Economic Risk Assessment Research Articles

Economic risk assessment of EPC projects using fuzzy TOPSIS approach

Economic risk assessment of EPC projects using fuzzy TOPSIS approach

Erratum to: Economic risk assessment of Cotopaxi volcano, Ecuador, in case of a future lahar emplacement

Erratum to: Economic risk assessment of Cotopaxi volcano, Ecuador, in case of a future lahar emplacement

Economic risk assessment of Cotopaxi volcano, Ecuador, in case of a future lahar emplacement

The Cotopaxi volcano in north-central Ecuador is one of the most dangerous volcanoes of the world due to its ability to generate far-reaching lahars, which are able to destroy infrastructure and endanger a high amount of population living close to the main fluvial drainages of this volcano. An economic evaluation of the infrastructure, which is above or close to the historic lahar deposits, has been undertaken in order to determine the values of direct and indirect damages of a potential future lahar. Such strategic infrastructure includes habituated and constructed areas, highways and hydroelectric plants besides many other structures or properties. Indirect damages include losses in revenues in water, food, energy and gasoline supply among others. The total losses of such damages are approximately 17 billon USD, representing 16.8 % of the Ecuadorian GDP. Simultaneously, the construction of mitigation structures able to retain lahars is calculated to be of about 150 million USD. The calculated benefit–cost ratio (1:114) is significant, entailing a cost reduction in 9912 %, and leads to the conclusion that the construction of mitigation structures is the most optional and justified choice for the authorities in order to protect life and prevent a high loss of strategic infrastructure.

Causes and consequences of the sinkhole at El Trébol of Quito, Ecuador – implications for economic damage and risk assessment

Abstract. The so-called El Trébol is a critical road interchange in Quito connecting the north and south regions of the city. In addition, it connects Quito with the highly populated Los Chillos Valley, one of the most traveled zones in the Ecuadorian capital. El Trébol was constructed in the late 1960s in order to resolve the traffic jams of the capital city and for that purpose the Machángara River was rerouted through an underground concrete box tunnel. In March 2008, the tunnel contained a high amount of discarded furniture that had been impacting the top portion of the tunnel, compromising the structural integrity. On 31 March 2008 after a heavy rainfall a sinkhole of great proportions formed in the Trébol traffic hub. In the first few minutes, the sinkhole reached an initial diameter of 30 m. The collapse continued to grow in the following days until the final dimensions of 120 m in diameter and some 40 m of depth, revealing the Machángara River at the base of the sinkhole.A state of emergency was declared. The cause of the sinkhole was a result of the lack of monitoring of the older subterranean infrastructure where trash had accumulated and damaged the concrete tunnel that channelized the Machángara River until it was worn away for a length of some 20 m, leaving behind the sinkhole and the fear of recurrence in populated areas.With the intent to understand the causes and consequences of this sinkhole event, rainfall data are shown together with hydrogeological characteristics and a view back to the recent history of sinkhole lineation or arrangement of the city of Quito. The economic impact is also emphasized, where the direct costs of the damage and the reconstruction are presented and compared to indirect costs associated with this socio-natural disaster. These analyses suggest that the costs of indirect financial damage, like time loss or delay, and subsequent higher expenses for different types of vehicles, are equivalent to many times the costs of the reconstruction of El Trébol.

Economic Risk Assessment of Early Stage Designs for Glycerol Valorization in Biorefinery Concepts

A systematic methodology to critically assess and screen among early stage design alternatives was developed for the use of glycerol. Through deterministic sensitivity analysis it was found that variations in the product and feedstock prices, total production cost, fixed capital investment, and discount rate, among others, have high impact on the project’s profitability analysis. Therefore, the profitability was tested under uncertainties by using NPV and MSP as economic metrics. The robust ranking of solutions is presented with respect to minimum economic risk of the project being nonprofitable (failure to achieve a positive NPV times the consequential profit loss). It was found that the best potential options for glycerol valorization is through the the production of either (i) lactic acid (9 MM$ economic risk with 63% probability of failure to achieve a positive NPV); (ii) succinic acid (14 MM$ economic risk with 76% probability of failure to achieve a positive NPV); or finally, (iii) 1,2-propanediol (...

