This is the authors version published as:

Pangeran, M.H., dan Pribadi, K.S. (2010). Conceptual Model of Analytical Network Process for Prioritizing Risk in A PPP Infrastructure Project, Proceedings of the First Makassar International Conference on Civil Engineering (MICCE2010), Makassar, 1217-1227, Hasanuddin University.

Proceedings of the First Makassar International Conference on Civil Engineering (MICCE2010), March 9-10, 2010, ISBN 978-602-95227-0-9

CONCEPTUAL MODEL OF ANALYTICAL NETWORK PROCESS FOR PRIORITIZING RISK IN A PPP INFRASTRUCTURE PROJECT
M. H. Pangeran 1, and K. S. Pribadi 2

ABSTRACT: Effective risk management is one of the key to success of a public private partnership (PPP) scheme in infrastructure development. The involved parties must pay particular attention to the project procurement process to ensure a fair and appropriate risk distribution. As one of the key step in risk management processes, innovative qualitative risk analysis methods need to be developed in order to maximize project benefit to parties involved in the project. An alternative technique for ranking and prioritizing risk in the PPP scheme for infrastructure investment using Analytical Network Process (ANP) is being developed and proposed, based on the understanding that risk management process involves the identification and prioritization of risks in order to enable the risks to be understood clearly and managed effectively. The model proposes a fair approach to analyze the risks from the point of view of the objectives set by the parties involved in the scheme. A conceptual model and how it is structured is described, criteria and assumptions are discussed with an illustrative example. Keywords: Infrastructure project, analytical network process, public private partnership, risk ranking, risk management

INTRODUCTION The development and provision of infrastructure services is traditionally in the domain of public sector or Government. For financing capacity reason, recent developments show that the public sector increasingly relies on the private sector involvement to finance, construct, operate and deliver infrastructure projects and services through public private partnership (PPP) mechanism. Abdel-Aziz (2007) stated that consideration of PPP schemes are usually based on the assumptions that PPP has the capability to mobilize private capital investment and that by having technical expertise and managerial skill, the private sector could provide similar service more efficiently compared to the public sector. The PPP schemes are quite broad and involve a continuum of options ranging from relatively low level arrangement such as service contract, management contract, lease contract, up to higher level schemes such as BOT (build-operate-transfer) and concession contract (Pribadi and Pangeran, 2007). Although each option can bring private sector expertise and incentives into the project, it should be noted that contract arrangement quality determines the level of benefit of a selected option and an appropriate risk allocation between parties plays an important part in this regards. Indeed, it is well recognized that the success of a PPP scheme in infrastructure project investment can not be
1 2

separated from the implementation of risk management in the project. It is essential to identify all of the potential risks throughout the whole life of the project. All involved parties must pay particular attention to the project procurement process to ensure a fair and appropriate risk distribution. However, there are many other factors which can be identified as risk which can give adverse effect to the project objectives if they occur. For example, Li, et.al (2005) identify at least 46 risk factors grouped in the categories of macro risk, meso risk, and micro risk, and classify them into sub categories such as political and government policy risks, macro economic risks, legal risks, social risks, natural risks, project selection risks, project finance risks, residual risk, design risks, construction risks, operation risks, relationship risks, and third party risks. Kwak, et.al (2009) identify more than 50 risk factors and classify them into six categories, namely, political risks, financial risks, construction risks, operation and maintenance (OM) risks, market and revenue risks, and legal risks. To formulate an appropriate risk response plan, those risks must be well assessed and prioritized. The objective of risk management is to identify and manage significant risks. In this case an organization can improve their performance (project or operation) effectively by focusing on high-priority risks (PMI, 2004). In practice, qualitative risk analysis is necessary

Phd Student, Bandung Institute of Technology, Bandung, INDONESIA Associate Professor, Bandung Institute of Technology, Bandung, INDONESIA

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before in-depth quantitative assessment is further conducted. Stam, et. al (2003) stated that the use of qualitative risk analysis is to provide a quick and clear picture of the identified risks, one that is easily understandable for everyone, whereas quantitative risk analysis can map more clearly the effect of any measure implemented. An alternative technique for ranking and prioritizing risk in the PPP scheme for infrastructure investment using Analytical Network Process (ANP) is being developed and proposed, based on the understanding that risk management process involves the identification and prioritization of risks in order to enable the risks to be understood clearly and managed effectively. The study started with a review of relevant literatures in order to provide a theoretical framework of method of qualitative risk analysis for risk ranking and prioritization. It includes related previous works in field of PPP project risk management to provide a scientific justification about this work. The study is still focusing on the model conceptualization of the method, including the discussion of criteria and assumptions and how it is structured, with exemplified by an illustration.

