**3. Qualitative multi-criteria risk analysis and decision-making process**

### **3.1 Qualitative multi-criteria risk analysis**

In the definition of the project execution model, a stakeholder uses resources for realizing the project activities or tasks [2]. According to this definition, the main dimensions of a project are the project stakeholders or the structural organization, the project life cycle and the resources. The internal and external environmental factors can induce risk events which may have positive and negative consequences for the project stakeholders, resources and the project progression. In the end, these factors may impact the project objectives in terms of time, cost, quality, and safety [4] (**Figure 2**).

For instance, the macro-economic factors can influence the project funding or raw material costs; a politic or social factor can influence a stakeholder behavior; a legal factor can influence the project progression; the behavior of the public client can influence the relational flows between the stakeholders; positive public opinion about the project can induce opportunities for the project's realization.

Following the modeling of the risk breakdown structure of the environmental factors, the next step is to define a qualitative risk evaluation method to assess the external and internal environmental risk factors and to develop a global risk evaluation for the project. This assessment can be conducted at two levels:


**Figure 2.**

*Effects of environmental factors on the project realization.*

The first assessment corresponds to a qualitative multi-criteria risk analysis, as part of a formalized decision-making process. The definition of the multi-criteria analysis is based on the risk breakdown structure of both sets of environmental risk factors and sub-factors. The qualitative risk assessment is realized by evaluating the environmental factors and the sub-factors in the Likert-scale from High Risk (HR) to High Opportunity (HO) as indicated in **Table 5**. In this way, we obtain a qualitative risk matrix for the external and internal environmental factors. An example of a risk matrix with the qualitative evaluations is illustrated in **Table 6**.

After codifying the Likert scale using the values in **Table 5**, the arithmetic mean "N*EnvExt"* is calculated as the risk evaluation score for the external environment of the project. Alike, the arithmetic mean "N*EnvInt"* is calculated as the risk evaluation score for the internal environment of the project. The following equations are used:

Evaluation of external environmental factors:

$$N\_{Env\to x} = \frac{1}{8} \sum\_{i=1}^{8} N\_{cr-env-ext\_i} \tag{1}$$

where n*env-exti* is the evaluation score for each external sub-factor *i*, and n*env-ext* is the total number of the sub-factors attached to an external factor.

**1. External environmental factors Sub-factors Qualitative evaluation**

1.4. Social X 1.5. Client influence 1.5.1. Image of the client X

> 1.5.2. Relations with the client X 1.5.3. Communication frequency X 1.5.4. Feed-back X 1.5.5. Experience of the client X 1.5.6. PM assistance X 1.5.7. Project budget X

> 1.5.8. Financial capacity of the client X 1.5.9. Change management ability X

1.6.2. Competitor's size X 1.6.3. Technical capacity X 1.6.4. Financial capacity X 1.6.5. Partners X

1.7.2. Special products X 1.7.3. Material price fluctuation X

1.1. Political-legal X 1.2. Contractual X 1.3. Economic X

*Risk Analysis in Early Phase of Complex Infrastructure Projects*

*DOI: http://dx.doi.org/10.5772/intechopen.94643*

1.6. Competitive environment 1.6.1. Number of the competitors X

1.7. Technology 1.7.1. Technical difficulties X

1.8. Force majeure X

4 X 4

*i*¼1

where N*cr-env-inti* is the evaluation score for each internal environmental factor. For the internal factors with multiple sub-factors attached, the calculation of the evaluation score N*cr-env-inti* for an internal environmental factor is similar as in the external environment analysis. The evaluation score of an internal environmental

*nenv*�int

where n*env-inti* is the evaluation score for the internal sub-factor *i*, and, n*env-int*

*Ncr*�*env*�int*<sup>i</sup>* (3)

**HR R N O HO**

<sup>X</sup>*nenv*�int*<sup>i</sup>* (4)

*NEnvInt* <sup>¼</sup> <sup>1</sup>

*Ncr*�*env*�int*<sup>i</sup>* <sup>¼</sup> <sup>1</sup>

Evaluation of internal environmental factors:

