Risk Sharing in a Partnership

Risk Sharing in a Partnership

Copyright: © 2017 |Pages: 38
DOI: 10.4018/978-1-5225-2503-5.ch004

Abstract

Risk sharing is an activity which integrates recognition of risk, awareness of a party's capability, risk assessment, and developing strategies to accept and own the risk using managerial resources. Some traditional risk sharing philosophy is focused on taking risk of a lesser costs to the risk taker. Proper risk sharing, on the other hand, focuses on taking and acceptable risk within the capacity of the party to manage. Objective of proper risk sharing is to reduce the possibility the risk taker would not perform the part of the bargain. It may refer to numerous types of measures a partner would undertake to ensure the risk taken does not prevent the partner from performing part of the bargain. The chapter describes the different steps in risk sharing process which methods are used in the different steps, and provides some examples for risk acceptance and risk sharing that can be pursued by a partner.
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Risk: Basic Concepts

Mere entry into a PPP arrangement which is perfectly of a contractual nature, suggests a range of risks that must be dealt with (Alderman & Ivory, 2007). A contract is a risky business in that whatever has been agreed on must be executed as agreed and even to the letter. Unfortunately, unforeseen future occurrences often derail the execution of obligations as inscribed in the contract (Loizou & French, 2012). Hence, like any other form of contract, PPP is bound to fall a victim to risks. Moreover, parties to a PPP arrangement often times tend to ignore risk and enter into a contract with all the imperfections embodied in the contracts in form of uncountable risks (Assaf & Al-Hejji, 2006). While the parties may be contended of having entered into such an agreement to leverage their interests, the tendency of under looking the crucial importance of digging deep in all those risks contained in the project, is the epitome of failure of the agreement they would enter into (Aldoory, Kim, & Tindall, 2010). Somewhat the parties’ emphases have tended to shy away from the critical issues which would affect the actual implementation of the PPP arrangement.

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