Stochastic fault tree analysis for agropark project appraisal (manuscript for IAMA Symposium)

Agroparks offer in theory a variety of economic advantages and environmental benefits. Since agropark projects are typically capital intensive and with high societal impact, appraisal from lenders and policy makers will play a key role in the realisation of the concept. In practice, however, project appraisal is hampered by the complexity of the concept and the multitude of risks. In this paper, a methodology based on stochastic fault-tree analysis (FTA) was developed to support project managers and policy makers in making agropark investment decisions. The methodology is illustrated with an example agropark project. Executive Summary Stochastic fault tree analysis for agropark project appraisal Agroparks offer in theory a variety of economic advantages and environmental benefits. To implement the concept, project appraisal is a crucial step which determines the success of the project. Since agropark projects are typically capital intensive and can have large societal impacts, appraisal from lenders and policy makers will play a key role in the realisation of this concept. In practice, however, project appraisal is hampered by the complexity of the concept and the multitude of risks. In this paper, a methodology based on stochastic fault-tree analysis (FTA) was developed to support project managers and policy makers in making agropark investment decisions. FTA takes into account the logical functional relationships among agropark subsystems and among key components of each subsystem. In the case of agropark project, the formation risk is jointly determined by the possibility of obtaining financing and legal permits and the chance of establishing collaboration among different firms, which in return depend on a large number of factors. FTA uses deductive reasoning to systematically identify and assess the formation risk. As an illustration, a FTA model is built for an agropark project comprising a poultry unit, a pig unit and a central processing unit which uses anaerobic digestion of livestock waste to produce renewable energy. Formation risk of the agropark project is assessed by assessing the possible failure in obtaining financing, legal permits and in establishing the collaboration among the firms according to the agropark concept. These possible failure factors were then further decomposed into business risks, credit conditions, and trust among the participating entrepreneurs. To assess the uncertainty of the formation risk, Monte-Carlo simulation was carried out to provide quantitative insight into the variability of the outcomes. The root causes of undesired failures in the agropark system were identified by means of reliability tests.