*Qualitative risk matrix for environmental risk and opportunity factors.*

**Table 6.**

**29**

factor *i* is calculated using the following formula:

is the total number of the sub-factors per internal factor.

where N*cr-env-exti* is the evaluation score for each external environmental factor. For the factors such as "Client influence" where there are multiple sub-factors attached, the factor's evaluation "N*cr-env-exti"* is calculated using the following formula:

$$N\_{cr-env-ext\_i} = \frac{1}{n\_{env-ext}} \sum n\_{env-ext\_i} \tag{2}$$


**Table 5.**

*Qualitative scale for risk and opportunity levels.*


#### *Risk Analysis in Early Phase of Complex Infrastructure Projects DOI: http://dx.doi.org/10.5772/intechopen.94643*

#### **Table 6.**

The first assessment corresponds to a qualitative multi-criteria risk analysis, as part of a formalized decision-making process. The definition of the multi-criteria analysis is based on the risk breakdown structure of both sets of environmental risk factors and sub-factors. The qualitative risk assessment is realized by evaluating the environmental factors and the sub-factors in the Likert-scale from High Risk (HR) to High Opportunity (HO) as indicated in **Table 5**. In this way, we obtain a qualitative risk matrix for the external and internal environmental factors. An example

After codifying the Likert scale using the values in **Table 5**, the arithmetic mean "N*EnvExt"* is calculated as the risk evaluation score for the external environment of the project. Alike, the arithmetic mean "N*EnvInt"* is calculated as the risk evaluation score for the internal environment of the project. The following equations are used:

of a risk matrix with the qualitative evaluations is illustrated in **Table 6**.

*NEnvExt* <sup>¼</sup> <sup>1</sup>

*Ncr*�*env*�*exti* <sup>¼</sup> <sup>1</sup>

8 X 8

*i*¼1

where N*cr-env-exti* is the evaluation score for each external environmental factor. For the factors such as "Client influence" where there are multiple sub-factors attached, the factor's evaluation "N*cr-env-exti"* is calculated using the following formula:

*nenv*�*ext*

**Risk/opportunity level Score Color code** High risk (HR) 1 Red Risk (R) 2 Orange Neutral (N) 3 Yellow Opportunity (O) 4 Green High opportunity (HO) 5 Dark Green

*Ncr*�*env*�*exti* (1)

<sup>X</sup>*nenv*�*exti* (2)

Evaluation of external environmental factors:

*Effects of environmental factors on the project realization.*

*Issues on Risk Analysis for Critical Infrastructure Protection*

**Figure 2.**

**Table 5.**

**28**

*Qualitative scale for risk and opportunity levels.*

*Qualitative risk matrix for environmental risk and opportunity factors.*

where n*env-exti* is the evaluation score for each external sub-factor *i*, and n*env-ext* is the total number of the sub-factors attached to an external factor.

Evaluation of internal environmental factors:

$$N\_{Envlnt} = \frac{1}{4} \sum\_{i=1}^{4} N\_{cr-env-int\_{i}} \tag{3}$$

where N*cr-env-inti* is the evaluation score for each internal environmental factor. For the internal factors with multiple sub-factors attached, the calculation of the evaluation score N*cr-env-inti* for an internal environmental factor is similar as in the external environment analysis. The evaluation score of an internal environmental factor *i* is calculated using the following formula:

$$N\_{cr-env-int\_i} = \frac{1}{n\_{env-int}} \sum n\_{env-int\_i} \tag{4}$$

where n*env-inti* is the evaluation score for the internal sub-factor *i*, and, n*env-int* is the total number of the sub-factors per internal factor.

