Risk analysis seeks to manage risks in practically all stages of thevalue chain and throughout the life cycle of a project.Risk management analyses the risk profile of infrastructure projects to identify the main risks and best solutions to mitigate the negative impact of the risks.Typically, a risk analysis involves the following sequential steps:
- Risk identification: The first stage of risk management seeks to identify potential risks throughout the life-cycle of the infrastructure project.
- Risk level assessment: Risk assessment determines the probability of an event occurring and the expected impact on e.g. cashflow and project completion. This allows stakeholders to identify the risk with the highest priority and consider responsibility for the risk.
- Risk Mitigation: Once the potential impact of risks is evaluated, appropriate strategies should be considered:
- Risk avoidance: Eliminate the source of the risk to avoid the risk from occurring.
- Risk prevention: Reduce the probability that a risk occurs, in case the risk cannot be avoided.
- Risk insurance: Transfer the risk to a third party – a common form of financial risk transfer.
- Risk transfer: Reallocation of the risk to the party best able to carry it (see below).
- Risk retention: Self-insurance as risk mitigation costs are too high.
- Risk monitoring: Risks and mitigation strategies should be monitored during the life-cycle of the PPI project to adjust to changing conditions. Public authorities also need to monitor risks and service provision of PPI projects throughout the operational phase of PPI projects in order to ensure Value for Money.