THEORETICAL BACKGROUND A PPP project arrangement requires risk analysis and management in order to maximize its benefit in the ability to transfer risk. In this context, the benefits of risk management, especially to the PPP agency, are (AG DFA, 2006): (i) enhanced performance delivery (i.e. early identification and systematic consideration of risks, effective risk allocation and monitoring in all areas, which contributes to greater likelihood of success in achieving project scope, innovation and KPIs or Key Performance Indicators); (ii) an accountable platform for project planning (i.e. assistance in developing criteria for evaluating tender responses; prioritization for the effective allocation of resources and improved value for money through appropriate and efficient risk allocation and management, reduction in project costs through development of a standardized process of allocating risk); (iii) a robust decision making process (i.e. improved decision-making through development of a comprehensive Public Sector Comparator-PSC model including the impact of project risks; placing an agency in a better position to negotiate a project contract through gaining a better understanding of the project risks, informed choice on preferred project partners; and detailed and measured due diligence process for projects strategic and operational stages); and (iv) positive return on taxpayers investment, hence, increased

government confidence in applying PPP to achieve value for money. There are various risk management frameworks available (i.e. PMI, 2004; Australian Standards, 2004), but generically, they all refer to a systematic process in identifying, analyzing and/or assessing, and responding to the risks. It involves processes, tools, method and techniques that will help to maximize the probability and results of positive events (risks as opportunities), and minimize the probability and consequences of adverse events (risk as threat) as appropriate within the context of risk to the overall project or operation objectives in cost, time, scope and quality. In practice, risk management is most effective when performed early in the life of the project and is a continuing responsibility throughout the projects life cycle. PMI (2004) defines risk as an uncertain event or condition that, if it occurs, has a positive or negative effect on at least on project objective, such as time, cost, scope, or quality. As one of key steps, risk identification is a process to find, list and characterize potential project risks. However, it must be borne in mind that it is an iterative process because new risks may become known as the project progresses through its life cycle and previously-identified risks may drop out. The frequency of iteration and who participates in each cycle will vary from case to case. The project participants must pay particular attention to and keep their involvement in the process so that they can develop and maintain a sense of ownership of, and responsibility for, the risks and associated risk response actions. Risk identification process is a prerequisite to the following risk analysis process (qualitative and/or quantitative). Qualitative risk analyses include methods for prioritizing the identified risk for further action, such as the subsequential quantitative risk analysis, and risk response planning (PMI, 2004). In practice, it may use forms of analysis that range from simple qualitative methods to more sophisticated semi-quantitative approaches. As a simple method, qualitative analysis may be based on nominal or descriptive scales for describing the likelihoods and consequences of risk. This is particularly useful for an initial review or screening or even when a quick assessment is required. In a more advance level, a semi-quantitative analysis may extend the simple qualitative analysis process by allocating numerical values to the descriptive scales. The numbers are then used to derive quantitative risk factors (Cooper, et.al, 2005). Several qualitative risk analysis techniques are available, such as risk probability and impact (PI) assessment, PI matrix, and risk urgency assessment (PMI 2004). Risk probability assessment investigates the likelihood of any specific risk occurrence, while risk

