An Application of Qualitative Risk Analysis as a Tool Adopted by Public Organizations for Evaluating "Green Projects"

Lanfranchi, Maurizio; Giannetto, Carlo; De Pascale, Angelina; Hornoiu, Remus Ion Article An Application of Qualitative Risk Analysis as a Tool Adopted by Public Organizations for Evaluating "Green Projects" Amfiteatru Economic Journal Provided in Cooperation with: The Bucharest University of Economic Studies Suggested Citation: Lanfranchi, Maurizio; Giannetto, Carlo; De Pascale, Angelina; Hornoiu, Remus Ion (2015) : An Application of Qualitative Risk Analysis as a Tool Adopted by Public Organizations for Evaluating "Green Projects", Amfiteatru Economic Journal, ISSN 2247-9104, The Bucharest University of Economic Studies, Bucharest, Vol. 17, Iss. 40, pp. 872-890 This Version is available at: https://hdl.handle.net/10419/168954 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/ AE An Application of Qualitative Risk Analysis as a Tool Adopted by Public Organizations for Evaluating “Green Projects” 872 Amfiteatru Economic AN APPLICATION OF QUALITATIVE RISK ANALYSIS AS A TOOL ADOPTED BY PUBLIC ORGANIZATIONS FOR EVALUATING “GREEN PROJECTS” Maurizio Lanfranchi1, Carlo Giannetto2, Angelina De Pascale3 and Remus Ion Hornoiu4 1) 2) 3)University of Messina, Italy 4) Bucharest University of Economic Studies, Romania Please cite this article as: Lanfranchi, M., Giannetto, C., De Pascale, A. and Hornoiu, R.I., 2015. An Application of Qualitative Risk Analysis as a Tool Adopted by Public Organizations for Evaluating “Green Projects”. Amfiteatru Economic, 17(40), pp. 872-890 Abstract This paper intends to explore the application of Qualitative Risk Analysis in evaluating the risk level associated with several public projects based on urban and peri-urban agriculture as a model of sustainable development of a territory. Therefore, urban agriculture is seen as an experimental model through which we can analyze the interaction between local institutions and citizens, as well as being a marketing tool to promote sustainability aspects linked to the territory. To this end, after a bibliographic review on the Qualitative Risk Analysis and the involvement of stakeholders in decisions relating to the public sector, a valuation of certain projects on the theme of urban and peri-urban agriculture, advanced by the local public Administration will be shown. The analysis proceeds with the classification of projects according to defined risk categories and their graphical representation through probability-impact matrix. The matrix shows that the data scores and the ranking vary significantly for each of the different projects involved. In this respect, the main purpose of this paper is to reveal how the success of a marketing policy based on the concept of sustainable marketing for promoting the territory depends, in many cases, not only on the characteristics of the territory analyzed, but also on the level of “riskiness” associated with the projects. Consequently, the empirical results of the paper can be a guide for public organizations, dealing with a plurality of projects but with limited resources, to assess and to prioritize projects using the level of “riskiness” as a criterion. Furthermore, economic resources could be directed to manage projects after taking into account the relevant risk ranking. Keywords: Risks Analysis, Sustainable local development, Sustainable marketing, Urban and peri-urban agriculture. JEL Classification: O22, Q1, P32, Q51  Corresponding author, Remus Ion Hornoiu - [email protected] Sustainable Business Marketing AE Vol. 17 • No. 40 • August 2015 873 Introduction In this article, urban agriculture is used as a marketing tool, used by the government, for the revival, in a sustainable key of the local economy, in line with what happens, for years now, in many European contemporary cities (D'Amico et al., 2013). This paper analyzes the strategy, developed by a public organization, in particular that of the Municipal Authority of Messina, based on urban and peri-urban agriculture projects, to achieve a sustainable economic development of the territory. With this aim, the proposed methodology is based on the evaluation of the risk level associated with the different projects proposed by the local public Administration. The selected method is the qualitative risk analysis conducted through the evaluation of local stakeholders or Local Support Groups. Therefore, after identifying the projects that the local authority intends to develop and making use of risk analysis, we defined the risks associated with them to assess the degree of actual feasibility, as well as costs associated with them due to the degree of risk exposure identified (D'Amico et al., 2014; Lanfranchi et al., 2014; Di Trapani et al., 2014). The results of the research show a classification of projects according to the defined risk categories and their graphical representation through a probability-impact matrix. The analysis also proves how conditions related to aspects of infrastructure, socio-economic and cultural rights existing in an area are not always able to guarantee the simultaneous achievement of all projects. The paper aims to reveal how the success of a marketing policy based on the concept of