Overview and guiding principles

5

Managing Risk Using a Risk Matrix

As outlined in part I, it is recommended that planners of an urban bus reform project carefully review the context and range of possible technical solutions before settling on the use of a public-private partnership (PPP). If, after undergoing this process, they decide that a PPP is indeed the most appropriate delivery model for their project (or an aspect of it), they may move on to the project preparation stage.

OVERVIEW AND GUIDING PRINCIPLES

The first step is to identify and allocate project risks. The analytical framework proposes a two-step process for analyzing risk (chapter 7 provides guidance on its practical application):

• Identify the risks. First, planners should identify and analyze all of the project’s risks. To that end, this chapter provides guidance and numerous examples from international experience. Reviewing these risks should strengthen the process of brainstorming potential risks, but the final list will depend heavily on the context. • Allocate risks and responsibilities for the various project functions and plan how best to mitigate the risks. The analytical framework proposes allocating risk at the same time as allocating responsibility for a project’s functions. Deciding who will be responsible for which functions is particularly critical for urban bus systems, which involve a variety of separate functions than can be handled in diverse ways. Planners should also identify strategies to mitigate risks and insurance for those that cannot be fully mitigated.

Risk allocation is a fundamental pillar of the structuring process. It should result from undertaking an analytical context-dependent process rather than from adopting a predefined model. The guiding principle of the risk allocation process, which is at the core of project finance, is to assign each risk to the party best suited to manage it (APMG International 2018j; PPP Knowledge Lab n.d.)— that is, the party who is (Irwin 2007):