Risk Assessment Index System of A Logistics Project
4.1 Setting Principles of the Risk Assessment Index System
Risk assessment is part of a key decision process for logistics enterprises in the current competitive environment (Liu et al., 2019; Lyu et al., 2019; Zhang, 2018). Regardless of how the business line is determined, risk assessment can bring numerous advantages to enterprises and because of the different criteria, the results of each method may differ and the results may be in conflict with each other (Defour et al., 2017; Swink et al., 2007;
Tranfield et al., 2003; Xu et al., 2018). Therefore, the design of an investment risk index system has considerable significance in the formulation of decision-making in logistics projects. Numerous indicators for project evaluation exist (Figure 4-1). Different projects can focus on different indicators for investigation based on their actual situation.
According to the argument of Song (2003), when the present thesis considers the setting of a risk assessment index system, the thesis uses mainly the following principles (Lyu et al., 2019; Rousseau et al., 2008; Wang and Shi, 2016) as shown in Figure 4-1 and Figure 4-2.
Figure 4- 1 Principles of Risk Management from ISO 31000 (Lalonde and Boiral, 2012)
８８ Note: This figure is from ‘A Risk Practitioners Guide to ISO 31000: 2018’, which states that principles may already exist in full or in part within an organisation. However, these principles need to be adapted or improved so that risk management is efficient, effective and consistent.
Motivated by this statement, the current thesis introduces basic principles that require attention when choosing risk factors to form a risk index system.
(1) Comprehensive principle (Cruz and Liu, 2011; Song, 2003): Acquiring profit is the goal of logistics projects. At the corresponding risk evaluation level, comprehensive consideration of numerous factors affecting the project, economic and social systems plays a main role in the project process. In the construction of the evaluation index system, it is first necessary to fully reflect the various elements of the process of risks identification in the context of the logistics projects, to measure the actual situation of the research object, and to adapt to the real conditions. Secondly, the evaluation system needs to be able to reflect the overall situation, and it is necessary to form a rigorous systematic evaluation index system for the evaluation target requirements and content.
(2) System completeness principle (Lyu et al., 2019; Rousseau et al., 2008; Wang and Shi, 2016): A certain logical relationship must exist between the indicators. The indicators should reflect the main characteristics, status and internal relationship of the projects, economic and social subsystems from different aspects (Liu et al., 2019). The system completeness principle requires individual risk factors to be understood in their entirety, and the overall situation of evaluated objects should be reflected comprehensively. All risk factors of the project must be covered. Meanwhile, the research object is a dynamic process. The selection of indicators should not only reflect the development status of the assessment object statically, but also be dynamic. It can measure the change of the consent index at different time periods and require the selected indicators to be longer. At the same time, it is necessary to take into account various possible realities, try to reduce the number of indicators, and be able to adapt to the evaluator’s judgment on the indicators to carry out the actual operation.
(3) Scientific principle (Cruz and Liu, 2011; Song, 2003): The design of each index
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system and the selection of evaluation indicators must be based on scientific principles, which is similar with the Design Science Research approach (Lyu et al., 2019; Wang and Shi, 2016). This principle can reflect objectively the characteristics and conditions of environmental, economic and social development and can reflect objectively and comprehensively the true relationship between indicators. Project risk evaluation is a decisive task before project construction. Mistakes may cause extremely large losses to the enterprise and the country (Liu et al., 2019; Hazen and Byrd, 2012). Therefore, the evaluator must hold a high degree of responsibility to avoid the blind and repeated construction phenomenon and ensure the project can create benefits after completion. In the assessment work, attention should be given to the combination of comprehensive investigation and key verification, quantitative and qualitative analysis, experience summarization and scientific prediction to ensure objectivity of the relevant project data and the science of using methods, like PSO-AHP and FCMM introduced in this thesis.
(4) Feasible principle (Chen et al., 2013; Song, 2003): The principle of feasibility is used to measure whether a decision on the project is doable, that is, logistics project decision-making can be implemented from the aspects of manpower, material resources, financial resources and scientific and technological capabilities. If the decision made is impossible to achieve from the external environment or internal conditions of the enterprise, then such a decision is not feasible. If decisions cannot be implemented, then such decisions have no practical significance. Furthermore, the authenticity and reliability of the data are prerequisites and important guarantees for the evaluation. A large amount of statistical data is needed to support the construction of the evaluation index system. When setting evaluation indicators, it is necessary to accurately reflect the dominance relationship between each level and each must have a clear connotation.
(5) Comparable principle (Song, 2013): The principle of comparability means the indicators that people choose for risk assessment should be comparable. Only when indicators are comparable can they provide accurate useful information and play a role in the index system. The indicators at the same level in the index system should meet the principles of comparability to ensure that indicators can reflect the actual situation of logistics projects.
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(6) Incompatible principle (Song, 2013): In general, indicators with relative independence should be chosen to establish the evaluation index system. That is, the indicators of the index system should satisfy the relative independence as much as possible under the premise of the principle of integrity (Gu and Yang, 2017). The principle of relative independence requires that selected indicators must be independent.
No inclusion and similarities should remain, overlap or be irreplaceable, thereby avoiding duplication of information.
Figure 4- 2 Principle of Risk Assessment Index System