The effective management of risk in concession projects

The Private Finance Initiative scheme allows public sector authorities to pass the risks of ownership to the private sector for periods varying between 20 to 30 years. Hence, the associated decisions to be made involve uncertain issues from many different perspectives, necessitating the adoption of a holistic approach to the identification and management of uncertainty. Therefore, the aims of this paper are to identify the strategic risks affecting the public sector and to propose a holistic risk management strategy to reduce uncertainty in the procurement of privately financed projects. The paper explains the principles behind the PFI concept and identifies the different major associated categories of uncertainty. A holistic strategy is proposed for pro-actively managing uncertainty and risks at specific points during the life cycle of a PFI project. At the early stages of a project, 'soft' issues are dealt with by the use of a qualitative risk management approach. Later in the project's life, both 'soft' and 'hard' (quantitative) risk management approaches can be relevant, depending on the nature of the problems under consideration. Thus the issues discussed in this paper will improve the structuring of risk financing, sharing and management among the different stakeholders involved in PFI procurement.