sustainable marketing for promoting the territory depends, in many cases, not only on the characteristics of the territory analyzed, but also on the level of “riskiness” associated with projects. The paper is ideally organized into two parts. First of all, a literature review on the risk analysis and on the involvement of stakeholders in public decisions in addition to an examination of the method of qualitative risk analysis as a helpful instrument to evaluate the risk level in the presence of stakeholder evaluations. Then, the need was to demonstrate the contribution of literature in the involvement of stakeholders’ expectations in public decisions (in particular the technique of brainstorming) and on the opportunity to develop effective relations with them as part of the community. The second part has contemplated an empirical study on the application of qualitative risk analysis in order to evaluate the risk level of different projects proposed by a local public Administration. The paper demonstrates that, this approach can be useful to assess and to prioritize projects using the “risk” as a criterion. Most public organizations have limited resources to manage all risks equally in all the projects. To overcome this problem, public organizations can assess and prioritize the risk level of each project, and manage them on the basis of risk level. For the development of that phase, in this paper, the evaluations of the members of the Local Support Group (LSG), were taken into consideration. In this light, the results are discussed and the conclusions are presented. 1. Background. Stakeholders and Risk Analysis 1.1 A risk definition The risk of a project can be defined as the “ability to not be able to pursue one or more of the objectives aimed at and agreed upon” (Bernstein and Peter, 1998). One possible definition of risk is “a possible event in the future (...) which, when it occurs, will result in relapse, negative or positive, of the project” (Cooper and Chapman, 1987). In common AE An Application of Qualitative Risk Analysis as a Tool Adopted by Public Organizations for Evaluating “Green Projects” 874 Amfiteatru Economic speech, the term “risk” is used almost exclusively to indicate adverse events, we shall classify risk as “an event or unfavourable condition that may occur during the project, with possible direct or indirect consequences on the project itself”. It is noted that the concept of risk is associated with a characteristic of pure probability: a risky event is only when there is uncertainty about its future occurrence, but it is believed that the definition is not completely exhaustive, consequently the concept of statistic “expected value” should be introduced: defining the risk (ρ) an amount proportional to the value of the damage (impact) caused by a problem multiplied by its probability (likelihood) of occurrence. The combination of the two variables determines the weight or size of each exposure or risk (risk exposure) that expresses the damage that could result because of the risk and therefore the level of priority (ranking list) with which it is managed. The causes of risk can be classified in terms of their origin, or can be divided into internal (endogenous) or external (exogenous). 1.2 The qualitative risk analysis to evaluate the projects’ risks The analysis presented in this paper makes use of the qualitative risk (Pappalardo et al., 2014). The qualitative analysis of risk is based on assigning values to general variables inherent to risks which can sometimes be based on subjective assumptions, especially where there is the inability to obtain additional information or their retrieval is too demanding compared to the importance of risk (Lanfranchi et al., 2014). The qualitative method, rates the magnitude of the potential impact resulting from a threat on a scale such as high, medium and low. This method can allow the public organizations to measure all potential impacts, whether tangible or intangible. According to D. Frame “The qualitative approach recognizes that experience coupled with hunches and good judgment enable people to develop insights that they cannot develop if they are constrained by the requirement that they work only with measurable phenomena. (...) This is particularly true with a range of situations, including first-of-a-kind experiences, circumstances where politics reign, and situations where outcomes are determined through negotiations” (Frame, 2003). We assume that risk is a function of a) the likelihood of a given threat and b) the resulting impact on the organization. This means that risk is not a single factor or event, but rather it is a combination of factors or events or threats that, if they occur, may have an adverse impact (in this case) on the public organization. As exposed, the main aim of a qualitative risk analysis, is to identify risks with low, moderate or high significance for a given project and provide information for the subsequent stage of the risk assessment process, i.e. risk evaluation. The value of likelihood and consequences of a specific event are given by description. D. Frame, gives such qualitative methods as: scenario building, the likelihood-impact matrix, attributes analysis, Delphi forecasting. In general, in