Investment decision-making under risk (reliability) and uncertainty for infrastructure asset management

Risks and uncertainties are inevitable in engineering projects and infrastructure investments. Decisions about investment in infrastructure such as for maintenance, rehabilitation and construction works can pose risks, and may generate significant impacts on social, cultural, environmental and other related issues. This report presents the results of a literature review of current practice in identifying, quantifying and managing risks and predicting impacts as part of the planning and assessment process for infrastructure investment proposals. In assessing proposals for investment in infrastructure, it is necessary to consider social, cultural and environmental risks and impacts to the overall community, as well as financial risks to the investor. The report defines and explains the concept of risk and uncertainty, and describes the three main methodology approaches to the analysis of risk and uncertainty in investment planning for infrastructure, viz examining a range of scenarios or options, sensitivity analysis, and a statistical probability approach, listed here in order of increasing merit and complexity. Forecasts of costs, benefits and community impacts of infrastructure are recognised as central aspects of developing and assessing investment proposals. Increasingly complex modelling techniques are being used for investment evaluation. The literature review identified forecasting errors as the major cause of risk. The report contains a summary of the broad nature of decision-making tools used by governments and other organisations in Australia, New Zealand, Europe and North America, and shows their overall approach to risk assessment in assessing public infrastructure proposals. While there are established techniques to quantify financial and economic risks, quantification is far less developed for political, social and environmental risks and impacts. The report contains a summary of the broad nature of decision-making tools used by governments and other organisations in Australia, New Zealand, Europe and North America, and shows their overall approach to risk assessment in assessing public infrastructure proposals. While there are established techniques to quantify financial and economic risks, quantification is far less developed for political, social and environmental risks and impacts. For risks that cannot be readily quantified, assessment techniques commonly include classification or rating systems for likelihood and consequence. The report outlines the system used by the Australian Defence Organisation and in the Australian Standard on risk management. After each risk is identified and quantified or rated, consideration can be given to reducing the risk, and managing any remaining risk as part of the scope of the project. The literature review identified use of risk mapping techniques by a North American chemical company and by the Australian Defence Organisation. This literature review has enabled a risk assessment strategy to be developed, and will underpin an examination of the feasibility of developing a risk assessment capability using a probability approach.

Decision support tools for concrete infrastructure rehabilitation (using FRP composites)

This report presents a summary of the research conducted by the research team of the CRC project 2002-005-C, “Decision support tools for concrete infrastructure rehabilitation”. The project scope, objectives, significance and innovation and the research methodology is outlined in the introduction, which is followed by five chapters covering different aspects of the research completed. Major findings of a review of literature conducted covering both use of fibre reinforced polymer composites in rehabilitation of concrete bridge structures and decision support frameworks in civil infrastructure asset management is presented in chapter two. Case study of development of a strengthening scheme for the “Tenthill Creek bridge” is covered in the third chapter, which summarises the capacity assessment, traditional strengthening solution and the innovative solution using FRP composites. The fourth chapter presents the methodology for development of a user guide covering selection of materials, design and application of FRP in strengthening of concrete structures, which were demonstrated using design examples. Fifth chapter presents the methodology developed for evaluating whole of life cycle costing of treatment options for concrete bridge structures. The decision support software tool developed to compare different treatment options based on reliability based whole of life cycle costing will be briefly described in this chapter as well. The report concludes with a summary of findings and recommendations for future research.

Drivers of technology substitution : successive generations of high tech products

