When starting risk management, the first thing you need to do is understand and identify the risks. Once you've done that, you need to quantify and assess them to see their likelihood and their impact on the project. Lastly, and most critically, you need to figure out which of the sponsors are best able to manage the those risks. Risk management in project is very concerned with moving risks away from the project. Let's take a look at the really big risks that most projects face.

Firstly, construction delays, which will typically lead to cost overruns during the construction phase and delay the revenue that we expect to create during the operational phase.

Operational problems, this could be higher than expected costs, such as gas, wholesale costs for a power plant or lower than expected revenue, such as the tariff for the energy produced being disappointing or general operational and management problems such as the IT system governing the plant not working. Supply problems. If we continue with the idea of power plant and you've got an electricity generator, if you don't have gas coming in to run the turbines, that will cause no income because you're not generating any electricity to sell.

Deficient demand. In the case of selling a project to the general public, this is a very, very difficult thing to get right. One of the things to consider is whether the project has been done before. If there are many examples of the project like a power plant or an oil refinery, then it will be more difficult to assess the risk of deficient demand. However, if it's a unique project, in other words, it's never been done before, like the channel tunnel in the UK or the cross rail tunnel in London, that's very, very difficult to assess the risks. You're more likely to face problems either during the construction or the operational phase. This will lead investors to find this much more difficult to get comfortable with in terms of a risk profile, and that's where you might need to get the government involved and get things like credit enhancement to give those investors a little more comfort.

Other key risks are political risks. In some countries, because of political risk, investors will be much more cautious, and again, they will need perhaps some guarantees to get comfort around those risks. Another major risk is more macroeconomic in the form of interest rates or inflation. If these are running higher than expected, it can be very impactful. This is particularly the case if the debt isn't fixed and if commodity prices move with inflation.

Both of these represent major costs to most projects, so any unforeseen change to them will have a large impact.