Public-private partnerships are quickly garnering an increasing amount of attention for public policy requirements, including water/wastewater, energy, economic development, and transportation projects. P3s require an exceptional amount of planning, design, and the application of risk assessments, which expedite the process to mitigate and minimize risks. Climate change effects issues such as a rise in sea levels, increased temperatures, extreme weather events, decreased snow cover, and ocean warming and acidification. Risk assessments must be inclusive of climate change because of its potential effects on infrastructure, water, or energy P3 projects.
Defining Risk Assessments
Risk assessments are a systematic process for the identification and evaluation of possible risks and opportunities that could affect the attainment of objectives, whether it be positively or negatively. These types of events may be identified within the external or internal environment. The external environment includes economic developments, regulatory perspective, and competition. The organizational internal environment are composed of the individuals, the process, and the infrastructure. Combined these variables can become risks when they intersect with a project’s objectives. Risk assessments offer a procedure for the identification of which risks represent opportunities and which ones represent potential threats. If completed properly, a risk assessment can provide a clear view of which variables they may be exposed to; either internal or external, reflective or forthcoming. A robust risk assessment delivers an opportunity to better identify, evaluate, and exploit the correct risks while maintaining the appropriate controls in order to guarantee regulatory compliance.
Risk and Crisis Management
Risk and crisis management within a project are critical because they can have a direct impact on the financial viability and outcome of the P3. How well risks are mitigated translate into how well a crisis can be averted. Prevention facilitates the management of any potential loss of revenue due to a specific risk, such as climate change. The failure to manage climate change may result in construction delays, increased costs, poor project performance, and decreased financial returns.
In order to understand the exact nature of the risks it is important to outline and define the scope. By doing so, the risks that are deemed possible can be rated within terms of impact, probability, or both and on an innate or a lingering basis. The results can be compiled to a risk profile or heat map, which can be viewed in relation to the willingness to take on such risks. The discipline of risk management ensures that risk assessments are an ongoing process in which the objectives, risks, response measures, and controls are consistently re-evaluated.
Examples of a few frequently performed risk assessments include:
- Compliance Risk Assessment: This process reviews the risk factors relative to compliance obligations regarding laws and regulations, policies and procedures, ethics and business standards, ethics and business standards, contracts, as well as best practices in which the P3 project is committed.
- Operational Risk Assessment: This specific practice is inclusive of the valuation of the risk of loss, including those of the financial performance and potential losses of a project, which result from failed processes, individuals, systems, or external events such as those resulting from climate change.
- Project Risk Assessment: This evaluation incorporates an analysis of the risk factors associated with the delivery or implementation of a project, such as a P3, regarding stakeholders, timelines, costs, dependencies, and other key matters.
There are many other types of assessments including security, consumer, credit, market, and financial statement risk assessments.
The Role of Local Government
Local governments have a role to play as well. Public policy that will encourage climate change solutions is important, however, governments can also act as organizers whom will encourage the private and public sectors to find technological solutions that can improve the viability of projects prone to climate change risks. These projects should have the capability to attract P3 financing, however, it is necessary for the risks to be mitigated and local governments to take part within this process. Contractual incentives, the implementation of long term best practices and standards, and innovation can enhance mitigation strategies. Through a careful analysis, climate change can be mitigated and should not affect the implementation of a P3.