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6. Risk analysis and management

The business case must identify all material risks associated with the proposal, an indication as to who is positioned to bear those risks, and a proposed means to manage risk.

  • Each proposal will invariably involve some element of risk and uncertainty. Risk encompasses a range of factors, which may result in a proposal failing to deliver the expected outputs and/or outcomes at the estimated cost and time.
  • Both risk and uncertainty are rarely able to be removed, but can usually be managed. The risks should be assessed in detail and strategies developed to reduce or manage them for the preferred option.
  • Where appropriate strategies can be devised to manage the risks, they should be documented and included in the business case.
  • There will be a potential range of project specific risks. There will be some non-project specific risks to be addressed such as general and non-divestible financial market risk.

To assist in identifying the various risks inherent in a proposal, the following categories of risk should be considered:

  • Change in law/policy, commercial, commissioning, completion / construction, contractual, demand, economic, environmental, financial, implementation, investment planning, management, obsolescence, operations, organisational, political, private sector, regulatory/technological, residual value, upgrade.

These risks need to be assessed for the business case on an ongoing and routine basis during proposal development (including the degree of risk sensitivity associated with assumptions used). A risk management planning process should also be covered.

Further assistance is provided in chapter 10 of the investment evaluation policy and guidelines, Partnerships Victoria risk allocation and contractual issues gGuide (June 2001) and Partnerships Victoria public sector comparator: technical notes (June 2001 and July 2003).

The business case should follow the following layout.

Project profile model

The project profile model indicates that this project has a weighted risk score of {  } and is therefore a {  } risk (Level {  }) project. Appendix 2 provides detail.

Project risk management

The purpose of this section is three fold:

  • To alert decision makers to any risks in the project that might be material to the decision making at this point, or need to be resolved prior to a later decision.
  • Confirm to decision makers that a thorough process has evaluated all risks relevant to the stage of the project.
  • To ensure that a program of work is in place to address the major risks identified.

This section should concentrate on the most significant risks - a full risk analysis if completed should be appended.

Further work is to be done on the formatting and presentation of this section

The section format might include:

A risk management plan will be developed within the preliminary business case. The major project risks identified to date include:

Service planning

{Detail risks.}

Cost risks

Section should include a generic statement covering Department of Health and Human Services, Infrastructure Planning and Delivery branch (IPD) branch cost management approach. Refer to IPD for details.

Land acquisition

{Detail risks.}

Model of care

{Detail risks.}

Recurrent funding

{Detail risks.}

Budget approval

{Detail risks, especially related to not proceeding, or deferral or delay of funding.}

Implementation risk

{Detail risks.}