Principal Topic High technology consumer products such as notebooks, digital cameras and DVD players are not introduced into a vacuum. Consumer experience with related earlier generation technologies, such as PCs, film cameras and VCRs, and the installed base of these products strongly impacts the market diffusion of the new generation products. Yet technology substitution has received only sparse attention in the diffusion of innovation literature. Research for consumer durables has been dominated by studies of (first purchase) adoption (c.f. Bass 1969) which do not explicitly consider the presence of an existing product/technology. More recently, considerable attention has also been given to replacement purchases (c.f. Kamakura and Balasubramanian 1987). Only a handful of papers explicitly deal with the diffusion of technology/product substitutes (e.g. Norton and Bass, 1987: Bass and Bass, 2004). They propose diffusion-type aggregate-level sales models that are used to forecast the overall sales for successive generations. Lacking household data, these aggregate models are unable to give insights into the decisions by individual households - whether to adopt generation II, and if so, when and why. This paper makes two contributions. It is the first large-scale empirical study that collects household data for successive generations of technologies in an effort to understand the drivers of adoption. Second, in comparision to traditional analysis that evaluates technology substitution as an ''adoption of innovation'' type process, we propose that from a consumer's perspective, technology substitution combines elements of both adoption (adopting the new generation technology) and replacement (replacing the generation I product with generation II). Based on this proposition, we develop and test a number of hypotheses. Methodology/Key Propositions In some cases, successive generations are clear ''substitutes'' for the earlier generation, in that they have almost identical functionality. For example, successive generations of PCs Pentium I to II to III or flat screen TV substituting for colour TV. More commonly, however, the new technology (generation II) is a ''partial substitute'' for existing technology (generation I). For example, digital cameras substitute for film-based cameras in the sense that they perform the same core function of taking photographs. They have some additional attributes of easier copying and sharing of images. However, the attribute of image quality is inferior. In cases of partial substitution, some consumers will purchase generation II products as substitutes for their generation I product, while other consumers will purchase generation II products as additional products to be used as well as their generation I product. We propose that substitute generation II purchases combine elements of both adoption and replacement, but additional generation II purchases are solely adoption-driven process. Extensive research on innovation adoption has consistently shown consumer innovativeness is the most important consumer characteristic that drives adoption timing (Goldsmith et al. 1995; Gielens and Steenkamp 2007). Hence, we expect consumer innovativeness also to influence both additional and substitute generation II purchases. Hypothesis 1a) More innovative households will make additional generation II purchases earlier. 1 b) More innovative households will make substitute generation II purchases earlier. 1 c) Consumer innovativeness will have a stronger impact on additional generation II purchases than on substitute generation II purchases. As outlined above, substitute generation II purchases act, in part like a replacement purchase for the generation I product. Prior research (Bayus 1991; Grewal et al 2004) identified product age as the most dominant factor influencing replacements. Hence, we hypothesise that: Hypothesis 2: Households with older generation I products will make substitute generation II purchases earlier. Our survey of 8,077 households investigates their adoption of two new generation products: notebooks as a technology change to PCs, and DVD players as a technology shift from VCRs. We employ Cox hazard modelling to study factors influencing the timing of a household's adoption of generation II products. We determine whether this is an additional or substitute purchase by asking whether the generation I product is still used. A separate hazard model is conducted for additional and substitute purchases. Consumer Innovativeness is measured as domain innovativeness adapted from the scales of Goldsmith and Hofacker (1991) and Flynn et al. (1996). The age of the generation I product is calculated based on the most recent household purchase of that product. Control variables include age, size and income of household, and age and education of primary decision-maker. Results and Implications Our preliminary results confirm both our hypotheses. Consumer innovativeness has a strong influence on both additional purchases (exp = 1.11) and substitute purchases (exp = 1.09). Exp is interpreted as the increased probability of purchase for an increase of 1.0 on a 7-point innovativeness scale. Also consistent with our hypotheses, the age of the generation I product has a dramatic influence for substitute purchases of VCR/DVD (exp = 2.92) and a strong influence for PCs/notebooks (exp = 1.30). Exp is interpreted as the increased probability of purchase for an increase of 10 years in the age of the generation I product. Yet, also as hypothesised, there was no influence on additional purchases. The results lead to two key implications. First, there is a clear distinction between additional and substitute purchases of generation II products, each with different drivers. Treating these as a single process will mask the true drivers of adoption. For substitute purchases, product age is a key driver. Hence, implications for marketers of high technology products can utilise data on generation I product age (e.g. from warranty or loyalty programs) to target customers who are more likely to make a purchase.