Application of loss functions in process economic risk assessment

Loss functions describe the economical consequences of the deviations from the target values. In recent years they have been used in wide range of application including process safety assessment. This paper provides a novel analysis to assess potential loss due to process deviation. The assessed losses help to better estimate process economic risk, which in turn assist in effective process system design and operational decision-making. The analysis is presented in four different development stages: (i) loss functions focusing on simple functions; (ii) loss functions with estimated maximum loss; (iii) loss functions focusing on probability distributions; and (iv) loss functions in which both distributions of variables and their dependencies are considered (i.e., hierarchical Bayesian based loss functions). Details discussion on development stages three and four are presented with case studies. First case study demonstrates application of inverted probability distribution and while second case study provides application of the hierarchical Bayesian loss functions. Advantage and disadvantages of different types of loss functions are also discussed. Finally, future research directions have been proposed.

Risk analysis of development of the urbanized territories

Problem analysis and risk evaluation of urban areas has several related aspects. Together with the relative novelty of the scientific field management of development areas, tasks of risk management in terms of urbanization have not yet received sufficient research and methodological support. The purpose of the study is in the development and testing of an effective mechanism of analysis and evaluation of environmental and economic risks that arise in the process of realization projects of development in urban areas. Objects of the study are ecological and economic risks specific to projects of development in urban areas and arising from the process of transformation of the natural-anthropogenic environment. The hypothesis of the study is in adaptation principles of the method of analysis of hierarchies and application of consistent formal expert assessment of ecological and economic risks to the problems of analysis projects of development in urban areas, as a result of which it is proposed to carry out the selection of the most rational directions for practical implementation in conditions a particular urban environment. The result of research is the author’s approach to the adaptation of the well-known and positively proven in solving multi-criteria tasks method of analysis of hierarchies to identify and assessment the risk level development of urban areas based on multi-variation risk events and different probability of their existence.

Revenue management: A model for the artist booking of musicians?

This article tries to adapt aviation revenue management to the artist booking process for musicians. The targets are the proceedings between the booking agency and talent buyers. Using an adapted version of the EMSR-b (expected marginal seat revenue) method and standard nesting, the author develops a formal way to decide if a booking request should be accepted or not. The article also includes formal argumentation demonstrating why it makes sense for some musicians to play only at one type of venue size, whereas for other acts it is useful to play at venues of different sizes. The article is completed by an economic risk assessment of the different kinds of deals that are common in practice.

A method of ecological and economic risk assessment during the development of the shelf based on mathematical modelling

This paper proposes a method of mathematical modelling of ecological risk based on a synthesis of dynamic and probabilistic risk assessment techniques. The probability of assessment of an acceptable probability of an anthropogenic impact to minimize economic costs is proposed. The dependence of an acceptable probability of an anthropogenic impact on the ecological risk is demonstrated with an example calculation. The results of the modelling of the state of a shelf ecosystem based on the dynamic model are used for the calculation as source information. Based on this synthesis, the calculation results bring about the opportunity to balance ecological–economic goals of achieving safe development of the shelf and to satisfy the involuntary necessity to reduce the costs on environmental protection measures, while maintaining the priority of environmental requirements.

A flood risk curve development for inundation disaster considering spatio-temporal rainfall distribution

Abstract. To manage flood disaster with an exceeding designed level, flood risk control based on appropriate risk assessment is essential. To make an integrated economic risk assessment by flood disaster, a flood risk curve, which is a relation between flood inundation damage and its exceedance probability, plays an important role. This research purposes a method to develop a flood risk curve by utilizing a probability distribution function of annual maximum rainfall through rainfall-runoff and inundation simulations so that risk assessment can consider climate and socio-economic changes. Among a variety of uncertainties, the method proposed in this study considered spatio-temporal rainfall distributions that have high uncertainty for damage estimation. The method was applied to the Yura-gawa river basin (1882 km2) in Japan; and the annual economic benefit of an existing dam in the basin was successfully quantified by comparing flood risk curves with/without the dam.