For the risk matrix example illustrated in **Table 6**, the resulting evaluation score for the "external risk environment" of the project is:

$$N\_{En\nu\text{Ext}} = 2.55\tag{5}$$

The strategic and environmental analysis permits to identify and assess the main opportunity and risk factors in the early phase of the project. With the help of the multi-criteria analysis, project managers can also compare multiple projects and

When a GO or ACCEPT decision is taken for the project, a response planning should be developed for the risk factors deemed critical. For instance, if a potential risk is identified attached to the contractual frame of the project, this factor should be analyzed in detail. Action plans should be developed to minimize the possible legal and administrative disruptions and prepare a realistic risk allocation

In the later phases, with the project progress, more information will be available about the project. Then, the strategic and environmental risk analysis of the project evolves towards a formalized risk management process. In this approach, the risk and opportunity factors can be identified and analyzed in a more detailed structure

In **Figure 4** some risk events examples are illustrated, attached to the organizational factors in the internal environmental analysis, such as inaction of decision makers, unavailability of stakeholders, communication problems, poor definition and allocation of responsibilities. In this step, a formalized risk register can be developed with the risk and opportunity events, the qualitative or quantitative assessment of probability of occurrence and possible impacts in terms of cost, delay,

For complex projects such as infrastructure construction projects, implementing a risk management strategy is essential to achieve the project goals. It is essential to be aware of project risks related to environmental factors in order to develop the appropriate action plans. Structuring a risk management strategy that includes not only risk events but also opportunities will be beneficial for the business strategy. However, developing a robust and reliable risk management strategy can be quite difficult for complex infrastructure construction projects. Complex projects may

quality and safety. Then, a risk response planning can be developed and implemented in order to mitigate the risk during the project life-cycle.

choose the most beneficial ones for the corporate strategy.

*Risk Analysis in Early Phase of Complex Infrastructure Projects*

*DOI: http://dx.doi.org/10.5772/intechopen.94643*

*Detailed risk analysis in later phases of the project based on the environmental analysis.*

and tracked during the project life-cycle [2, 5].

agreement.

**Figure 4.**

**4. Conclusion**

**31**

If the resulting evaluation score N*EnvExt* is smaller than 3, the external environment of the project is qualified as "risky" according to the qualitative scale of Table. If the resulting evaluation score evaluation score is larger than 3, the environment is qualified as "opportune". The evaluation score N*EnvInt* for the internal environment of the project can be calculated and assessed in a similar way.

#### **3.2 Decision-making process**

Following the analysis of the project's external and internal environments, the risk evaluation scores help to assess if the project will be opportune or not for the company. Based on this assessment, the company can take a go/no go decision for the project. **Figure 3** shows the decision-making process. If the evaluation score of the external environmental analysis "N*EnvExt*" is larger than or equal to 3, we look at the evaluation score "N*EnvInt*" of the internal environmental analysis. If this evaluation score is also larger than or equal to 3, the project is qualified as an "opportune" project. An opportune project means that the project shows more opportunities than risk aspects. A GO or ACCEPT decision is proposed with a risk monitoring option.

If the evaluation score of the internal environmental analysis "N*EnvInt*" is smaller than 3, a brainstorming session is organized for discussing if the company can deal with the project risk when necessary risk mitigation actions are planned. If the project managers agree that there are more opportunities than risk and the negative risk impacts could be reduced with the application of action plans, they could propose a GO or ACCEPT decision.

If the evaluation score N*EnvExt* is smaller than 3, we look at the evaluation score N*EnvInt*. If this score is also smaller than 3, the project is qualified as a "risky" project, which means that there is more risk than opportunities and a STOP or REJECT decision is generally proposed. If the evaluation score is larger than or equal to 3, a brainstorming session is organized for discussing if the company can develop action plans to mitigate the negative risk impacts.

**Figure 3.** *Decision-making process for the environmental risk analysis.*

*Risk Analysis in Early Phase of Complex Infrastructure Projects DOI: http://dx.doi.org/10.5772/intechopen.94643*

#### **Figure 4.**

For the risk matrix example illustrated in **Table 6**, the resulting evaluation score

If the resulting evaluation score N*EnvExt* is smaller than 3, the external environment of the project is qualified as "risky" according to the qualitative scale of Table. If the resulting evaluation score evaluation score is larger than 3, the environment is qualified as "opportune". The evaluation score N*EnvInt* for the internal

Following the analysis of the project's external and internal environments, the risk evaluation scores help to assess if the project will be opportune or not for the company. Based on this assessment, the company can take a go/no go decision for the project. **Figure 3** shows the decision-making process. If the evaluation score of the external environmental analysis "N*EnvExt*" is larger than or equal to 3, we look at the evaluation score "N*EnvInt*" of the internal environmental analysis. If this evaluation score is also larger than or equal to 3, the project is qualified as an "opportune" project. An opportune project means that the project shows more opportunities than risk aspects. A GO or ACCEPT decision is proposed with a risk