Re-life of buildings - decision support tools for maximising project efficiency

This paper describes the process adopted in developing an integrated decision support framework for planning of office building refurbishment projects, with specific emphasize on optimising rentable floor space, structural strengthening, residual life and sustainability. Expert opinion on the issues to be considered in a tool is being captured through the DELPHI process, which is currently ongoing. The methodology for development of the integrated tool will be validated through decisions taken during a case study project: refurbishment of CH1 building of Melbourne City Council, which will be followed through to completion by the research team. Current status of the CH1 planning will be presented in the context of the research project.

Decision support in using fibre reinforced polymer (FRP) composites in rehabilitation of concrete bridge structures

This paper compares and reviews the recommendations and contents of the guide for the design and construction of externally bonded FRP systems for strengthening concrete structures reported by ACI committee 440 and technical report of Externally bonded FRP reinforcement for RC structures (FIB 14) in application of carbon fiber reinforced polymer (CFRP) composites in strengthening of an aging reinforced concrete headstock. The paper also discusses the background, limitations, strengthening for flexure and shear, and other related issues in use of FRP for strengthening of a typical reinforced concrete headstock structure such as durability, de-bonding, strengthening limits, fire and environmental conditions. A case study of strengthening of a bridge headstock using FRP composites is presented as a worked example in order to illustrate and compare the differences between these two design guidelines when used in conjunction with the philosophy of the Austroads (1992) bridge design code.

Creating a proactive decision-support environment in managing road traffic noise

Properly designed decision support environments encourage proactive and objective decision making. The work presented in this paper inquires into developing a decision support environment and a tool to facilitate objective decision making in dealing with road traffic noise. The decision support methodology incorporates traffic amelioration strategies both within and outside the road reserve. The project is funded by the CRC for Construction Innovation and conducted jointly by the RMIT University and the Queensland Department of Main Roads (MR) in collaboration with the Queensland Department of Public Works, Arup Pty Ltd., and the Queensland University of Technology. In this paper, the proposed decision support framework is presented in the way of a flowchart which enabled the development of the decision support tool (DST). The underpinning concept is to establish and retain an information warehouse for each critical road segment (noise corridor) for a given planning horizon. It is understood that, in current practice, some components of the approach described are already in place but not fully integrated and supported. It provides an integrated user-friendly interface between traffic noise modeling software, noise management criteria and cost databases.

Decision - Support Software Tool Handbook

The road and transport industry in Australia and overseas has come a long way to understanding the impact of road traffic noise on the urban environment. Most road authorities now have guidelines to help assess and manage the impact of road traffic noise on noise-sensitive areas and development. While several economic studies across Australia and overseas have tried to value the impact of noise on property prices, decision-makers investing in road traffic noise management strategies have relatively limited historic data and case studies to go on. The perceived success of a noise management strategy currently relies largely on community expectations at a given time, and is not necessarily based on the analysis of the costs and benefits, or the long-term viability and value to the community of the proposed treatment options. With changing trends in urban design, it is essential that the 'whole-of-life' costs and benefits of noise ameliorative treatment options and strategies be identified and made available for decisionmakers in future investment considerations. For this reason, CRC for Construction Innovation Australia funded a research project, Noise Management in Urban Environments to help decision-makers with future road traffic noise management investment decisions. RMIT University and the Queensland Department of Main Roads (QDMR) have conducted the research work, in collaboration with the Queensland Department of Public Works, ARUP Pty Ltd, and the Queensland University of Technology. The research has formed the basis for the development of a decision-support software tool, and helped collate technical and costing data for known noise amelioration treatment options. We intend that the decision support software tool (DST) should help an investment decision-maker to be better informed of suitable noise ameliorative treatment options on a project-by-project basis and identify likely costs and benefits associated with each of those options. This handbook has been prepared as a procedural guide for conducting a comparative assessment of noise ameliorative options. The handbook outlines the methodology and assumptions adopted in the decision-support framework for the investment decision-maker and user of the DST. The DST has been developed to provide an integrated user-friendly interface between road traffic noise modelling software, the relevant assessment criteria and the options analysis process. A user guide for the DST is incorporated in this handbook.

