Model for management of whole life cycle risk uncertainty in the private finance initiative (PFI)

Abstract

Good risk management is central
to the success of the Private
Finance Initiative (PFI). It aims at
identifying all the risks involved in
a PFI project, calculating the financial consequences,
establishing mitigation procedures,
and allocating those risks to the parties best
able to manage them.
Based on empirical data, the authors have
developed a dynamic model of whole-life-cycle
risk uncertainty for PFI projects. This model is
both an assessment and a management tool for
PFI risks. It presents a clear picture of how
uncertainty progresses throughout the whole life
cycle, and is comprehensive so as to avoid the
wishful-thinking attitude that might prevent
the adoption of correct risk-management measures.
The whole life cycle model of risk uncertainty
can be quantified and used to classify projects
according to their degree of uncertainty
and maturity. It is innovative as it recognizes that
uncertainty is dependent on both the particular
risk and on the period of the project’s life
cycle. This model is also a powerful tool for
structuring strategic decisions.