If the evaluation score of the internal environmental analysis "N*EnvInt*" is smaller than 3, a brainstorming session is organized for discussing if the company can deal with the project risk when necessary risk mitigation actions are planned. If the project managers agree that there are more opportunities than risk and the negative risk impacts could be reduced with the application of action plans, they

If the evaluation score N*EnvExt* is smaller than 3, we look at the evaluation score

N*EnvInt*. If this score is also smaller than 3, the project is qualified as a "risky" project, which means that there is more risk than opportunities and a STOP or REJECT decision is generally proposed. If the evaluation score is larger than or equal to 3, a brainstorming session is organized for discussing if the company can develop

environment of the project can be calculated and assessed in a similar way.

*NEnvExt* ¼ 2*:*55 (5)

for the "external risk environment" of the project is:

*Issues on Risk Analysis for Critical Infrastructure Protection*

**3.2 Decision-making process**

monitoring option.

**Figure 3.**

**30**

could propose a GO or ACCEPT decision.

action plans to mitigate the negative risk impacts.

*Decision-making process for the environmental risk analysis.*

*Detailed risk analysis in later phases of the project based on the environmental analysis.*

The strategic and environmental analysis permits to identify and assess the main opportunity and risk factors in the early phase of the project. With the help of the multi-criteria analysis, project managers can also compare multiple projects and choose the most beneficial ones for the corporate strategy.

When a GO or ACCEPT decision is taken for the project, a response planning should be developed for the risk factors deemed critical. For instance, if a potential risk is identified attached to the contractual frame of the project, this factor should be analyzed in detail. Action plans should be developed to minimize the possible legal and administrative disruptions and prepare a realistic risk allocation agreement.

In the later phases, with the project progress, more information will be available about the project. Then, the strategic and environmental risk analysis of the project evolves towards a formalized risk management process. In this approach, the risk and opportunity factors can be identified and analyzed in a more detailed structure and tracked during the project life-cycle [2, 5].

In **Figure 4** some risk events examples are illustrated, attached to the organizational factors in the internal environmental analysis, such as inaction of decision makers, unavailability of stakeholders, communication problems, poor definition and allocation of responsibilities. In this step, a formalized risk register can be developed with the risk and opportunity events, the qualitative or quantitative assessment of probability of occurrence and possible impacts in terms of cost, delay, quality and safety. Then, a risk response planning can be developed and implemented in order to mitigate the risk during the project life-cycle.

#### **4. Conclusion**

For complex projects such as infrastructure construction projects, implementing a risk management strategy is essential to achieve the project goals. It is essential to be aware of project risks related to environmental factors in order to develop the appropriate action plans. Structuring a risk management strategy that includes not only risk events but also opportunities will be beneficial for the business strategy. However, developing a robust and reliable risk management strategy can be quite difficult for complex infrastructure construction projects. Complex projects may

have a long and complex life-cycle, multiple stakeholders with a complex organizational plan, and contractual complexities. For these types of projects, the identification and assessment of risks is a difficult task and may depend upon the project's characteristics and the project's environmental conditions. Since complex projects can also be of strategic importance, the early project phases play an important role in risk analysis. During this period, the project managers should analyze whether the project could be beneficial or risky to the company, carry out strategic and feasibility studies, and decide to continue or not with the project. In this step, a robust decision-making strategy should be developed for the project's future, which includes a careful analysis of the risk and possible opportunities. However, the lack of precise information about the project and a large number of uncertainties may lead to certain limitations in the reliable identification and analysis of the risk and possible opportunities during the early project phase.

This paper outlines a formalized process of strategic and project environmental risk analysis at a very early stage of a complex infrastructure construction project. Examples show how this methodology has been put into practice.