The role of decision-maker preferences in tenancy selection of CBD office accommodation – preliminary literature review

The literature and anecdotal evidence suggests that that there is more to tenancy selection (firm location) than the profit maximisation drive that traditional neo-classical economic location theory suggests. In the first instance these models assume property markets are rational and perfectly competitive; the CBD office market is clearly neither rational nor perfectly competitive. This fact alone relegates such models to the margins of usefulness for an industry that seeks to satisfy tenant demand in order to optimise returns on capital invested. Acknowledgment of property market imperfections are universally accepted to the extent that all contemporary texts discuss the lack of a coherent centralised market place and incomplete and poorly disseminated information processes as fundamental inadequacies which characterise the property market inefficiencies. Less well researched are the facets of the market which allow the observer to determine market activity to be significantly irrational. One such facet is that of ‘decision maker preferences’. The decision to locate a business operation at one location as opposed to another seems ostensibly a routine choice based on short, medium and long term business objectives. These objectives are derived from a process of strategic planning by one or more individuals whose goal is held to be to optimise outcomes which benefit the business (and presumably those employed within it). However the decision making processes appear bounded by how firms function, the institutional context in which they operate, as well as by opportunistic behaviour by individual decision makers who allow personal preferences to infiltrate and ‘corrupt’ the process. In this way, history, culture, geography, as well as institutions all become significant to the extent that these influence and shape individual behaviour which in turn determine the morphology of individual preferences, as well as providing a conduit for them to take effect. This paper exams historical and current literature on the impact of individual behaviour in the decision making process within organisations as a precursor to an investigation of the tenancy decision making process within the CBD office market. Literature on the topic falls within a number of research disciplines, philosophy, psychology and economics to name a few.

Framework for investment decision-making under risk and uncertainty for infrastructure asset management

A study has been conducted to investigate current practices on decision-making under risk and uncertainty for infrastructure project investments. It was found that many European countries such as the UK, France, Germany including Australia use scenarios for the investigation of the effects of risk and uncertainty of project investments. Different alternative scenarios are mostly considered during the engineering economic cost-benefit analysis stage. For instance, the World Bank requires an analysis of risks in all project appraisals. Risk in economic evaluation needs to be addressed by calculating sensitivity of the rate of return for a number of events. Risks and uncertainties of project developments arise from various sources of errors including data, model and forecasting errors. It was found that the most influential factors affecting risk and uncertainty resulted from forecasting errors. Data errors and model errors have trivial effects. It was argued by many analysts that scenarios do not forecast what will happen but scenarios indicate only what can happen from given alternatives. It was suggested that the probability distributions of end-products of the project appraisal, such as cost-benefit ratios that take forecasting errors into account, are feasible decision tools for economic evaluation. Political, social, environmental as well as economic and other related risk issues have been addressed and included in decision-making frameworks, such as in a multi-criteria decisionmaking framework. But no suggestion has been made on how to incorporate risk into the investment decision-making process.

Before the first export decision : internationalisation readiness in the pre-export phase

Although the internationalisation process of the firm has been well researched since the 1970s, the behaviour of firms prior to internationalisation has not received commensurate research attention.This paper argues that a focus on firms’ pre-internationalisation activities will not only offer an additional important perspective to the study of firm internationalisation but it will also address a significant research gap in studies that are theoretically based on the so-called stages models. During the pre-internationalisation phase, a firm is exposed to stimuli factors that may trigger an impulse for foreign market expansion. Decision makers’ perceptions of stimuli, their attitudinal commitment towards internationalisation, the firms’ resources and capabilities, as well as the mediating effect of lateral rigidity comprise a learning process that leads a firm towards readiness to initiate an internationalisation decision. This paper advances the concept of internationalisation readiness and proposes a method for developing an Internationalisation Readiness Index.

Workflow simulation for operational decision support

Simulation is widely used as a tool for analyzing business processes but is mostly focused on examining abstract steady-state situations. Such analyses are helpful for the initial design of a business process but are less suitable for operational decision making and continuous improvement. Here we describe a simulation system for operational decision support in the context of workflow management. To do this we exploit not only the workflow’s design, but also use logged data describing the system’s observed historic behavior, and incorporate information extracted about the current state of the workflow. Making use of actual data capturing the current state and historic information allows our simulations to accurately predict potential near-future behaviors for different scenarios. The approach is supported by a practical toolset which combines and extends the workflow management system YAWL and the process mining framework ProM.