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impact assessment investigates the potential effect of any risk event on project objectives such as time, cost, and quality or performance, including both negative effects for threats and positive effects for opportunities. The probability and impact matrix technique can be used to classify risks according to their individual significance. Identified risk requiring near-term urgent responses may be considered to be addressed immediately. The use of risk probability and impact assessment is based on the assumption that risk is a product of its probability and its consequence or impact (for example, see Abdou, et.al, 2006; Odeyinka, et.al, 2006). To rate the risk factors, the method considers two attributes of risk, namely, the level of probability of occurrence (P), and the degree of impact or consequence of loss (C). The significance of a risk can be expressed as a combination of its consequences or impacts on project objectives, and the likelihood of those consequences arising. For example, the risk relative importance index, symbolized by RII (Odeyinka, et.al, 2006) or risk significance, symbolized by RS (Abdou, et.al, 2006), is expressed as a function of the two attributes, RII or RS = P*C. This is the basic concept to order the rank of each risk factor. In this method, the value of P and C are based on respondent judgment/ opinion, which may be obtained from a survey where respondent are asked to identify a list of relevant risk factors. In this case, the value of loss is just a relative perception on project objective, such as cost, time, scope, or quality. Respondent bias is reduced by providing a guidance to respond to the questionnaire. For example, to estimate P value, the respondents were asked to just select one level among five levels of probability of occurrence, namely: absent/extremely rare, rare, occasional, frequent and extremely frequent. For assessing the degree of loss, they may select one among five grades, namely: minor/no (an event that, if it occurred, would have no effect on project objective), low (an event that, if occurs, would cause only a small cost/ schedule/scope increase requirements would still be fulfilled), moderate (an event that, if occurs, would cause moderate cost/schedule/scope increases, but important requirements would still be met), high (an event that, if occurs, would cause major cost/schedule/scope increases secondary requirements may not be fulfilled), and extremely high (an event that, if occurs, would cause project failure inability to fulfill minimum acceptable requirements). .Another most used qualitative risk analysis technique is based on single value estimation, i.e. risk

criticality or importance index. Relatively, this method is simpler than risk probability and impact assessment. Various methods for conducting risk value estimation are available. For example, Askar and Gab-Allah (2002) used a scale from 0% up to 100% to rate the risk factors in a questionnaire based survey. Based on the assumption that each type of risk was considered independent from the other types, for each sub-factor from a type of risk, the respondent were asked to assign a relative weight (from 0 to 100%) and a rank (from 1 to n, where n is the total number of the sub-factors in a particular type of risk). Tang, et.al (2007) and Toan and Ozawa (2008) use a Likert type scale 1 5. Tang, et.al (2007) asked the respondents of the questionnaire based survey to list the importance of possible risks identified, on a scale of 1 5, where 1 represented negligible risk ad 5 represented extreme risk. Similar, but slightly different in use of language (Toan and Ozawa, 2008), the respondents were asked to rate the criticality of identified risks based on their perception and experience with the projects. The rating systems for the criticality of each risk include No experience, not critical at all, slightly critical, critical, very critical, and exceptionally critical and the respective scores are from 0 to 5. Generally, risk probability and impact assessment is useful and more comprehensive than single value risk criticality assessment, because of the consideration of two attribute of risk, probability and consequence. On the contrary single value risk criticality assessment can be very useful because the respondent is not forced to provide specific information or to estimate risk value in term of its probability of occurrence and consequence. However, both methods do not provide sufficient information about the risks, especially in the context of project which involves many parties with different interests, where risk for one party may become an opportunity to another (del Cano and de la Cruz, 2000), such as in the case of a PPP project procurement, which is built from a balancing contractual perspective by allocating risk and responsibility to the involved parties. The parties involved in a PPP project consist of at least the Government, the private sector consortia, and service users or community, by which each of the parties has different objectives that often conflicting with each other (Suprasom and Chen, 2005). Figure 1 provides an illustration of a typical structure for a PPP project.

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Lenders or financiers may be banks and other financial institutions that lend money to project.

It has to be noted that each attribute may be connected to other attributes, and one attribute may influence or on the contrary be influenced by other attributes. For example, the consequence of political and/or regulatory impact of an event may influence the operational performance impact, or the consequence of an environmental impact may influence the corporate image/reputation impact. Therefore special techniques need to be employed to take into account those relationships when risks are to be assessed. Analytical Network Process (ANP), as indicated by Lu, et.al, (2007), can be very helpful in analyzing the risks in the construction projects that are dynamic and involve many parties with different interests.