In the process, the external and internal environmental risk and opportunity factors are identified and analyzed in a formalized approach to develop an optimal strategic decision to allocate certain resources to a prospective project and later, after preliminary studies, effectively consider the project for detailed studies. Then, a qualitative multi-criteria analysis is undertaken in order to evaluate the risk and opportunity factors attached to the external and internal environment of the project and to assess the overall risk level in the early project phases. At this level, highlighting the presence of uncertainties and the lack of detailed information about the project, the risk evaluation scores cannot present a firm conclusion on the overall risk assessment. However, the methodology can provide important elements to the project management and allows risk managers to discuss in detail the risk and possible opportunities to the project. In fact, the strategic and environmental analysis should be considered as a project analysis element before any decision-making process. The environmental risk analysis may provide insight for a realistic negotiation of risk allocation with the other project stakeholders. In addition, the process may provide an accurate global vision of the project and a good understanding of the project's environmental factors. The integration proposed in the model between environmental analysis and risk management received good feed-back from project experts when applying he process in operational cases.

During later project phases, the project and risk managers can perform a more detailed risk identification and analysis; identify risk and opportunity events in a more detailed breakdown structure, assess them qualitatively and quantitatively, provide risk response planning and monitor risks during the project life-cycle. The analysis can be conducted more thoroughly when the project data permits. The formalized approach integrated into the environmental risk analysis process can provide feedback on the project, and this information could be used in the analysis of future projects.

**Author details**

University of Versailles, Paris Saclay, France

provided the original work is properly cited.

\*Address all correspondence to: tepeli.esra@gmail.com

*Risk Analysis in Early Phase of Complex Infrastructure Projects*

*DOI: http://dx.doi.org/10.5772/intechopen.94643*

© 2020 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/3.0), which permits unrestricted use, distribution, and reproduction in any medium,

Esra Tepeli

**33**

*Risk Analysis in Early Phase of Complex Infrastructure Projects DOI: http://dx.doi.org/10.5772/intechopen.94643*

have a long and complex life-cycle, multiple stakeholders with a complex organizational plan, and contractual complexities. For these types of projects, the identification and assessment of risks is a difficult task and may depend upon the project's characteristics and the project's environmental conditions. Since complex projects can also be of strategic importance, the early project phases play an important role in risk analysis. During this period, the project managers should analyze whether the project could be beneficial or risky to the company, carry out strategic and feasibility studies, and decide to continue or not with the project. In this step, a robust decision-making strategy should be developed for the project's future, which includes a careful analysis of the risk and possible opportunities. However, the lack of precise information about the project and a large number of uncertainties may lead to certain limitations in the reliable identification and analysis of the risk and

This paper outlines a formalized process of strategic and project environmental risk analysis at a very early stage of a complex infrastructure construction project.

In the process, the external and internal environmental risk and opportunity factors are identified and analyzed in a formalized approach to develop an optimal strategic decision to allocate certain resources to a prospective project and later, after preliminary studies, effectively consider the project for detailed studies. Then, a qualitative multi-criteria analysis is undertaken in order to evaluate the risk and opportunity factors attached to the external and internal environment of the project

During later project phases, the project and risk managers can perform a more detailed risk identification and analysis; identify risk and opportunity events in a more detailed breakdown structure, assess them qualitatively and quantitatively, provide risk response planning and monitor risks during the project life-cycle. The analysis can be conducted more thoroughly when the project data permits. The formalized approach integrated into the environmental risk analysis process can provide feedback on the project, and this information could be used in the analysis

and to assess the overall risk level in the early project phases. At this level, highlighting the presence of uncertainties and the lack of detailed information about the project, the risk evaluation scores cannot present a firm conclusion on the overall risk assessment. However, the methodology can provide important elements to the project management and allows risk managers to discuss in detail the risk and possible opportunities to the project. In fact, the strategic and environmental analysis should be considered as a project analysis element before any decision-making process. The environmental risk analysis may provide insight for a realistic negotiation of risk allocation with the other project stakeholders. In addition, the process may provide an accurate global vision of the project and a good understanding of the project's environmental factors. The integration proposed in the model between environmental analysis and risk management received good feed-back from project

possible opportunities during the early project phase.

*Issues on Risk Analysis for Critical Infrastructure Protection*

experts when applying he process in operational cases.

of future projects.

**32**

Examples show how this methodology has been put into practice.