Membership retention within the sporting industry : factors affecting relationship dissolution

Relationship dissolution has been somewhat ignored in the study of relationship marketing paradigm. While there has been an abundance of literature giving broad conceptualizations on how to master the intricacies of relationships, very little has discussed the concept of relationship dissolution. This is especially true of the sporting industry, which does not yet understand the factors that contribute to members relinquishing their membership and severing relationship ties with the club. Team performance was found to be the most powerful predictor of relationship dissolution; however, both satisfaction with the sportscape and emotional bonds had a significant influence on the decision for a member not to renew their membership. Although team performance is mostly out of the hands of sport marketers, greater focus should be given to implementing strategies that enhance the emotional aspects of the club-member relationship while also improving aspects of the service facility.

Cross-cultural differences in self-reported decision-making style and confidence

The Melbourne Decision Making Questionnaire (Mann, Burnett, Radford, & Ford, 1997) measures selfreported decision-making coping patterns. The questionnaire was administered to samples of University students in the US (N = 475), Australia (N = 262), New Zealand (N = 260), Japan (N = 359), Hong Kong (N = 281), and Taiwan (N = 414). As predicted, students from the three Western, individualistic cultures (US, Australia, and New Zealand) were more con® dent of their decision-making ability than students from the three East Asian, group-oriented cultures (Japan, Hong Kong, Taiwan). No cross-cultural differences were found in scores on decision vigilance (a careful decision-making style). However, compared with Western students, the Asian students tended to score higher on buck-passing and procrastination (avoidant styles of decision making) as well as hypervigilance (a panicky style of decision making). Japanese students scored lowest on decision self-esteem and highest on procrastination and hypervigilance. It was argued that the con¯ ict model and its attendant coping patterns is relevant for describing and comparing decision making in both Western and Asian cultures.

The Melbourne Decision-Making Questionnaire : an instrument for measuring patterns for coping with decisional conflict

A study was conducted to examine the factorial validity of the Flinders Decision Making Questionnaire (Mann, 1982), a 31-item self-report inventory designed to measure tendencies to use three major coping patterns identified in the conflict theory of decision making (Janis and Mann, 1977): vigilance, hypervigilance, and defensive avoidance (procrastination, buck-passing, and rationalization). A sample of 2051 university students, comprising samples from Australia (n=262), New Zealand (n=260), the USA (n=475), Japan (n=359), Hong Kong (n=281) and Taiwan (n=414) was administered the DMQ. Factorial validity of the instrument was tested by confirmatory factor analysis with LISREL. Five different substantive models, representing different structural relationships between the decision-coping patterns had unsatisfactory fit to the data and could not be validated. A shortened instrument, containing 22 items, yielded a revised model comprising four identifiable factors-vigilance, hypervigilance, buck-passing, and procrastination. The revised model had adequate fit with data for each country sample and for the total sample, and was confirmed. It is recommended that the 22-item instrument, named the Melbourne DMQ, replace the Flinders DMQ for measurement of decision-coping patterns.

Decision-making style and self-concept

The Flinders Decision-Making Questionnaire (FDMQ) (Mann, 1982), which measures three decision-making styles and decision-making self-esteem, and the Self-Description Questionnaire III (SDQ HI) (Marsh & O'Neill, 1984), which measures 13 facets of self-concept; were administered to 475 university students to investigate some of the tenets of Janis and Mann's (1976, 1977) conflict model of decision-making and to further investigate the influence of self-concept on decision-making behaviours. The findings empirically validated Janis and Mann's (1977) link between decision-making self-esteem and decision-making style. Modest relationships, in the predicted direction, were found between decision-making self-esteem and the three decision-making styles (Vigilance, Defensive Avoidance, and Hypervigilance). In addition, specific facets of self-concept (General, Verbal, Academic, Honesty/Reliability and Problem-Solving Self Concepts) were related to self-reported decision-making behaviours.