Abstract
The process of allocating financial resources is extremely complex—both because the selection of investments depends on multiple, and interrelated, variables, and constraints that limit the eligibility domain of the solutions, and because the feasibility of projects is influenced by risk factors. In this sense, it is essential to develop economic evaluations on a probabilistic basis. Nevertheless, for the civil engineering sector, the literature emphasizes the centrality of risk management, in order to establish interventions for risk mitigation. On the other hand, few methodologies are available to systematically compare ante and post mitigation design risk, along with the verification of the economic convenience of these actions. The aim of the paper is to demonstrate how these limits can be at least partially overcome by integrating, in the traditional Cost-Benefit Analysis schemes, the As Low as Reasonably Practicable (ALARP) logic. According to it, the risk is tolerable only if it is impossible to reduce it further or if the costs to mitigate it are disproportionate to the benefits obtainable. The research outlines the phases of an innovative protocol for managing investment risks. On the basis of a case study dealing with a project for the recovery and transformation of an ancient medieval village into a widespread-hotel, the novelty of the model consists of the characterization of acceptability and tolerability thresholds of the investment risk, as well as its ability to guarantee the triangular balance between risks, costs and benefits deriving from mitigation options.
Highlights
For over 30 years, Risk Assessment and Management has been a stand-alone scientific discipline, and several attempts have been made to establish widely accepted definitions of key terms and concepts related to the field of risk [1,2,3,4,5,6,7,8,9,10,11,12,13]
In terms of purely qualitative definitions, risk is defined as the possibility of an unfortunate event; the potential occurrence of negative consequences arising from an incident; the set of consequences deriving from an activity and associated uncertainties or, the deviation from a reference value and the corresponding uncertainty measures
If correctly used in the Cost-Benefit Analysis, the As Low as Reasonably Practicable (ALARP) logic can be useful for the decision-making process, since it allows considering the qualitative and holistic components of the project within the CBA quantitative evaluation model [26]
Summary
For over 30 years, Risk Assessment and Management has been a stand-alone scientific discipline, and several attempts have been made to establish widely accepted definitions of key terms and concepts related to the field of risk [1,2,3,4,5,6,7,8,9,10,11,12,13]. It is this “true” uncertainty, and not risk, as has been argued, which forms the basis of a valid theory of profit and accounts for the divergence between actual and theoretical competition» [19] According to this interpretation, the consequences arising from risky events can have both negative and positive characters, configuring possible losses, and opportunities that result in a higher value [20]. The application to the case study shows how the model makes it possible to express a judgment on the economic suitability of a project in probabilistic terms, taking into account the acceptability and tolerability of the risk of the decision makers. The construction of a dataset in order to define specific thresholds of acceptability and tolerability of risk on a statistical basis can represent the step of the research
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