AN OVERVIEW OF ANP METHOD Fig. 1 Typical structure of a PPP project (modified by author) Shareholders/investors/project sponsor provide equity and are the driving force behind the project. Concessionaire is the private sector consortium which comprises contractors, maintenance companies, private investors, and consulting firms. In many cases, the consortium often forms a special company or a special purpose vehicle (SPV). Typically in PPP, the SPV signs a contract with the government authority and with the subcontractors or co-contractors to build the facility and then operate and maintain it. The infrastructure services may be purchased by a single customer (e.g. water supplied by an independent water producer to the public water utility for distribution to end users) or many users (e.q. toll road). In case of concession contract, this scheme may be regulated by an independent regulatory body. As in case of complex projects such as PPP, both risk probabilityimpact assessment and single value risk criticality assessment provide only a limited amount of information about the risk due to their simplicity, it is necessary to consider a multi-attribute approach for risk assessment. For industrial and technical acquisition projects, Cooper, et.al, (2005) has developed a model of multi-attribute potential consequences of risk. These include financial impact, facility integrity; project performance, operational performance, health and safety, regulatory, political, supportability and sustainability, schedule, community, environment, and image/ reputation. Those attributes are expected to represent more closely the interests of various involved parties related to the objectives of the project. In general, ANP is an alternative solution to solve the limitations of the Analytic Hierarchy Process (AHP) method, developed first by Thomas L. Saaty, in dealing with the complexities of real world problems because of its strictly hierarchical structure. Similar to AHP, in ANP the priorities are determined by a comparison scale which provides numbers that allows various basic arithmetic operations. The scale is obtained from conducting pairwise dominance comparison based on informed user judgment, as shown in Table 1. Table 1 Measurement scale for pair-wise comparison in AHP and ANP (Saaty and Vargas, 1994)
Intensity of Importance 1 3 5

Definition Equal importance Moderate importance Strong importance Very strong importance Absolute importance Intermediate values

Decription Two activities contribute equally to the objective Experience and judgment slightly favor one over another Experience and judgment strongly favor one over another Activity is strongly favored and its dominance is demonstrated in practice Importance of one over another affirmed on the highest possible order Used to represent compromise between the priorities listed above

2,4,6,8

If activity i has one of the above non-zero numbers Reciprocal assigned to it when compared with activity j, then j has the reciprocal value when compared with i

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However, different from AHP, ANP models a decision making problem as a network of criteria and alternatives (which are all called elements), grouped into clusters. All the elements in the network can be related in any possible way, which means that a network can incorporate feedback and interdependent relationships within and between clusters. This provides a more natural approach for modeling complex environment, such that ANP leads to a more objective concept, for example, "what is the most influential" to the goals. Thus, in the context of this study, ANP offers a high flexibility for modeling and prioritizing risk. ANP can break down more clearly the risk attributes, not limited to the probabilities, but also all possible potential consequences, in more specific criteria. The influence of elements in the network on other elements in that network can be represented in a supermatrix. This is a two-dimensional matrix of elements by elements which adjusts the relative importance weights in individual pairwise comparison matrices to form a new overall supermatrix with the eigenvectors of the adjusted relative importance weights. The ANP comprises four main steps (Saaty, 2001): (i) conducting pairwise comparisons between the elements; (ii) placing the resulting relative importance weights (eigenvectors) in pairwise comparison matrices within the supermatrix (unweighted supermatrix); (iii) adjusting the values in the unweighted supermatrix so that it can achieve column stochastic (weighted supermatrix); and (iv) raising the weighted super-matrix to limiting powers until the weights have converged and remain stable (limit supermatrix).

Descriptive terms can be used, depending on organizational preference or risk tolerance. As shown in Fig 2, an organization may determine the combinations of probability and impact result in a classification of high risk (red), moderate risk (yellow), and low risk (green).
List of potential risks

Rating the potential risks based on its likelihood and its multi-attribute potential consequences

Filtering and selecting the potential high risks by using probability and impact matrix

H M L
Risk tolerance

L M H H M L L M H
List of potential high risks

Developing and structuring the ANP model for prioritizing the potential high risk

Conducting the pair-wise comparisons between the elements in the clusters

Building the supermatrix by placing the resulting relative importance weights (eigenvector) in submatrices within the supermatix Adjusting the values and raising the supermatrix to limiting powers until the weight have converged and remain stable

MODEL CONCEPTUALIZATION As shown in Figure 2, the general procedure for prioritizing risk developed in this study consists of two main steps: (i) filtering and selecting the potential high risks by using risk probability and impact matrix technique, and (ii) determining the top n priority risks based on ANP method. Filtering and Selecting Potential High Risk

List of Top n priority risks

Fig. 2 Procedure for Prioritizing Risk There is no standard for estimating risk probability value, as shown in Table 2, the study uses a likelihood ratings proposed by Cooper, et.al, (2005). Table 2 Likelihood Ratings

The first step is based on risk probability and impact (PI) matrix technique to prioritize risk based on their rating. (PMI, 2004). Ratings are assigned to risks based on their assessed probability and impact. In this case the evaluations of each risks importance and, hence, priority for attention is typically conducted using a look-up table or a probability and impact matrix. Such a matrix specifies combinations of probability and impact that lead to rating the risks as low, moderate, or high risk.

