Risks

Risks are factors that can hinder progress from one results level to the next. They are potential conditions, events, or actions that would adversely affect, or make it difficult to achieve, the outputs and outcome, or to sustain the outcome. All risks are recorded in the risk assessment and risk management plan (RAMP). Risks assigned ratings of high or substantial in the RAMP and whose occurrence would have a significant negative effect on achievement of the outputs or outcome are stated in the DMF.

Identifying risks

To identify risks, consider the following questions:

1. What are the forces acting against project success?
2. What occurrences or actions might happen at any point in the project cycle that would significantly jeopardize achievement of the intended results?

For example, 

the outcome -> “mobility of people and goods between cities A and B increased” 

critical factors -> deteriorating security conditions, adverse weather events beyond projected parameters, and deterioration of economic conditions decrease ability to pay for transport. 

The analysis would be as follows:

1. Importance: Are security conditions necessary to increase mobility? Yes. Are they likely to remain stable or improve? No. State as risk: “Security conditions in rural areas deteriorate.”
2. Would adverse weather events beyond projected parameters affect mobility? Yes. Are they likely to happen? Yes. State as risk: “Storm season is worse than projected.”
3. Is the decreased ability to pay likely to constrain mobility? Yes. Is it likely to happen? Preparatory studies show that people are able and willing to pay for transport, but there is a medium degree of likelihood that the country will enter a recession in the coming years, which if it happens, would reduce poor people’s ability to pay for transport. State as risk: “Deterioration of economic conditions decreases ability to pay for transport.”

A risk should satisfy two conditions to be included in the RAMP: 

1. Its occurrence must be uncertain, and if it occurs it should negatively affect the achievement of project results. For example, “security conditions” is not a risk; 
2. The current state of security is a known fact with no uncertainty. However, “security conditions deteriorate” is uncertain and therefore a possible risk. 

The RAMP should be updated throughout the course of project preparation. Any measure taken or planned that puts a risk within the project’s full control, or removes the uncertainty about it, also changes that risk to a fact, which should then be removed from the RAMP. A risk that is included as a covenant or a project readiness criterion, or is eliminated by project redesign, should not be included in the RAMP because it has been brought within the project’s full control.

Analyzing risks. 

An analysis of risks is important to understand the constraints the project may face. Some risks may be important enough to warrant action to mitigate their potential effects. Others, referred to as “killer risks,” may require the project to be redesigned or not undertaken. Figure 8 shows a risk analysis matrix that can be used to categorize risks and select appropriate actions.

Depending on the importance and/or likelihood of the risks occurring, the following actions can be taken.

1. Low: Accept risk, take no action.
2. Moderate: Periodically measure the risk factor, especially for changes in likelihood of occurrence.
3. Substantial and high: To the extent possible, mitigate effects through design (Box 10). Include design measures to reduce the likelihood of occurrence or the effects if the risk occurs and create a contingency plan to be ready to deal with the consequences of the risk occurring.
4. Killer risk: Redesign the project.

Box 10: Mitigation Tip

Registering risks. 

• All major risks to the project are identified and analyzed in the RAMP. 
• Rate each risk in the RAMP as high, substantial, moderate, or low. 
• List all high and substantial risks from the RAMP in a table . 
• From this table, identify all risks that would affect achievement of the outputs or outcome and that fit within the vertical logic of the results chain, and include these in the DMF (Box 11).

Box 11: Risk Tips