University.

[2]Project Management Institute. (2013). A guide to the project management body of knowledge (PMBOK® guide). -- Fifth edition.P.P 309

[3]NAO. (1999). Examining the value for money of deals under the private finance initiative. London: National Audit Office.

[4]Abednego, M.P., Ogunlana, S.O. (2006). Good project governance for proper risk allocation in public–private partnerships in Indonesia. International Journal of Project Management 24 (7), 622–634.

[5]Hastak, M. (2015).  Class notes: Risk Management in Construction. Mastr of Engineering in International Construction and Project Management, Tsinghua University, Beijing, P.R.C.

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