Lifecycle-Oriented Risk Management for PPP-Projects in Public Real Estate

Nothing else has as strong an influence on success in the planning and execution of a Public Private Partnership (PPP) as the identification, evaluation, allocation and controlling of risk. Yet risk management of PPP remains largely unexplored. For many market participants, great uncertainty prevails in the management of risk. The choices for cost and quality assurance through active control of risks are scarcely known and have not been exhausted adequately. Experiences gained in PPP pilot projects also show that risk management is performed more on a periodic basis instead of dealing with risks consistently. For the optimisation of future PPP projects, a professional approach to risk management has become a necessity in order to reduce the existing complexity. This paper emphasises the significance of risk in life cycle oriented real estate projects, which is most clearly present in long-term contractual arrangements. The risk involved in a project needs to be calculated for the entire project life cycle and accordingly, risk must be controlled throughout this period. Additionally, every step of the value chain such as planning, construction, financing, maintenance, and operation involves specific risk factors. Due to the diverse perspectives and exposures to risk among the participants, this paper will pay special attention to the balancing of the respective interests of the participants. Their differing objectives, functions, risk perception, risk bearing capability affect the process and structure in dealing with risk. As a consequence, each party might implement different kinds of strategies to manage project risks and hence influence the cost effectiveness of the project. Great attention needs to therefore be paid by all of those who are involved in the project. In addition to the risk related characteristics of the project life cycle and the stakeholder perspectives, this paper explores the steps of a risk management process and presents a comprehensive concept which implements all of these critical areas as a basis for further advancements. The author argues for a higher general risk awareness and further aims to present potential for the implementation of a sustainable risk management framework over the entire life cycle of a PPP project in real estate.