An integrated risk management system (IRMS) for PPP projects

Large infrastructure projects involve many different stakeholders. Risk allocation is negotiated between the public sector and the special purpose vehicle (SPV)/consortium. Moreover, risk allocation is negotiated between the shareholders of the SPV and between the SPV and its contractors, financiers/lenders and insuring companies. Since the individual understanding of risks associated with the project differs amongst the contract partners, negotiation is often very time consuming and may not lead to the best possible outcome. The variability of risk management approaches and a lack of coherent practices often prove to be problematic. The purpose of this paper is to address these issues.

The study has been conducted using a questionnaire and expert interviews to identify the current state of public‐private partnership (PPP) risk management. As a result, a process model for risk management for each stakeholder has been developed.

By developing an integrated risk management system (IRMS), it is possible to meet particular project requirements, such as reducing complexity, establishing risk awareness, covering the different perspectives of the parties involved, building on a common understanding regarding the nature of risks and opportunities providing step‐by‐step contingency instructions, and enhancing the available information.

The provision of an IRMS in PPP will induce transparency by utilizing better sources of data and information distribution. Moreover, the application of sophisticated risk management techniques will enhance the capabilities and accuracy of the decision‐making processes. As a result, credibility and a common understanding of key data, ratios and reports for all contract partners is achieved.