the entire risk management process, following the identification of risks, the risks are assessed, which means that the most significant risks, as well as the risks which are less important for the project, are indicated. This can be done by using different methods such as Brainstorming, this heuristic method was created by A.F. Osborn. It involves, in particular, the assembling of a group of people, who are presented with a specific problem that needs to be solved. These people express ideas, of how to solve the problem they are able to come up with and these ideas are written down. In the final stage, a host needs to sum up the ideas by conducting an analysis and evaluating all of them. The basic assumption behind the brainstorming method is the fact that even the most unrealistic ideas cannot be criticized Sustainable Business Marketing AE Vol. 17 • No. 40 • August 2015 875 during the discussion (Osborn, 1969). It is commonly submitted, in the risk management literature, that part of the project risk management process requires the analysis of identified risks in terms of their potential consequences and probability of occurrence. This allows risks to be ranked for management priority. 1.3 Benefits of stakeholder involvement in the public sector decisions: a literature review Based on a review of the literature, we find that, within the public sector, there is a growing challenge for government to meet community and sectorial expectations and to develop effective relations with stakeholders that will further organizational objectives and policy outcomes. Decision makers decide to involve stakeholders in public decision-making for a number of reasons. They bring useful and relevant knowledge to the decision-making process; there is more likely to be stakeholder acceptance of the decisions, even if those decisions do not necessarily reflect individuals’ desired outcomes; and, to respond to changing community and sectorial expectations. In this context, Feldman and Khademian (2002) argue that managers within the public sector are responsible not only for policy outcomes but also for the suitability of the relationships they create and support. Governance in the public sector, they argue, consists of “multiple and reciprocal relationships that constrain and enable actions taken in a policy arena” (Feldman and Khademian, 2002). Public managers, they say, play a key role in determining the nature and quality of these relationships (Migliore et al. 2015; Lanfranchi et al., 2014). Whilst Feldman and Khademian do not use the word stakeholders, it is clear that the relationships they are talking about are relationships with stakeholders. “It is important for public managers to think about the relationships they are building, the capacity of these relationships to further democratic objectives, and their ability to accomplish policy goals” (Feldman and Khademian, 2002). The reasons for stakeholder involvement, both within the private and public sectors, have been described within the literature as substantive, instrumental or normative. The substantive argument proposes that involving stakeholders generates better decisions – they have access to information that might not otherwise be available; they can bring local knowledge and practical experience; they can ensure that social and cultural values are taken into consideration (Wynne, 1992; Wheeler and Sillanpaa, 1997; Migliore et al., 2014). From an instrumental point of view, stakeholder involvement means that the decisions are more likely to be accepted by all involved, even if they don’t necessarily reflect individuals’ desired outcomes. Involving stakeholders results in greater transparency and accountability of the decision-making process. Syme et al, (1999) have argued that “local procedural justice issues, particularly those pertaining to public involvement for local people in decision-making, were significant determinants of judgments of the fairness of the decisions” (Syme et al., 1999). Finally, there is a moral or normative argument for stakeholder involvement in decisions that affect them and their communities. It can be argued that this is achieved through the process of representative democracy “all governments need to consider these questions of more effectively tapping community aspirations and enabling deeper community involvement in a range of public policy issues” (Beierle, 2002; Beierle and Cayford, 2002). Whether for better informing decision-making, for legitimating decisions or for improving transparency, stakeholder involvement helps satisfy both the “technocratic requirement for the best decisions” and the “pluralistic requirement for the inclusion of the norms and values (...) in the decision- AE An Application of Qualitative Risk Analysis as a Tool Adopted by Public Organizations for Evaluating “Green Projects” 876 Amfiteatru Economic making process” (Glicken, 1999). In this light, evidently, stakeholders are relevant to the overall risk analysis process. They can be the source of relevant information and knowledge for the risk assessment process; their involvement in a timely, transparent manner should ensure that the decisions are more likely to be accepted and supported; and finally their involvement addresses the democratic