Public–private partnerships (PPPs) are increasingly being used to overcome complex challenges and develop new opportunities with the private sector. High quality risk management is critical to the success of PPPs. A paper in Public Performance & Management Review identifies eight major risk factors and develops a risk management framework to mitigate them.
The paper defines PPPs as:
PPPs can be distinguished by their degree of private involvement, such as:
Figure 1 illustrates the different levels of involvement between public and private partners in these arrangements.
Figure 1: Schematic of public-private involvement
(Adapted from European Commission, 2003)
The paper views risk as the effect of uncertainty on objectives. In other words, risks are uncertain possibilities, opportunities or threats that might happen. They are inherent to all projects and therefore robust management is required to:
The research sought to answer three core questions:
It involved conducting a systematic literature review and investigating 1,331 articles. From these, 159 papers formed the basis of an in-depth analysis.
The research identified eight major risk factors.
Contracts represent one of the greatest challenges in PPPs. There are three main contractual risks:
Resource-based risks include:
Objectives refer to the strategies, visions, goals or plans of the PPPs. Conflicting goals, problems with strategy and a lack of clarity were identified as the key risks.
Structural aspects refer to the question of how PPPs are organised and how partners work together in an efficient way. The main risks are:
Commitment refers to how strongly individuals identify with the PPP and its goals whether they are willing to contribute sufficient effort. Partners may have an incentive to run a PPP to serve their own interests before meeting the stated mutual objectives.
External factors can influence PPPs. These are outside the control pf partners and include political risks, demand/revenue risks and unpredictable incidents.
These risks include a lack of communication, the quality of information flow, the complexity of communication processes and information asymmetry.
Trust can influence the business performance between partners. Risk factors include
The paper presents the following conceptual model to enhance the understanding of risks in PPPs.
Figure 2: Conceptual risk model
The model depicts the interrelationship between the different risk factors. It enables a more sophisticated understanding about the scope, links and temporal relevance of each factor.
The model has the following risk layers:
The model proposes a top-down approach regarding these layers when identifying, evaluating or mitigating risks in in the earlier stages of a PPP such as exploration and planning. Management is guided by the objectives to be achieved. Based on the objectives (risk layer: project), partners with the required resources are sought (risk layer: partners), initial communication channels are established (risk layer: relationship) in order to finally agree on a contract (risk layer: framework).
A bottom-up approach is proposed in the later stages of a PPP, such as realisation and operationalisation. In these stages, management is mainly focused on the contract the partners have agreed on. For example, based on a certain contract (risk layer: framework), formal and informal communication takes place (risk layer: relationship), which positively or negatively influences the willingness to share certain resources (risk layer: partners) to eventually achieve contractually defined objectives (risk layer: project).
The risk model provides a compact overview about the identified risk factors and assigns them to risk layers. Certain risk factors have varying importance over the cycle of a project. The model contributes to a better understanding of risk management which will be more effective when project partners better understand the PPP risks.
Risks in Public–Private Partnerships: A Systematic Literature Review of Risk Factors, Their Impact and Risk Mitigation Strategies - Robert Rybnicek, Julia Plakolm and Lisa Baumgartner, Public Performance & Management Review, April 2020
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