Risk Management and Governance for PFI Project ... - Title Page - MIT

“risk allocation matrix”, therefore, aims to perform a mapping of individual risks by using two
scales, “predictable” and “controllable”, based on the two standpoints.
Figure 13: Risk Allocation Matrix
The vertical axis, “predictable”, indicates the degree that the operator (private sector) can
perceive and predict the risks. In other words, a predictable risk means that there are sufficient
statistical data of a similar risk in actual cases or that the probability [distribution] of the risk
can be calculated. If a risk were predictable, the affect of the risk would become clearer (i.e.,
the expected value of the loss can be calculated) by the prediction. Therefore, if this type of
risk is borne by the private side, the risk is likely to be clear, which can also contribute to
removing the asymmetry of information.
Conversely, the horizontal axis, “controllable”, indicates the degree of flexibility that the
private side has to reduce the risks or the damage resulting from the risks by utilizing their
ingenuity. In other words, controllable risk is the risk whose probability of actualization can be
reduced by the private sector’s efforts or their original ideas. For example, these risks would
include the facility damage risk, which can be reduced by using security cameras, the missing
goods risk (e.g., books in public library), which can be reduced by putting IC tags on the goods,
and the demand risks, which can be overcome by improved user-friendliness (See the
examples described in Chapter 3). Therefore, if the private sector bears this type of risk, they
have an incentive to exert their originality.
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