Rating Almost certain Likely Possible Unlikely Rare

Likelihood description Very high, may occur at least several times per year High, may arise about once per year may arise at least once in a 110 year period Not impossible, likely to occur during the next 10 to 40 years Very low, very unlikely during the next 40 years

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Partially adapting from Cooper, et.al, (2005), the study uses a multi-attribute potential consequences consisting of six elements i.e. financial impact, project/operational performance, health and safety, environment, image and reputation, and community. Financial impact includes impacts on investment,

financing, and operational cost. Project or operational performance includes impacts on equipment, facility, and schedule to meet the performance targets. Table 3 and 4 provide a guideline for rating system. The model can be modified or added with more attributes in the future depending on the need.

Table 3 Consequences Ratings for Financial Impact, Project/Operational Performance, and Health and Safety
Rating Catastrophic Financial Impact Direct loss or increased cost by more than 40%. Major cost overrun. Additional budget is needed Major Direct loss or increased cost by 20% - 40% and not manageable within current contingency Moderate Direct loss or increased cost by 5% - 20% and may be manageable within current contingency Minor Direct loss or increased cost by less than 5% but manageable within current contingency Insignificant No direct loss/no increased cost/no cost exceeded Negligible system, asset, integrity or condition impact. Negligible performance impact anticipated. Negligible milestone or deadline delay (insignificant time increase) On-site first aid required no lost time or occupational illness Project/Operational Performance Performance degradation is such that the system or facility is unusable. Significant re-design is required. Major unacceptable system, asset, integrity or condition problem. Failure to achieve critical system, asset or performance goal. Time-critical project misses major milestone or deadline > 6 month or 20% time increase from estimated. Performance degradation has substantial impact on mission performance and will severely degrade capability if not corrected. Failure to achieve some system, asset, integrity or condition targets. Failure to achieve some performance targets. Time-critical project misses major milestone or deadline by 3 6 months or 10% 20% time increase from estimated. Performance degradation has noticeable effect on mission performance and may be on the limits of acceptability. Some reduction in system, asset, integrity or condition. Some reduction in performance. Time-critical project misses major milestone or deadline by 1 3 months or 5% 10% time increase from estimated. Minor reduction in performance, but tolerable. Minor system, asset, integrity or condition degradation. Minor performance degradation. Time-critical project misses major milestone or deadline by < 1 months or < 5% time increase from estimated. Medical treatment required Single fatality; serious injury or occupational illness (non recoverable) or permanent major disabilities (acute or chronic) Lost time or restricted injury or occupational illness (recoverable) Health and Safety Multiple fatalities of staff, contractors or the public

Table 4 Consequences Ratings for Environment, Image and Reputation, and Community
Rating Catastrophic Environment Long term environmental damage (5 years or longer), requiring huge budget to study or correct or in penalties Major Medium-term (1-5 years) environmental damage, requiring major budget to study or correct Image and Reputation Damage to corporate reputation at international level; raised in international media. Major loss of shareholder or community support Damage to corporate reputation at national level; raised in national media. Significant decrease in shareholder or community support Moderate Short-term (<1 year) environmental damage, requiring high budget to correct Adverse news in state or regional media. Decrease in shareholder or community support. Community Community reaction and concern is overwhelming, causing major changes or cancellation. Issues are substantial and require major diversion of project resources to resolve. Community reaction and concern is significant and may impact on the success of the initiative. Issues are substantial and require dedication of significant project resources to resolve Community reaction and concern is evident. All or most concerns are capable of management by actions.

