Development of a risk measure as a project selection criterion for sustainable development

Abstract

Risk is a relevant criteria to consider in a multi-criteria analysis of sustainable development projects. An original algorithm is developed for the derivation of a risk m asure based on the perception of risk as expressed by the participants. The application of the developed algorithm is tested using the Manitoba Hydro North Central Project as a case study. The one unique aspect of the risk measure is its use of participant weights to express the magnitude of the risk. Using the input from the affected participants enhances the assessment process. The joint risk estimate can be used to conduct a sensitivity analysis and determine where an acceptable level of risk lies in terms of societal priorities. Considering the risk of missing the positive benefits of a project as well as negative consequences broadens the meaning of the risk measure. Examining the positive and negative effects of projects allows the trade-offs offered by the alternatives to be analysed. The risk measure provides decision makers with additional information. The sensitivity analysis of the joint risk estimates and the presentation of these illustrate the agreement or disagreement between the participants. The risk measure offers a standardised framework for the assessment of projects based on risk. It is recommended that fuzzy logic be used to aid in the estimation of risk magnitudes to be used with the presented algorithm. In a multi-criteria analysis the independence of criteria is required. Therefore a risk criterion should be carefully incorporated in the decision making process. (Abstract shortened by UMI.)