principle that provides for people to have input in decisions that will affect them. Under these circumstances, to define the stakeholders becomes imperative. According to Freeman, stakeholders are “any group or individual who can affect or is affected by the achievement of the organization’s objectives” (Freeman, 1984). Clarkson proposed stakeholders are those who are voluntary or involuntary riskbearers (Clarkson, 1995). Eden and Ackermann present a slightly different definition. For them, stakeholders can only be groups or individuals with the power to directly affect the organization’s future, either by supporting or constraining its purpose (Eden and Ackermann, 1998). Those arguing for a more inclusive definition, propose that the interests of the nominally powerless must be taken into account, within a comprehensive stakeholder approach (Bryson, 2004). Others authors have argued that the stakeholder concept can also cover the non-human world (Glicken, J., 2000), proposing that the natural environment is a stakeholder in and of itself, given that the natural environment can affect and is certainly affected by organizational activity (Grimble and Wellard, 1997; Starik, 1995; Foster, 1997). 2. The analysis. Context and projects definition 2.1 Context analysis The province of Messina covers an area of 3.247,3 km2 (12.64% of the Region) and about 649.824 inhabitants (12,99% of regional population), in 280.324 households and a population density of 200,1 inhabitants per km2, in 2011. The area has a predominantly mountainous morphology. It includes the territories of 108 municipalities: 53 municipalities are considered as mountainous and represent 59% of the population; while the other 55 municipalities generally situated in the hilly areas have a population of close to 41%. In the 2011 Census, the City of Messina had a population of 243.262, with a land area of 211,2 km2 and a population density of 1.151,6 inhabitants per km2. 2.2 System Complexity The system was analyzed through the identification of some trends considered useful to develop clear diagnosis and derive from them practical and solid directions. The trends affecting the current and future opportunities and risks associated with the territory and, with it, the companies operating in it (Ungureanu 2008). Positive Negative Opportunities Threats Social Trends: Social Trends:  High environmental quality and sociocultural identity, the presence of conditions able to maintain social and  Ageing of the population and depopulation. Sustainable Business Marketing AE Vol. 17 • No. 40 • August 2015 877 Positive Negative Opportunities Threats economic cohesion.  Existence of suitable conditions for typical crops and products obtained with organic farming.  Depopulation of villages and the exodus of young people.  Existence of traditional activities that use ancient crafts.  High unemployment.  Presence of typical/traditional local products, especially in interior areas.  Distrust of economic operators to experiment with new forms of local development.  Presence of agricultural traditions of the territory. System Trends: System Trends:  In hilly areas, the presence of acceptable levels of accessibility for the population to urban centres with essential services.  Fragmentation of farms and the tendency to abandon farming.  Potential for processing and marketing of local food products.  Lack of enterprises and/or enterprise dynamism.  Increasing number of farms involved in receptivity and tourist services (i.e. agritourism).  Lack of skills in agriculture.  Presence of beach tourism in coastal areas, that can be integrated with ecological/natural/rural tourism.  Lack of sensitivity and concern for the environmental and cultural heritage present within the area by residents and institutions.  Richness of the natural, historical and cultural heritage, the presence of uncontaminated natural environments, opportunities to practice sports and outdoor recreation.  Poor marketing activity.  Presence of small firms that constitute risky endeavours.  Difficulty of access by public transport.  Prevalence of beach tourism in the local tourist proposal.  Lack of promotion of the local products at international and national levels. Politics: Politics:  Alignment with the regional strategy of development, with European funding opportunities: grants and programmes.  Political direction that often does not align with the goals of project.  Lack of funding to expand the agricultural sector. AE An Application of Qualitative Risk Analysis as a Tool Adopted by Public Organizations for Evaluating “Green Projects” 878 Amfiteatru Economic 2.3 Description of the Projects Project 1 The Food City Brand - The Project is a part of the City Brand Strategy aimed to involve food producers and restaurants, but also food events, festivals, food fairs, local farmers markets or any activities which involve food in order to support the city’s urban farming production and, in general, every local food product. Project 2 The Sustainable Food City Council - The Project is a network of public and private organizations in the City, strongly active to promote food that is both good for people and for the environment. Project 3 The Online Food Platform - The platform aims to become a