Professionals must be proficient within risk management in order for a 3P to be successful. Risk management is inclusive of administering many types of risks in order to avert a crisis and cause serious damage to a project. In my last article, I briefly touched on risk assessments within 3Ps. However, one of the principal and most difficult types of risks is political ones. These are among the most critical within risk and crisis management due to their possible unforeseen nature.
What are Political Risks?
Political risks can be defined as actions taken by governmental authorities, whether any power has been authorized legally or not. These risks can create uncertainties to project objectives and goals by the political climate or political actors. Various types of political risks include taxes, bribery, contract default, protests/ strikes, and regulatory deviations. Instability may arise from political risks and oftentimes develop from political power struggles. Examples of instability risks are representatives of governments arguing over a related issue or mass riots in declining social conditions.
The Exercise of Political Power
Political power struggles can arise from any type of political risk, which can be detrimental to the project outcome. A skilled professional understands that political risks must be controlled. Managing political risks should be viewed as an opportunity to limit instability. In addition, bipartisan support is crucial. The loss of popularity with a political party subjects a 3P to additional judgment by the public. Citizens may assume that a specific party is not in favor of a 3P project due to current political or economic status and withhold support. Public support is a critical factor for a successful outcome as they will be consumers of the 3P project or program. For this reason, citizens are viewed as essential stakeholders.
Surviving Public Scrutiny
Public scrutiny is already a major factor within the establishment of 3Ps. Acknowledging that citizens compose an essential stakeholder group can facilitate either success or failure. Risk and crisis management entails mitigating all types of risks and involving all stakeholders within the 3P project, however, subjecting a project to public analysis is an added pressure. Ultimately, citizens would like to feel involved and will judge the perceived necessity of a project. Failure can be characterized as a waste of time and resources, a major embarrassment, and negatively influence citizens’ feelings regarding future 3P projects. Political risk is an added concern to surviving public scrutiny. At the current time when many governmental and political leaders are not viewed in a positive light, any political risks can be detrimental. Not only can they damage a project but also they may negatively sway public opinion and feelings towards 3Ps.
Mitigating Political Risks
Mitigation is a crucial aspect within risk management practices. Mitigating risk entails systems that allow risks to be planned for and carefully considered. For example, mitigation can be as simple as an insurance policy. On the other hand, it can be more complex, requiring a specific set of procedures to be written into the 3P contract. However, mitigating political risks is vital to the partnership as well. Managing these risks can be divided into a 3-stage process. Stage 1 is the identification of the precise risks. This is critical in order to separate whether risks are real or just “headline hype”. This ensures the partnership that they are dealing with true risks and can work to challenge any potential innate biases. Through the establishment of a broad political risk scenario set, the partnership can prioritize any risks that are most relevant to the establishment of the 3P. Stage 2 involves the measurement of those risks. Financial measurements can be made and it will allow the partners to understand exactly how each classified risk can have a financial impact. Stage 3 entails the management of these risks. It is at this stage the processes and procedures for mitigation are crucial. Most organizations have specific techniques in place and 3P partnerships outline these methods within the legally binding contract.
This 3-stage process is one method in administering political risks. By utilizing this process, professionals can avoid any instability and negative public analysis, which are potentially disastrous factors.