Geometrical aspects of testing complex statistical hypotheses in mathematical simulation

It is well known that mathematical simulation parameters are often obtained by statistical estimation. Therefore the problem of testing complex statistical hypotheses, such as the one about a model parameters vector belonging to some domain, is of current concern. This article deals with the geometrical aspects of the problem. The basic theorem to solve this problem has been stated and proved. The theorem asserts that the solution can be obtained through testing some simple statistical hypothesis concerning a boundary point of maximum likelihood. The theorem proof is based on the use of a generalized Euclidean metric and an affine transformation of parameter space. Typical examples of its use for different mathematical models are also considered. They are the following: (i) Altman's model of the economic stability and risk assessment; an assessment of a specific enterprise is treated in terms of statistical hypotheses testing; (ii) a method to refine statistical estimations of production function parameters; (iii) a statistical estimation of spacecraft dynamic stability is considered on the basis of Kepler's model, as well.

The use of satellite data for agriculture drought risk quantification in Ukraine

This paper focuses on drought risk assessment using satellite data. Methods of the extreme value theory (EVT) are applied for a time series of vegetation health index (VHI) derived from the National Oceanic and Atmospheric Administration satellites in order to provide drought hazard mapping. A Poisson-GP (generalized Pareto) model is applied for modelling VHI extreme values. The model allows estimation and mapping of return periods of different categories of droughts. An approach to economical risk assessment due to droughts is presented that relies on the following components: damage function assessment, crop yield assessment, and crop area estimation. The advantage of the proposed approach is that it allows quantification of drought hazard through the drought return period, damages, and ultimately drought risk using satellite data. The derived drought hazard map is integrated with high-resolution crop map to provide final estimates of risk. The proposed approach is implemented for quantitative assessment of drought risk for the Kyiv region in Ukraine. The derived map shows that risk is distributed non-uniformly over the region, thus allowing identification of areas with higher risk. Such a map would be of great benefit to both local authorities to take directed actions to reduce the risk and insurance companies operating in agriculture sector.

Scenario-Based Economic Risk Assessment of Paddy Damage Caused by Floods in the Huai River Sub-Basin of China

ABSTRACTA new method, namely, the scenario-based method, is developed and further applied in assessing economic risk of paddy damage caused by floods in the Huai River sub-basin of China following these four steps: (1) generation of scenarios, (2) simulation of scenarios, (3) consequence of scenarios, and (4) comprehension of scenarios. In the first step, a rainfall Intensity-Duration-Frequency (IDF) model is established to generate a set of storm scenarios in the sub-basin by selecting seven return periods. In the second step, the flooding simulation for each scenario is carried out based on the distributed Rainfall-Runoff-Inundation (RRI) model to obtain inundation depth (meter) and time (day) over the sub-basin. In the third step, a grid-based Flood Economic Loss Estimation (FELE) model of paddies is employed to estimate economic losses of paddies in Chinese Yuan (CNY), where inundation depth and duration are treated as parameters for each scenario. In the last step, the Conditioned Expected Losses (CELs) in CNY for each county is derived as a measurement of risk by fitting the risk curve with scenario samples. Based on CELs, an economic risk zoning map of paddy damage caused by floods in the Huai River sub-basin was created as a final result.