global reference point that facilitates the sharing of information to support the city’s urban farming production and linkages between stakeholders including public bodies, communities and the private sector. Project 4 Educational Projects - These projects will have the aim to provide students with a complete gardening education that they can use to further their own involvement in urban agriculture. Project 5 Urban and peri-urban Agriculture Projects - Its aim is to develop sustainable urban and periurban agriculture in the City and its surroundings, through the increase of local food production, but also the increase of capacities of the producers, who are supported in this endeavor by their associations and public institutions that encourage local development. Project 6 The Agri-Food Cultural Centre - The Project provides agriculture information and advice to farmers, ranchers, fishers and the agriculture industry on topics ranging from crop and livestock production to new research and technology, regional programs, and farm business management, with the aim to encourage sustainable economic development in the City. 3. Methodology The research approach and methodology consists in the application of the qualitative risk analysis, through the involvement of local stakeholders representing the Local Support Group (LSG), to debate and to evaluate the potential risk associated with the different projects, highlighted above. The proposed methodology, identifies, on the basis of the above review of literature on the stakeholder analysis, the process and the role of stakeholder involvement in the public sector decisions and outlines risks associated with the different projects. In this respect, the methodology identifies stakeholders to involve in the qualitative risk analysis, this constitutes the basis for the identification of the main risk categories, distinguishing between internal and external risks. The next step was to associate the risk factor to the projects, for the development of this phase, the evaluation of the members of the LSG, were taken into consideration. Finally, through the technique of brainstorming the LSG expressed an evaluation by assigning a score to the different Sustainable Business Marketing AE Vol. 17 • No. 40 • August 2015 879 projects on the basis of the values of the likelihood and of the consequences of the associated risks. On this basis, a projects’ risk matrix has been determined, and an evaluation of the risks associated with the projects has been conducted. 3.1 Identifying stakeholders An initial list of 18 stakeholders was proposed as a Local Support Group. This list included farmers, government committees, farmer organizations, government agencies (Local and State) and research institutes. In order to better respond to these challenges, the process of synergy creation was articulated in several steps: a) understanding the actors: their strategies, visions and interests and how they interact with the territory; b) identifying themes along which to establish a dialogue; c) supporting the negotiation process amongst the actors in order to enter a possible socio-territorial pathway (Sgroi et al., 2015; Tudisca et al., 2015). In this light, further organizations (consumers groups, associations, citizen) were added to the list through this process of stakeholder nomination. The complete list consisted of 41 specific organizations, plus a number of additional categories of organizations/individuals that had been identified: policy makers, trading partners, hobby farmers, State park agencies, private conservation reserve managers and land councils. We used the occasion of the workshop to make a discussion with the stakeholders as the basis for providing further data for the risk analysis. The workshop agenda included a presentation by a representative from the different (public and/or private) bodies involved. Each presentation was followed by a discussion. Some of the issues raised in the discussion are taken into consideration in terms of consequences: the role of agriculture for enhancing the image of the territory; the bureaucracy; the access to international trade (or in many cases to local/national markets); etc (Crescimanno et al., 2014; Androniceanu and Drǎgulǎnescu, 2012). This constitutes the basis for the identification of the main risk’s categories, distinguishing between internal and external risks (table no. 1). Table no. 1: Risk’s categories (internal and external risks) Internal Risk External Risks System Complexity: Politics:  Lack of an adequate logistics system for delivery of goods  High Investment Costs  Lack of policies and procedures  Unforeseen regulatory requirements Time/Schedule: Technical Conditions:  Some schedule constraints exist but won’t affect completion date  Difficulty to schedule commitments  Multiple schedule constraints  Technological changes Socioeconomic Conditions:  Economic crisis  Market or operational risk  Price fluctuations  Corruption Site Characteristics:  Major Infrastructure  Minor infrastructure  Property: Municipal property/Private property Partnerships:  Constant partner motivation (a culture where actors trust and encourage each other). AE An Application of Qualitative Risk Analysis as a Tool Adopted by Public