Model for management of whole life cycle risk uncertainty in the private finance initiative (PFI)

Good risk management is central to the success of the Private Finance Initiative (PFI). It aims at identifying all the risks involved in a PFI project, calculating the financial consequences, establishing mitigation procedures, and allocating those risks to the parties best able to manage them. Based on empirical data, the authors have developed a dynamic model of whole-life-cycle risk uncertainty for PFI projects. This model is both an assessment and a management tool for PFI risks. It presents a clear picture of how uncertainty progresses throughout the whole life cycle, and is comprehensive so as to avoid the wishful-thinking attitude that might prevent the adoption of correct risk-management measures. The whole life cycle model of risk uncertainty can be quantified and used to classify projects according to their degree of uncertainty and maturity. It is innovative as it recognizes that uncertainty is dependent on both the particular risk and on the period of the project’s life cycle. This model is also a powerful tool for structuring strategic decisions.