Establishing Boundaries for Risk Taking

Establishing Boundaries for Risk Taking

Copyright: © 2017 |Pages: 38
DOI: 10.4018/978-1-5225-2503-5.ch006

Abstract

In this chapter, a model for risk taking tool directed towards and tailored specifically for establishing risk boundaries. The goal of the chapter is to cover the particular threats pertinent to the risk context and provide an interface between the broader philosophy of risk raking frameworks and the risk attitude perception, thus aiding in the successful and secure risk taking. The model incorporates a wide range of factors concerning risk returns and risk responses, assembled into a checklist to ensure properly manageable risks are taken by the parties. It is concluded that this is the starting point for a systematic risk management in PPPs.
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Knowing our risks provides opportunities to manage and improve our chances of success. - Roger VanScoy

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Introduction

Partners in the world of PPPs are increasingly looking for best-practices in risk taking and sharing. Renewed confidence in a well taken and shared risk has led many partners that feared to enter into PPP arrangement to be open towards engaging in such like projects. The public sector is opening up as it associate with the private sector in finding the most cost-effective, economical and quality-production in the provision of goods and services dearly wanted by the public and the effects of such engagement has been applauded in several successful areas. Of course, in actual practice objectives to attract risk taking and risk sharing differ by the partner and the effects of such a stand many not always be similar. Increased risk awareness and risk preparedness have led to a rapid growth in risk management in PPPs over the years. Urges for risk management across different countries and amongst different parents increased as an equal percentage of the increase in the number of PPPs projects world over. However, while most countries and partners alike are attracted to PPPs and know their very proper way to working, others have been less successful in implementing a good PPP, even though they had all resources required for a successful implementation of a PPP project. Intensified search for what has gone wrong in stalled project, uncompleted projects, and ‘projects-well-conceived-but-die-a-still-birth’ has led many governments and partners to look for benchmarks of the causes towards re-shaping the trends PPP projects should undertake. Countries and partners are forced to be more open to one another about their conceived PPP arrangements where it is difficult to build a barrier that ‘ride’ away causes of constraints.

While for some countries and partners there is concern about the improper inception and poor conduct of feasibility study on a proposed PPP project, there is a shift in other countries and the thinking of other partners towards the unpredictable position of risk. The term risk usually refer to unpredictable occurrence which can happens in the future and has all the potential of failing achievement of a particular goal or objective. It always has a negative linkages and spillover effects for an arrangement, such like PPP entered into by the public partner on the one hand and the private partner on the other. It would seems appropriate that countries and partners that have had successful PPP projects based on application of clearly defined measures to tackle risks; need to continue to upgrade to a level of risk-free PPP projects, or by targeting higher value-added risk management strategies. Those countries and partners that have not made some convincing moves towards PPP and even those other ones that have strides but along the way, outcomes of the efforts is not pleasing as it ought to be, much more is needed to have a clear boundary of the risks to be managed.

With frequent risk occurrences limiting performance and implementation of PPP arrangement, this chapter will look at what areas of concern ought to be taken up seriously by the public as well as private partners. Relying on technocrats does not guarantee (and most times prevent) the successful implementation of PPP arrangement. Countries and partners of a PPP arrangement ought to review whether the agreed PPP arrangement has positive spillover leading to success as initially designed in terms of growth and achievement of intended objectives. Theoretical developments (Velotti, Botti & Vesci, 2012) and empirical evidences (Akintoye, 2006) show that the success development and implementation of PPP projects is dependent on properly established boundaries of risk taking and risk sharing. The encouragement of linkages between PPP project development and PPP project implementation may also be important in developing a successful PPP arrangement, for example, through a linkage programme or in cluster risk taking and risk sharing.

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