The ALARP Principle in the Cost-Benefit Analysis for the Acceptability of Investment Risk

Antonio Nesticò, Shuquan He, Gianluigi De Mare, Renato Benintendi and Gabriella Maselli
Additional contact information
Antonio Nesticò: Department of Civil Engineering, University of Salerno, 84084 Fisciano, Salerno, Italy
Shuquan He: School of Economics, Shanghai University, Shanghai 200444, China
Gianluigi De Mare: Department of Civil Engineering, University of Salerno, 84084 Fisciano, Salerno, Italy
Renato Benintendi: Megaris Ltd., Reading RG2 9FL, UK
Gabriella Maselli: Department of Civil Engineering, University of Salerno, 84084 Fisciano, Salerno, Italy

Sustainability, 2018, vol. 10, issue 12, 1-22

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.

Keywords: economic evaluation of projects; risk-management process; investment risk; probabilistic risk analysis; ALARP logic (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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