This paper aims to define an innovative method to estimate the investment risk thresholds, in order to provide the analyst with essential terms for the economic evaluation of the projects. The idea is to borrow from the As Low As Reasonably Practicable (ALARP) principle the concepts of the acceptability threshold and tolerability threshold of risk. Following this principle, generally used to assess the risk of human life loss, a risk is ALARP: when the costs for its mitigation appear to be disproportionate to the achievable benefits; that is when it lies between the unacceptable and the broadly acceptable region. To estimate the thresholds of acceptability and tolerability, the theoretical reference is the Capital Asset Pricing Model (CAPM), which enables to compare the investment risk not only to the return of the production sector in which the project under consideration falls, but also to the return of the market as a whole. The combined use of CAPM and statistical survey methods makes it possible to attribute the two risk thresholds to investments in a specific sector. In this paper, the focus is on risk assessment for building construction projects. For this production sector, the proposed analysis model is implemented with reference to official data concerning the Italian economy.

Estimation of risk levels for building construction projects

Maselli G.
Membro del Collaboration Group
;
Nestico Antonio
Membro del Collaboration Group
;
De Mare G.
Membro del Collaboration Group
;
Macchiaroli M.
Membro del Collaboration Group
;
Dolores L.
Membro del Collaboration Group
2020

Abstract

This paper aims to define an innovative method to estimate the investment risk thresholds, in order to provide the analyst with essential terms for the economic evaluation of the projects. The idea is to borrow from the As Low As Reasonably Practicable (ALARP) principle the concepts of the acceptability threshold and tolerability threshold of risk. Following this principle, generally used to assess the risk of human life loss, a risk is ALARP: when the costs for its mitigation appear to be disproportionate to the achievable benefits; that is when it lies between the unacceptable and the broadly acceptable region. To estimate the thresholds of acceptability and tolerability, the theoretical reference is the Capital Asset Pricing Model (CAPM), which enables to compare the investment risk not only to the return of the production sector in which the project under consideration falls, but also to the return of the market as a whole. The combined use of CAPM and statistical survey methods makes it possible to attribute the two risk thresholds to investments in a specific sector. In this paper, the focus is on risk assessment for building construction projects. For this production sector, the proposed analysis model is implemented with reference to official data concerning the Italian economy.
978-3-030-58807-6
978-3-030-58808-3
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11386/4753917
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