Organizations for Evaluating “Green Projects” 886 Amfiteatru Economic response; reflect the organisation’s level of risk tolerance; assist in developing a relative weight of project objectives that reflects the organization’s priorities in terms of time, cost, scope and quality for the project; assist the creation of an overall project priority list of risks created by the risks’ priority in respect to individual objectives. Therefore, the findings of this study prove that much of the above outlined by the researches can be used comprehensively, when a public organization manages public projects, as well as investment projects. Taking into account that every project is different and the decisions at which a project should be undertaken, depending on the situation and specific needs, have to be made on a case-by-case basis. Conclusions In this study the capacity of public organizations (Public Authority, Chambers of Commerce, etc.) to develop projects to enhance the local development (in this case, a sustainable development of the territory in consideration of the nature of projects involved and evaluated) was analyzed. The process described, in this analysis, was formulated by running workshops with relevant stakeholders that constituted the Local Support Group in which specific project risks were identified. Risks have been assessed by qualitative methods (Asciuto et al., 2015). The study demonstrates that to obtain information, in a descriptive way on risk, public organizations can adopt qualitative methods of evaluation that are agreed upon and that can be easier explained to others, especially when they use the technique of brainstorming. The literature review shows that this approach was used, above all, for the evaluating and the managing of investment projects (see Korombel A.) or the entrepreneurial risk, which in most cases, is assessed by qualitative and quantitative methods. In the environmental field, where the risk perceptions are known to differ between experts and community, particularly when these risks are associated with radiation, nuclear power, or nuclear waste, the risk analysis is used to assess the relevance of the substantial contamination (of some substance or pollution) to the health and livelihoods of the local population with the goal of informing remediation activity through a combination of quantitative and qualitative risk assessments (see Kajenthira A et al.). In this respect, the main limitations of this approach regard the fact that qualitative assessment results are usually descriptive and do not imply an exact quantification of risk. The qualitative assessment often provides support for further investigation of the quantitative, but can also provide information needed for risk management. The success of the evaluation is given by the way it is documented and the summarizing of the data to be processed. However, for the purpose of this paper, a qualitative assessment is preferred to quantities for several reasons, because it gives the perception of speed and ease of implementation; appears to be more accessible and easily understood by the public organization and by the community; there is insufficient data to make a quantitative assessment. Though numerical data is preferred in making decisions, the qualitative evaluation results satisfy a range of needs. The principles of assessment are the same and apply uniformly in the evaluation methods to ensure continuity from data collection. Therefore, a risk profile achieved by qualitative methods can be easily improved further by a quantitative assessment given that it is interesting and useful to public organizations. That does not mean that the results of qualitative investigations do not provide enough information. Conversely, as demonstrated, assessment of qualitative risk can capture different perspectives. The findings of this research show that a qualitative risk analysis can Sustainable Business Marketing AE Vol. 17 • No. 40 • August 2015 887 contribute to identifying the currently available data, the uncertainty of the data, the probable magnitude of the risks associated etc. In this regard, the findings of this research study cannot be broadly generalized on the basis of the pre-existing literature. However, the empirical results of the paper can constitute the basis of a guide for public organizations, that often deal with many projects and have only limited resources, to assess and to prioritize projects using the level of “riskiness” as a criterion, and it also suggests that a qualitative understanding of stakeholder risk perceptions can play an important role in striving towards a sustainable and long-term risk management. In this respect, the article concludes with a practical example of the use of probability-impact matrix or the risk matrix as it is known in literature. It recognizes that risk management could be one of the competences of the public organizations able to promote an effective and efficient allocation of resources for the management of project risks. Acknowledge This study is a part of the project “Sustainable Food in Urban Communities” Urbact II City of Messina. This paper is a result of the full collaboration of all the authors. 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