Estimating impact of white spot disease on economic risk in semi‐intensive shrimp farms in Mexico: the case of the State of Sinaloa

AbstractWe estimated the impact on economic risk associated with the prevalence of white spot disease in shrimp farms in the State of Sinaloa, Mexico. Farms located in the jurisdiction of Local Aquaculture Health Boards (LAHBs) were used for preparing estimates during 2008–2010. Probability distributions of economic losses were calculated by comparing net revenues obtained under normal operations and operations affected by the disease, using Monte Carlo simulation, to estimate the impact of prevalence on losses in absolute and relative terms, probability of losing and loss per unit risk at USD$484.27/ha, 28.9%, 72.9% and 0.20. Regression analysis allowed estimating that, by an increases of 1% in prevalence, there were increases in the estimators of risk of USD$11.49/ha, 0.96%, 0.47% and 0.005. Correlation analysis showed that there were significant differences in prevalence among LAHBs districts and years. The higher prevalence coincided with the districts and years that exhibited higher risk. The source of water and use of nursery systems were the main differences in operating conditions among the districts, possibly determining to a large extent the differences in economic risk calculated for the districts. Sensitivity analysis indicated that prevalence was the main factor determining risk. A significant inverse relationship was found between shrimp prices and prevalence, as a consequence of speculative market conditions. The possibility of using this relationship for syndromic surveillance is considered. We propose the use of the estimators employed in this study for assessment of economic risk associated with white spot disease (and possibly others) and standardization of results for future research.

Economic-Mathematical Modeling of Social and Environmental Risks Management of Projects of Urbanized Territories Development

The article covers the problem of development of management methods of social and environmental risks of urbanized territories development. The main purpose of research is a development and scientific substantiation of economic-mathematical model, allowing to increase the efficiency of risk management of urban development and selection for the practical implementation of the most efficient investment and town-planning projects. During the investigation the conditions and possible consequences of socio-environmental violations of natural and antropogenic environment in urban areas were examined, the characteristics of the information base of the assessment and objects of socio-ecological and economic risks of urban development were identified, the peculiarities of the negative occurrences of the deterioration of environmental quality were distinguished. As a base for the source data array composition, the authors propose to use the common system of integral parameters of sustainable development and environmental indicators. As basic function of socio-ecological damage is proposed to use the direct dependency of the health level of the population from the most significant parameters of the environment, expressed in the econometric equation. For formal description of the dependency of economic-mathematical models, the whole complex of factors affecting the value of socio-ecological damage were studied, the drawbacks of simple regression models for description of interaction between the mentioned factors were examined, the assumption about the need to include in a formal description the factors of socio-economic risks of the interrelated equations system was made. The main result of the study is developed economic-mathematical model describing the process of formation of socio-environmental risk during implementation of investment and construction projects of urbanized territories development. The main conclusion of the study is the justification for the need to identify environmental and social risks and due to their presence the economic damage in the process of developing programmes and projects of urban territories development. The use of the proposed model assists with pictorial rendition of the correlation between environmental problems and development of city economy, as well as more objective substantiation of efficiency of investments in the urban environment development.

Economic Risk and Efficiency Assessment of Fisheries in Abu-Dhabi, United Arab Emirates (UAE): A Stochastic Approach

The fishing industry in Abu-Dhabi, United Arab Emirates (UAE), plays an important role in diversifying food sources in order to enhance national food security. The fishing industry is facing an increasing risk that may impact the sustainability (i.e., quantity and quality) of the fish caught and consumed in the UAE. Therefore, the main objective of this study is to analyze common Abu-Dhabi fishing management alternatives using various stochastic dominance techniques (i.e., first/second degree stochastic dominance, stochastic dominance with respect to a function and stochastic efficiency with respect to a function) to assess the risk facing UAE fishermen. The techniques represent a risk assessment continuum, which can provide a ranking of management alternatives to improve decision making outcomes and help maintain long-term UAE fishing sustainability. Data for the stochastic dominance analyses were obtained from a cross-sectional survey conducted through face-to-face interviews of Abu Dhabi, UAE, fishermen. Analysis of fishing methods, trap sizes and trap numbers using stochastic efficiency with respect to a function (SERF) showed that fishermen efficient practices were not the same for risk-neutral fishermen compared to risk averse fishermen. Overall, the stochastic dominance results illustrated the importance of considering both attitude towards risk and economic inefficiencies in managing UAE fishery practices and designing successful fishery policies, as well as improving decision-making at the fishermen level.

