Project Finance for Business Development

CHAPTER 10Project Risk ManagementCrucial for Project Success

Project risk is the failure of a project to meet its objectives and the loss associated with it if a threat event materializes. For estimation purposes, it is the product of the probability of occurrence by the severity of the outcome. Risk is a part of business life and projects and when it happens it adversely impacts company strategies and project objectives. Project risks are not only of external but also of internal nature to both project sponsors and customers. Our focus is on external risks since the internal risks have already been identified by the sponsor and customer SWOT analysis and dealt with. International project finance deals entail a number of risks and a good deal of project success depends on effective risk management.

Risk management is an integral part of managing a project and the larger the project, the more attention is directed to risk management, which requires support from the project team and the decision makers of stakeholder organizations. Effective risk management is a prerequisite to striving to attain competitive advantage in project finance and create successful deals. Risk management is the progression of identifying, analyzing, prioritizing, and mitigating risks to minimize their impact on project value creation. To get a sense of the type and frequency of risks materializing and stress the importance of risk management, Table 10.1 shows occurrence percentages for various risk types. ...