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Goal: Risk Prioritization

Potential Consequences

Financial Impact

Project/Operational Performance

Community

Health and Safety

Image and Reputation

Environment

Inner dependence Potential High Risk

Almost certain Likely Probability Possible Unlikely Rare Insignificant

Hig h Lo w

Ri

Risk 1 Risk 2 Risk 3 Risk 4 Risk n

sk

Fig. 4 ANP Model for Prioritizing Risk

Ri sk
Minor Moderate Impact Major Catastrophic

Fig. 3 Proposed Risk Probability and Impact Matrix for Filtering Risks
Minor Minor environmental damage requiring medium budget to study or correct Insignificant Negligible environmental impact, managed within operating budgets (less budget required). Adverse news in local media. Concern on performance raised by shareholder or the community Reference to community consultation group. Public awareness may exist, but there is no public concern. Little or no community reaction or recognition. Community recognizes issues but does not react.

By using the guideline presented in Table 2, 3, and 4, the potential risks which will have been identified will then be assessed based on its attributes such as likelihood of occurrence and the potential consequences. In the example presented here, six potential consequences have been used, hence it is necessary to build six risk matrices. Instead of 3x3 matrix as shown in Fig 2, this study used a 5x5 matrix as adapted from Kendrick (2003). As shown in Figure 3, the risks in the category "high-risk" are placed in the darkest area. But it must not be rigidly interpreted, as the preferences of each organization could be different. The expected output of this filtering stage is a list of potential risks that categorized into "high-risk" Determining the Priority Risks After the "high risk" category is selected, the next step is to determine the priority risks based on ANP method. The first step in the ANP is to build the network. In this study ANP model for prioritizing risk consists of 1223

three clusters as shown in Figure 4. Cluster "Goal" contains only one element as the statement of the purpose for risk prioritization. Cluster "Potential Consequence" consists of the elements "Financial Impact (FI)", "Project/Operational Performance (POP)", "Health and Safety (HS)", "Environment (ENV)", "Image and Reputation (IR)", and "Community (COM)". The elements in this cluster have been discussed in the previous section. The cluster "Potential High Risk" contains a list of potential risks within the category of 'high risk' according to the recommendations from the first step (Risk 1 to risk n in the PI matrix). The arrows indicate relationships between elements in the cluster against elements in other clusters. Especially for cluster "Potential Consequence", there are inner dependencies because the elements in these clusters are affecting each other. For the purpose of illustration, assumed four risks are identified as high risk, namely, R1, R2, R3, and R4. Then, the second step is conducting pairwise comparison by asking respondents, using a scale of 1 to 9, to determine the relative importance weight (RWI), described below.

CR. 0.05 < 0.1

Pair-wise comparison in Cluster Potential Consequence There are seven scenarios of pair-wise comparison in this cluster. One scenario is with respect to cluster Goal, while the rest with respect to the element in the cluster it self. For example, with respect to Goal: risk prioritization, what element in cluster Potential Consequence is more important than the others? Table 5 summarizes the results of pairwise comparison. As shown in the table, for example, Financial Impact (PI) is judged to be very strongly more important than corporate Image and Reputation (IR) and Environment (ENV). Table 5 Sample of Pairwise Comparison of the Elements in Cluster Potential Consequences with Respect to Goal
GOAL COM COM ENV FI HS IR POP 1.00 3.00 7.00 5.00 0.33 5.00 ENV 0.33 1.00 7.00 1.00 0.20 3.00 FI 0.14 0.14 1.00 0.33 0.14 0.20 HS 0.20 1.00 3.00 1.00 0.33 3.00 IR 3.00 5.00 7.00 3.00 1.00 5.00 POP 0.20 0.33 5.00 0.33 0.20 1.00 RIW 0.05 0.10 0.48 0.12 0.03 0.21

Pair-wise comparison in Cluster Potential High Risk This is the alternative decision cluster because of the expected output of the model is the list of top n priority risks. The scenario is conducting pairwise comparison of high risk factor with respect to financial impact, and so on for all elements in the cluster of Potential Consequence. By using the same procedure described above, with respect to financial impact, for example, what risk factor is more influencing than the others? Table 7 provides the matrix of pair-wise comparison including its relative importance weight. Table 7 Sample of Pairwise Comparison Matrix in Cluster Potential High Risk with Respect to FI
FI R1 R2 R3 R4 CR. 0.04 < 0.1 R1 1.00 2.00 0.33 2.00 R2 0.50 1.00 0.50 2.00 R3 3.00 2.00 1.00 5.00 R4 0.50 0.50 0.20 1.00 RIW 0.20 0.26 0.09 0.44

