This session will cover risk and risk management, defining these terms and describing typical risks in adaptation projects. The session will also cover the role of the private sector in risk management, and how to encourage private sector involvement to ensure sustainability of the project. This session will contribute to the overall development of a toolbox which will enable the participants to develop a plan for moving from project concept to bankable proposal. By the end of this session, participants will be able to use the risk management tool to analyze a sample project so as to improve its efficiency and sustainability. o OBJECTIVE 1: Participants will utilize basic risk management tools o OBJECTIVE 2: Participants will understand basic principles of risk allocation and the roles of the public and private sector in risk management

1. Understanding Basic Risk
Management System

2. Outline
• Understanding Risk
• Risk Management Process
• Component of Risk Management Tool
• Exercise: Fill in a Risk Management Tool for a
sample project
• Risk Allocation Principles

3. Understanding Risk*
• Risk can be defined as an uncertain event which, if it occurs, may cause actual
project outcomes to differ from expected outcomes.
– Could you give an example of risk that you face on a daily basis?
• Risk Assessment is an evaluation of the likelihood of identified risks materializing
and the magnitude of their consequences if they do materialize.
– What are the likelihood of the risk that you face?
– If the event occurs, what would be the likely consequences?
• Risk Allocation is an allocation of the consequences of each risk to one of the
parties in the contract, or agreeing to deal with the risk through a specified
mechanism which may involve sharing the risk.
– Could you allocate the risk that you face to other party who might be better able to manage
it?
• Risk Structuring defines the optimal risk allocation for the contract so as to decide
which risks will finally be assigned to the private partner and to what extent, as
well as which risks will be retained or shared by the public authority and to what
extent.
– Other party may not want to take all the risk that you face, what would be the optimal risk
allocation that you and the other party are willing to accept?
* Adopted from APMG, 2016, PPP Certification Guide; https://ppp-certification.com/

4. Risk Management Process
Source: Institute of Risk Management, 2010, A structured approach to Enterprise Risk Management (ERM) and the requirements of ISO 31000
http://www.ferma.eu/app/uploads/2011/10/a-structured-approach-to-erm.pdf

5. Basic Risk Management Tool
What is the Risk?
Describe the Identified
Risk
How is risk currenly
managed?
Impact
1=Insignificant
2=Mild
3=Moderate
4=Significant
5=Catastrophic
Likelihood
1=Highly
Unlikely
2= Unlikely
3=Occasional
4=Likely
5=Highly
Likely
Risk Score
What Measures can you
do to better manage the
risk?
Responsible Unit
0
0
0
0
0
0
0
0
0
Basic Risk Management Tool
Drought Dry spell
during rainy
season
Early Warning
System
2 3 6 ??? Irrigation
Department

6. 0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Likelihood
Imapct
Risk Assessment Map
High Risk
Low
Risk
Occasionally
Mild Impact
(3,2)

7. Adding Climate Change Risk
• How the Risk Profile would change with an
introduction of Climate Change Risk?
– Likelihood
• Change in variability of an event
• Change likelihood of an event
– Impact
• Change in intensity of an event
• Change in boundary of the impact

8. Adding Climate Change Risk to Basic
Risk Management Tool
What is the Risk?
Describe the Identified
Risk
How is risk currenly
managed?
Impact
1=Insignificant
2=Mild
3=Moderate
4=Significant
5=Catastrophic
Likelihood
1=Highly
Unlikely
2= Unlikely
3=Occasional
4=Likely
5=Highly
Likely
Risk Score
What Measures can you
do to better manage the
risk?
Responsible Unit
0
0
0
0
0
0
0
0
0
Basic Risk Management Tool
Drought Dry spell
during rainy
season
Early Warning
System
4 4 16 Build Medium
Size Reservoir
with
distribution
system
Irrigation
Department

9. 0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Likelihood
Imapct
Risk Assessment Map
High Risk
Low
Risk
Occasionally
Mild Impact
(3,2)
Likely
Significant
Impact
(4,4)

10. Common Risk Categories for a Project
• Siting—risks associated
with the availability and
quality of the project site
• Design, construction and
commissioning—risk that
construction takes longer
or costs more than
expected.
• Operation—risks to
successful operations,
including the risk of
interruption in service or
asset availability
• Demand, and other
commercial risk—the risk
that usage of the service
is different than was
expected, or that
revenues are not
collected as expected
– Regulatory or political
– Change in legal framework
– Default
– Economic or financial
– Asset Ownership
– Force Majeure
Source: The World Bank, ADB, IADB, 2014, Public-Private Partnerships Reference Guide Version 2.0
http://documents.worldbank.org/curated/en/600511468336720455/Public-private-partnerships-reference-guide-version-2-0

11. Exercise: Project Level Risk
• A medium-size reservoir with distribution
system project is proposed to build resilience
for smallholder farmers to cope with
increased variability and prolonged dry-spell
during rainy season
• In 2 groups, let’s complete a Risk Management
tool for this project with 3-5 Risks with 20
minutes.

12. Risk Management Tool for
An Irrigation Project
What is the Risk?
Describe the Identified
Risk
How is risk currenly
managed?
Impact
1=Insignificant
2=Mild
3=Moderate
4=Significant
5=Catastrophic
Likelihood
1=Highly
Unlikely
2= Unlikely
3=Occasional
4=Likely
5=Highly
Likely
Risk Score
What Measures can you
do to better manage the
risk?
Responsible Unit
0
0
0
0
0
0
0
0
0
Basic Risk Management Tool
Siting Residents may
oppose to
land
acquisition
Legal Action 4 4 16 ??? Irrigation
Department
Operation Low service
quality due to
lack of
operation and
maintenance
expenses
Annual Budget
Request
4 4 16 ??? Irrigation
Department
and Water
User Group

13. Risk Allocation Principles
Each Risk should be allocated to the Party:
• Best able to control the likelihood of the risk
occurring
• Best able to control the impact of the risk on
project outcomes, by assessing and
anticipating a risk well and responding to it
• Able to absorb the risk at lowest cost
Source: Ibid