Bayesian belief networks as probabilistic graphical model for economical risk assessment

Realization of economical risks leads to occurrence of adverse effects which result in economic losses in the enterprise. The problem of different types of economical risks associated with the enterprise activities assessment and decision making systems’ construction on enterprise level as well as on different levels of enterprise performance comes up. In the paper I provide a state-of-art analysis of Bayesian belief networks use for economical risk assessment and decision making under uncertainty support in the framework of enterprise risk management. The areas of operational risk management and project risk management are singled out.

Case study: Risk analysis by overtopping of diversion works during dam construction: The La Yesca hydroelectric project, Mexico

A risk analysis-based methodology for the determination of the most economical layout dam–tunnel diversion works is introduced. The aim of the proposed procedure is to identify the least cost layout in terms of the diversion works overtopping risk. The methodology has been built upon the reliability theory advanced first-order second moment approach, and accounts for the probability of the maximum height reached by the upstream water elevation, associated with a design flood (as characterized by its return period), as well as for excavation and lining costs. The proposed procedure has been applied to the La Yesca hydroelectric project in Mexico, currently under operation. It is demonstrated that the use of composite roughness, which consists of lining the floor of the diversion tunnels with hydraulic concrete, while the walls and vault of the tunnels are lined with shotcrete, results in an increase in the discharge capacity of the tunnels, thus leading to a reduction of the overall risk of the project. The importance of economic risk assessments is emphasized and the flexibility of the proposed methodology to account for a suite of risk–cost combinations is shown.

Maintenance strategy for trunk mains: development and implementation of a high spatial resolution risk-based approach

This paper describes an enhanced concept for determining the right time and place for maintenance works (in this case rehabilitation and renewal), within the scope of a risk-based maintenance strategy for trunk mains, including a technical and economic risk assessment. The risks considered include damage caused by pipe failure (main burst) like revenue loss, third party property damage as well as damage to intangible assets (loss of company reputation). The innovative part of this concept is the intelligent combination of a remaining-service-life prognosis for pipelines with structural load factor verification, technical condition assessments, geo-referenced analyses and detailed costing. This approach allows a very detailed risk assessment of several thousand pipe sections (high spatial resolution approach). The outcome based on this concept are the required maintenance items (what and where) and a catalogue of maintenance actions (how and when) including maintenance type and costs.

A framework for a European network for a systematic environmental impact assessment of genetically modified organisms (GMO)

The assessment of the impacts of growing genetically modified (GM) crops remains a major political and scientific challenge in Europe. Concerns have been raised by the evidence of adverse and unexpected environmental effects and differing opinions on the outcomes of environmental risk assessments (ERA). The current regulatory system is hampered by insufficiently developed methods for GM crop safety testing and introduction studies. Improvement to the regulatory system needs to address the lack of well designed GM crop monitoring frameworks, professional and financial conflicts of interest within the ERA research and testing community, weaknesses in consideration of stakeholder interests and specific regional conditions, and the lack of comprehensive assessments that address the environmental and socio economic risk assessment interface. To address these challenges, we propose a European Network for systematic GMO impact assessment (ENSyGMO) with the aim directly to enhance ERA and post-market environmental monitoring (PMEM) of GM crops, to harmonize and ultimately secure the long-term socio-political impact of the ERA process and the PMEM in the EU. These goals would be achieved with a multi-dimensional and multi-sector approach to GM crop impact assessment, targeting the variability and complexity of the EU agro-environment and the relationship with relevant socio-economic factors. Specifically, we propose to develop and apply methodologies for both indicator and field site selection for GM crop ERA and PMEM, embedded in an EU-wide typology of agro-environments. These methodologies should be applied in a pan-European field testing network using GM crops. The design of the field experiments and the sampling methodology at these field sites should follow specific hypotheses on GM crop effects and use state-of-the art sampling, statistics and modelling approaches. To address public concerns and create confidence in the ENSyGMO results, actors with relevant specialist knowledge from various sectors should be involved.