CR. 0.095 < 0.1

The consistency ratio (CR) value measures the logical inconsistency of the judgments and calculated as follow: CR = CI / RI CI (consistency Index) of a matrix of comparisons is given by (max n) / (n 1), where max = maximum eigenvalue and n = matrix size. RI is the random consistency index. For example, if A is more important than B and B is more important than C but C is more important than A, it is not consistent. According to Saaty and Vargas (1994), the CR should be less than 0.1 or so to be considered reasonably consistent. By using the same procedure, in the Table 6 the inner dependency matrix of element in the cluster of Potential Consequence with respect to Financial Impact (FI) is shown. Table 6 Sample of Inner Dependency Matrix in Cluster Potential Consequences with Respect to FI
FI COM ENV HS IR POP COM 1.00 5.00 5.00 5.00 5.00 ENV 0.20 1.00 1.00 3.00 3.00 HS 0.20 1.00 1.00 3.00 1.00 IR 0.20 0.33 0.33 1.00 1.00 POP 0.20 0.33 1.00 1.00 1.00 RIW 0.05 0.15 0.18 0.35 0.28

Supermatrix After completing the pairwise comparisons, the next step is building the supermatrix. The supermatrix concept is similar to the Markov chain process (Saaty, 1996). As discussed before that the supermatrices are computed in three steps. For sake of simplicity, the first step is the unweighted supermatrix created directly from all local priorities (see relative important weight) derived from pairwise comparisons among elements influencing each other. Table 8 provides the sample of Unweighted Supermatrix. In the second step, the weighted supermatrix is calculated by multiplying the values of the unweighted supermatrix with their affiliated cluster weights. Table 9 provides the sample of Weighted Supermatrix. The last step is composition of a limiting supermatrix, which is created by raising the weighted supermatrix to powers until it stabilizes. Stabilization is achieved when all the columns in the supermatrix corresponding to any node have the same values. All the steps in this example were performed using Super Decision software for ANP, developed by William J. Adams of Embry Riddle Aeronautical University, Daytona Beach, Florida, working with Rozann W. Saaty (Saaty, 2003).

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Table 8 Sample of Unweighted Supermatrix

GOAL RP GOAL RP COM ENV PC FI HS IR POP R1 PHR R2 R3 R4 0.000 0.048 0.103 0.484 0.121 0.034 0.210 0.000 0.000 0.000 0.000 COM 0.000 0.000 0.190 0.059 0.156 0.031 0.064 0.304 0.094 0.067 0.036 ENV 0.000 0.098 0.000 0.052 0.214 0.027 0.108 0.285 0.132 0.053 0.030 FI 0.000 0.023 0.072 0.000 0.090 0.175 0.140 0.101 0.130 0.046 0.223 PC HS 0.000 0.074 0.161 0.051 0.000 0.026 0.189 0.060 0.180 0.207 0.053 IR 0.000 0.057 0.170 0.036 0.129 0.000 0.108 0.038 0.134 0.212 0.115 POP 0.000 0.050 0.175 0.084 0.156 0.035 0.000 0.306 0.082 0.042 0.070 R1 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 R2 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 PHR R3 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 R4 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

RP (Risk Prioritization); PC (Potential Consequence); PHR (Potential High Risk)

Table 9 Sample of Weighted Supermatrix

GOAL RP GOAL RP COM ENV PC FI HS IR POP R1 PHR R2 R3 R4 0.000 0.048 0.103 0.484 0.121 0.034 0.210 0.000 0.000 0.000 0.000 COM 0.000 0.000 0.190 0.059 0.156 0.031 0.064 0.304 0.094 0.067 0.036 ENV 0.000 0.098 0.000 0.052 0.214 0.027 0.108 0.285 0.132 0.053 0.030 FI 0.000 0.023 0.072 0.000 0.090 0.175 0.140 0.101 0.130 0.046 0.223 PC HS 0.000 0.074 0.161 0.051 0.000 0.026 0.189 0.060 0.180 0.207 0.053 IR 0.000 0.057 0.170 0.036 0.129 0.000 0.108 0.038 0.134 0.212 0.115 POP 0.000 0.050 0.175 0.084 0.156 0.035 0.000 0.306 0.082 0.042 0.070 R1 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 R2 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 PHR R3 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 R4 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Table 10 Sample of Limit Supermatrix

