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Project Identification and PPP Screening

38.3. Incorporating Risk and Uncertainty into the Analysis

The risks that are inherent to a project have to be considered and included in the appraisal. This must be done through proper adjustments and/or showing the ranges of values for certain sensitivities/future movements or the deviations on critical factors and variables. For this purpose, risks have to be quantitatively evaluated, incorporating the "expected values" of the risks into the results of the analysis or evaluation. The expected value of a risk is the product of the likelihood of the risk occurring by the size or amount of the outcome (in monetized terms); this should be done for all relevant or "critical" risks whose likelihood and outcome can be reasonably estimated.

Chapter 4 provides further information on assessing costs and adjusting them considering risk and uncertainty (from a financial perspective). See section 3.4 and section 3.6). Also, The Green Book by HM Treasury in the UK provides detailed information on this subject[26].

 

[26] The Green Book by HM Treasury, Annex 4 Risk and Uncertainty.

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