It is good practice to identify and plan how project risks will be managed and allocated.

The time required

and the formality with which you follow the process will depend on the scale and complexity of the project,
and your own organisations approach to risk management. We strongly recommend you start with an initial
risk identification and assessment, then, based on your findings, consider how to resource this, and how to
formally approach it.
A
can be defined as any factor, event or influence that threatens the successful completion and
operation of a project in terms of cost, time or quality.
is the process of identifying the significant risks to a project through all phases of the
project life cycle including operations, devising tactics to reduce exposure to these risks, and then reviewing
& monitoring, on an on-going basis, the effectiveness of risk mitigation & management actions undertaken.
The fundamental principle of risk mitigation is that risk should be allocated to the party best able to manage;
as such consideration should be given to which of the three possible categories each risk belongs in:
Retain,
Share or
Transfer it.
Also see section 4 paragraph 4.
, of the Framework
document for further details on this. Cost effective allocation of risk between the client, the ESCO and the
financier will result in lower costs of installation and operation, and will provide enhanced value for money
when compared to traditional procurement. The risk allocation element should be included in the project
tender documents.
One primary benefit of EPCs (and to a lesser extent EPRPs) is that the technical performance risk is
transferred to the ESCO. Normally the energy price risk is retained by the client, as this is something they are
exposed to in any case and an EPC will reduce the volatility of the clients overall energy costs.
As a general rule, good value for money is rarely served by transferring all possible risks to contractors
(ESCOs). If a Contractor is asked to accept a risk over which it has little or no control, it is likely to charge a
higher premium than the risk is worth. In addition, if the project funders are not satisfied that the risk
quantification and allocation is appropriate the project is unlikely to be bankable. Also, it is worth
considering that in a nascent market, less experienced ESCOs may not fully understand the EPC model and
can overestimate the risk and cost it accordingly, resulting in a project that is not value for money for either
party; this lack of understanding of the nature of the risk transfer between parties and its implications need
to be recognised and catered for by robust assessment and quantification by the client.

It is beyond the scope of this handbook to provide detailed guidance on how to develop & conduct a risk
management process specific to your project. There is considerable published material on the subject and a
number of useful references are provided at the end. The process below provides an overview.

Risk
Identification

Risk
Assessment

Risk
Quantification

Risk Mitigation

Risk Allocation

Risk
Management

Identification of all risks associated with the design,

construction, operation and maintenance of the project.

Risk Register

Assess the potential significance or impact of each risk and

the probability or likelihood of occurrence. The resulting
matrix combines these two to identify the most significant
risks and providing all with a rating. These are raw (i.e.
unmitigated) risks.

Risk Register
Raw & Rated Risk

The objective of risk quantification is to express the

potential impact of a risk in monetary terms. The
quantification of risk in monetary terms facilitates better
understanding of the potential impact of risks, and provides
a strong rationale for the client to ensure that significant
risks are managed efficiently and in a cost effective way.
However, the approach and resources expended in
undertaking the preliminary risk quantification should
reflect:
- the size and complexity of project
- the number of significant project risks

Risk Register
updated with
Quantified Risks

The risk mitigation process will identify how high risks can
be reduced to a medium or low rating. This includes, but is
not limited to, internal risk management, reduction, and /or
avoidance by employing the retain/share/transfer strategy.
Residual risk will remain and the register is updated with the
mitigation measure and resulting new ratings.

Risk RegisterRisk
Mitigation

Identify whether the client or the ESCO is likely to be best

able to manage each risk. This should form part of the ESCO
tender bid.

Identify how residual risk will be monitored and reported.

The client may instruct the ESCO to provide their updated
risk register at various stages to keep track of allocated risk.

Risk
Management
Plan

Prepare a typical final design that

requires planning permission now
and secure permission prior to
tender.

Ranking

Mitigation & Controls

Impact

Ranking

Likelihood

Failure to get planning

permission may delay project
progress or require design
changes.

Impact

Category

Risk

Planning

E.g.

Identifier

No.

Likelihood

Residual
Risk

Raw Risk

Risk
Owner

Action Required

Date

ESCO

Manage design and

construction to
ensure stays within
planning constraints.

Q1
2015

Value

Some of the main risks categories to consider when identifying risks are provided below.

Project Risk

Risk analysis and management of proposed project as a whole.

Failure to get buy-in from your organisation.

Planning risk

Parts of the project require planning permission, environmental permits, etc.

Installation does not comply with planning/environmental/regulatory
requirements.

Development &
Procurement stage risk

Initial estimates of costs or savings unrealistic.

Client decides not to proceed with project.
Project viability risk
Construction or commissioning delays will delay cash flows from savings.
Construction cost overruns.
Equipment not installed according to design and savings specifications.
Technical performance issues that result in savings being lower than expected.
Equipment failure or unreliability.
Weather changing heating or cooling requirements or space going outside
agreed environmental conditions.
Metering or monitoring equipment failure.
Difficulties in measuring and verifying savings.
Required operation and maintenance is not performed.
Change to energy demand pattern due to downsizing, reduced production
volumes, relocation of some activities to another site; reduced demand for
energy will reduce value of savings.
The residual value of equipment at end of contract term is less than expected.
Risk of bankruptcy of main or sub-contractors, or of client/host.
Changes in energy prices.
Changes to regulations or legislation that may impact project.
Parties dont adhere to contractual responsibilities.
Construction risk
Late completion of the Interim Period.
Lack of human resources
Potential for adverse publicity or damage to corporate reputation if project
goes badly, interest or staff groups oppose the project, or media/political
developments.

Implementation / Design
& Construction stage risk
Operating risk

Demand risk

Residual value risk

Financial risk
Legal risk
Works risk
Organisational risk
Reputational risk

Usually the project sponsor is ultimately responsible for project risk, but the project manager has overall
responsibility for ensuring the process is adequately followed, the results meaningful, and any actions
followed up, during the entire risk management process
Risk identification is usually done by brainstorming with the project team, and any additional people the
organisation regards as important contributors.
A facilitator, familiar with the risk management process, should run the risk workshop. This may be an
external party or somebody internal who has researched the topic. Ideally the project manager should not
also be the facilitator, as they should be free to focus on the identification of risks.
The roles and responsibilities table, similar to below, should be completed and inserted in Stage 3 of the EPC
Workbook.

Overall responsibility for risk

Project Sponsor

Overall responsibility for project

risk management

Project Manager

Risk Manager (where the project is

large enough or this role could be
combined with another project
role, i.e. Programme, Commercial
or Change manager
Risk workshop Facilitator
Risk Owners with responsibility for
managing each risk:

Risk Management Guidance for Government Departments & Offices DF

http://www.finance.gov.ie/viewdoc.asp?DocID=2179

http://govacc.per.gov.ie/risk-management/
http://ppp.gov.ie/key-documents/guidance/central-guidance
http://www.ndfa.ie/Publications/stdDocumentation.htm