GOAL RP GOAL RP COM ENV PC FI HS IR POP R1 PHR R2 R3 R4 0.000 0.059 0.120 0.052 0.123 0.042 0.104 0.196 0.129 0.103 0.072 COM 0.000 0.059 0.120 0.052 0.123 0.042 0.104 0.196 0.129 0.103 0.072 ENV 0.000 0.059 0.120 0.052 0.123 0.042 0.104 0.196 0.129 0.103 0.072 FI 0.000 0.059 0.120 0.052 0.123 0.042 0.104 0.196 0.129 0.103 0.072 PC HS 0.000 0.059 0.120 0.052 0.123 0.042 0.104 0.196 0.129 0.103 0.072 IR 0.000 0.059 0.120 0.052 0.123 0.042 0.104 0.196 0.129 0.103 0.072 POP 0.000 0.059 0.120 0.052 0.123 0.042 0.104 0.196 0.129 0.103 0.072 R1 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 R2 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 PHR R3 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 R4 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

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List of Priority Risks After the limit supermatrix is obtained, the final step is to rank the risks based on its priority. As a result of the process, Table 11 summarize the final score of the risks analyzed, sorted by its priority. From the Table, it can be seen that R1 is a risk with the highest priority score, while R4 is the lowest. In reality there could be more than four risks that need to be analyzed. Table 11 ANP Results for Risk Prioritization
Rank 1 2 3 4 Risk Factor R1 R2 R3 R4 Normalized By Cluster 0.20 0.13 0.10 0.07 Limiting 0.39 0.26 0.21 0.14

criteria for assessing the suitability of the proposed risk analysis approach in complex project situation.

CONCLUSIONS Effective risk management is one of the key to success of a public private partnership (PPP) scheme in infrastructure development. All involved parties must pay particular attention to the project procurement process to ensure a fair and appropriate risk distribution. In any PPP scheme, there are many factors which can give adverse effects to the project objectives if they occur that need to be identified as risks. To formulate an appropriate risk response plan, those risks must be assessed to determine their priority so that the parties involved in the scheme can improve their performance effectively by focusing on high-priority risks. An alternative technique for ranking and prioritizing risk in the PPP scheme for infrastructure investment using Analytical Network Process (ANP) is being developed and proposed, based on the understanding that risk management involves the identification and prioritization of risks in order to enable the risks to be understood clearly and managed effectively. The study is limited to focusing on the model conceptualization of the method including the discussion of criteria and assumptions used and how it is structured, with an illustrative example. In general the proposed model consists of two main steps: (i) filtering and selecting the potential high risks by using risk probability and impact (consequence) matrix technique, and (ii) determining the top n priority risks based on ANP method. The study assumes that there are multi potential consequences of risk such as financial impact, project/operational performance, health and safety, environment, image and reputation, and community, which are interrelated. The ANP approach developed in this study offers the ability to prioritize risks in the complex situation, in a more effective and reasonable way. The output of the process is a list of high priority risks to be treated through a specific response plan by the involved parties. However, the fitness level of the alternative method based on the perceptions of its intended users still needs to be assessed using an appropriate method and set of criteria.

DISCUSSION Despite the claim that the ANP approach developed in this study offers the ability to prioritize risks in a complex situation where risk impacts are interrelating more effectively and reasonably, the advantages or disadvantages of this approach are certainly still debatable. In this regard, the study proposes an alternative to measure the fitness level of available approaches for risk analysis based on the perceptions of users. In this case, Morgan, et al (2000) has summarized a number of ideal attributes that can be used in categorizing risk ranking processes, such as (1) logically consistent, (2) administratively compatible, (3) equitable, and (4) compatibility with cognitive constraints and biases. One of the criteria in the logical consistency attribute is "homogenous" which means that the risks can be evaluated using the same attribute. The administrative compatibility attribute is associated with the relevance to management structure, in that the prioritized risks are treated by the relevant units within the organization. This attribute is also demanding a compatibility with the database to ensure that there is enough information to support the risks assessment process. The equitable principle is intended to fairly perceive risks from different stakeholders point of view. While the attribute of compatibility with cognitive constraints and biases is intended to prevent biases in making choices related to risk priority, simple enough and fit the peoples mental model, free from the influence of "lamp -post", where one is forced to judge something that he or she does not understand. These attributes can be used as a set of

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