Risk is defined as the uncertain outcome of actions and events, either a positive opportunity or a negative threat, which may be within or outside the control of a project. The identification, assessment, and management of such factors are core activities of risk management.
Provided by: Net Zero Go
Risk is defined as the uncertain outcome of actions and events, either a positive opportunity or a negative threat, which may be within or outside the control of a project. The identification, assessment, and management of such factors are core activities of risk management. Effective risk management is a fundamental part of successful project management. It is critical to project success, not only increasing the likelihood of meeting the project’s objectives, but also generating efficiencies in delivery, improving the quality of results, maximising value for money, and optimising societal value.
Risk management applies across many areas of public sector activity, and this includes the development of decarbonisation projects. Your organisation will have its own approach to identifying, quantifying, and reporting on risks. You will need to identify these and follow as required.
A core component of risk management is the process of identifying potential events or situations which, if they occur, will negatively impact on the activity in question or ability to deliver it.
Risks are typically characterised and evaluated based on two aspects: the chance or likelihood that an event occurs, and the impact on the project or organisation should that event occur.
The chance or likelihood that an event occurs is often quantified in terms of its likelihood (e.g. highly likely, or more than 80% chance) as well as when it might occur (e.g. near term, or within one month).
The impact on the project or organisation should that event occur. The impact could be very small or a major blocker to a project.
When identifying risks, it is good practice to identify mitigation actions – these are approaches that allow you to either reduce the likelihood that the risk occurs or to reduce the impact of it should it arise.
A risk event will often lead to a number of aspects being affected – for example, an issue that leads to a health and safety risk may breach health and safety regulations, which would have a negative impact on reputation and may lead to a financial penalty.
Business risks – These risks remain entirely with the organisation, cannot be transferred by the organisation, and include political and reputational risks.
Service risks – These associated risks fall within the design, build, financing, and operational phases of the project and may be shared with others from outside the organisation.
External risks – These non-systemic risks affect everyone in society and are not connected directly with the proposal. They are inherently unpredictable and random in nature. They include technological disruption, legislation, general inflation, and catastrophic risks.
This is based on the recommendation from the Institute of Project Managers (IPM).
|
Summary |
Description |
|---|---|
|
Technical |
What the local energy project needs to do, what it is, and how it performs in its environment and with related systems. This includes technical performance of any equipment installed. |
|
Business and commercial |
Commercial arrangements for the local energy project that result in value being realised. This includes contracts, funding and financing, and any changes in the market environment that would impact the outcomes. |
|
Social |
People or groups involved in or impacted by a local energy project and its stakeholders, environment, and related systems. This includes any required behaviour change and citizen or user interactions. |
|
Policy |
Government interventions to support or constrain a local energy project and its stakeholders, environment, and related systems. Risks would include policy change or decision making. |
|
Legal |
Law relating to a local energy project and its stakeholders, environment, and related systems, including regulation. This includes health and safety – if the event puts the health and safety of staff, visitors, or service users at risk. |
|
Economic |
Economic impact or constraints on a local energy project and its stakeholders, environment, and related systems. |
|
Environment |
External effects associated with the development, production, utilisation, support, and retirement of a local energy project and its stakeholders, environment, and related systems. |
|
Organisation |
Organisation(s) delivering the project, including the supply chain. This includes risk to reputation or ability to deliver other services for a particular group of stakeholders. |
|
Project |
Delivery of local energy projects in terms of achieving the desired outcomes. |
|
Schedule |
Relating to the timing or delay of the delivery of a local energy project due to internal and external factors. |
Business risks are primarily associated with costs being higher than expected, which can either lead to insufficient budget being available or a forced overspend (which then impacts how the organisation delivers other projects). These costs can relate to both the capital (installation) or revenue (operational) aspects of the project. Below are some common issues that can arise in relation to financial risks:
Where the costs for delivery or operation are higher than forecasted as part of previous feasibility studies. This can mean the project may be unaffordable to deliver (i.e. insufficient capital is available), or the operating costs are too high (i.e. there is insufficient revenue budget to operate).
The costs of a project should be thoroughly reviewed to ensure they reflect the current market rate and offer value for money. The effect of inflation and the time between initial studies and procurement can mean that figures quickly become out of date. When costing projects, you should work with your finance team to ensure that inflation and contingency budgets are modelled.
Where issues arise that had not been planned for. This can be highly disruptive if identified during delivery.
Issues that result in unforeseen costs can be mitigated by including a suitable contingency within the proposed budget. They can also be mitigated by ensuring that the right level of survey and design are undertaken when planning the project.
Projects can disrupt building operations, affecting occupants and service delivery. In some cases, these may be acceptable, and the project can be delivered as planned. However, the impact may not be acceptable, in which case either project delivery must change, or alternative arrangements will be required.
Identifying potential operational impacts and planning mitigation strategies, such as scheduling work during off-peak times, can minimise disruptions and maintain normal operations.
These involve failures in technology or difficulties in integrating new systems. Assessing the technical feasibility and reliability of proposed solutions is crucial, particularly for complex projects.
A common risk for heating decarbonisation is the ability to provide sufficient heat to a building, particularly as heat pumps are more efficient when run at lower temperatures compared to traditional oil- or gas-based systems. Calculations for heat loss and output for the building are important when addressing this risk to ensure confidence that the system will work in practice.
Lack of support or resistance from building users or management can hinder project progress. Engaging stakeholders early and maintaining open communication can address concerns and build support for the project.
Designed to aid Local Authorities in developing robust, evidence-based plans to enable Net Zero.
Already have an account? Login
Guest preview of selected publicly available resourcesFull library of 1,000+ articlesCPD accredited e-learning coursesCase studiesDiscussion forum