BookofProceedings ICOPEV2014

2nd International Conference on
Project Evaluation
CONFERENCE
PROCEEDINGS
ICOPEV 2014
26th and 27th June
Guimares Portugal
2nd International Conference on Project Evaluation
ICOPEV 2014, Guimares, Portugal
Message from the

Programme Committee Chair
We would like to welcome you to come to the 2nd International Conference

on Project Evaluation, in Guimares, Portugal. The conference is being
organized by CGIT - Research Centre for Industrial and Technolgy
Management, School of Enginering of University of Minho. It will take
place in Guimares on the 26th and 27th of June 2014.
Our main goal is to join together in this event academics and practitioners
from a variety of fields with interest on the issue of project evaluation. We
expect to provide a forum of debate for researchers and practitioners,
contributing to support the sharing of experiences, to promote cross-
knowledge and strengthen the academic-industry relationship.
It is also an opportunity to visit Guimares, a magnificent city of medieval

origin known for being the cradle of the Portuguese nation. You may then
admire the remarkably well preserved Historical Quarter of Guimares
classified by Unesco as World Heritage site since 2001, getting also in
contact with the popular traditions and taste the famous gastronomy of the
Minho region.
We are looking forward to meeting you again in the third ICOPEV.
Madalena Arajo
Professor of the Department of Production and Systems
University of Minho
1
Scientific Committee
Madalena Arajo, University of Minho, Department of Production and

Systems, Portugal
(Scientific Committee Chair)
M. E. J. OKelly, National University of Galway, Ireland
Richard Keegan, Enterprise, Ireland
Lgia Pinto, University of Minho, School of Economics and Management,

Portugal
Isabel Soares, Faculty of Economics of Porto, University of Porto, Portugal
Andrs Faa, Department of Economic Analysis, University of Corua,

Spain
Enrique Arez, Escola Tcnica Superior de Enxeeiros Industriais,

University of Vigo, Spain
Paula Ferreira, University of Minho, Department of Production and

Systems, Portugal
Antnio Paisana, University of Minho, Department of Production and

Systems, Portugal
Benny Tjahjono, School of Applied Sciences, Cranfield University, UK
Paulo Afonso, University of Minho, Department of Production and

Systems, Portugal
Manuel Lopes Nunes, University of Minho, Department of Production and

Systems, Portugal
Jorge Cunha, University of Minho, Department of Production and Systems,

Portugal
Filipa Vieira, University of Minho, Department of Production and Systems,

Portugal
Patrcia Pereira da Silva, Faculty of Economics, University of Coimbra

and INESC, Portugal
Nivalde de Castro, Federal University of Rio de Janeiro (Gesel), Brazil
Luz Osrio, IBMEC, Brazil
2
Fernando Romero, University of Minho, Department of Production and

Systems, Portugal
Anabela Tereso, University of Minho, Department of Production and

Systems, Portugal
Henk G. Sol, Faculty of Economics and Business, University of Groningen,

The Netherlands
Paul Benneworth, CHEPS, University of Twente, the Netherlands
Jos Soares da Fonseca, Faculty of Economics, University of Coimbra,

Portugal
Carlos Lozano-Moncada, Escuela de Ingeniera Elctrica y Electrnica,

Universidad del Valle, Colombia
Roberto Schaeffer, Federal University of Rio de Janeiro, Brazil
David OSullivan, National University of Ireland Galway, Ireland
Joaquim Borges Gouveia, Universidade de Aveiro, Portugal
Diego Fernando Manotas Duque, Escuela de Ingeniera Industrial,

Universidad del Valle, Colombia
Nelson Casarotto, Universidade Federal de Santa Catarina, Brasil
Silvia Nebra de Prez, Ncleo Interd. de Planej. Energtico, Universidade

Estadual de Campinas, Brasil
3
Local Organizing Committee
Madalena Arajo,
University of Minho, Department of Production and Systems, Portugal
(Organizing Committee Chair)
Paulo Afonso,
Jorge Cunha,
Paula Ferreira,
Manuel Lopes Nunes,

Antnio Paisana,
Fernando Romero,
Anabela Tereso,
Filipa Vieira,
4
Conference Venue
Guimares is located in northwestern Portugal, approximately 350 km north

of the capital, Lisbon, and about 50km from the second largest city, Oporto.
Guimares benefits from the proximity to the Francisco S Carneiro
International Airport, located in Oporto and used by the most important
airlines, including low cost airlines, for domestic, international and
transcontinental flights. From Francisco S Carneiro International Airport
you can easily reach Guimares either by private car, train or bus.
Guimares is a city with a glorious historical past, whose history is linked to

the origins of Portuguese language and the founding of Portugals national
identity in the 12th century. The Historical Quarter of Guimares constitutes
a unique vestige of a particular type of city design. It is characterized by the
morphology of its medieval urban fabric, which comprises a succession of
squares of great formal value and environmental quality, and a particular
type of construction that is diversified, but with great formal unity overall,
which was fully erected using traditional building techniques called rodzio
(castered) partition wall and fasquio (lathed) partition wall.
This unique site, which UNESCO classified on 13 December 2001, is the

citys most reproductive and lasting investment.
For further information about Guimares please visit

http://www.guimaraesturismo.com
The International Conference on Project Evaluation will take place at the

University of Minho, Campus de Azurm.
5
Scope and Objectives
The project evaluation and selection is recognized as an interdisciplinary

field requiring engineering, economic, social and financial expertise skills.
Projects compete for scarce resources and choosing the best allocation of
these resources is a complex and challenging task that decision makers face
every day. Methodologies and techniques must be defined and implemented,
aiming to support the decision making process according to the goal of each
organization. As society changes, the goals change too. It is now evident
that complex decision making cannot be based only on financial criteria.
From the private company point of view, aspects like the strategic
dimension of projects, or its alignment with the companys strategy, the
contribution to long term objectives or employees wellbeing must not be
overlooked. The same way, the economic perspective of the project
underlines the need to properly consider and include in the analysis the
social and environmental dimensions of the projects as decision variables.
The main goal of this Conference is to join together academics and

professionals from a variety of fields with interest on the issue of the
evaluation of projects. The Conference is expected to provide a forum of
debate for researchers and professionals, aiming to support the sharing of
experiences, promoting cross-knowledge and strengthening the academic-
industry relationship.
6
Conference Topics
Benchmarking
Case studies
Cost/Benefit analysis
Decision support systems
Economic impact studies
Energy decision making
Entrepreneurship
Evaluation of strategic projects
Externalities in manufacturing industry and services
Innovation and technology management
Investment appraisal
Management accounting
Multi-criteria for project evaluation
New product development
Project management
Risk management
Social and environmental impact assessment
Social innovation
Sustainable new business models
Technology-based projects
Research evaluation
7
Keynote Speaker
Robert W. Grubbstrm
Robert W. Grubbstrm has been Professor of Production Economics at

Linkping Institute of Technology, Sweden, since 1972, and is now
Emeritus Professor. He is Licentiate of Technology and Doctor of
Economics, and has received honorary doctoral degrees from Lappeenranta
University of Technology, Finland, Corvinus University, Budapest,
Hungary, and Leopold-Franzens-Universitt, Innsbruck, Austria. He has
Masters degrees from the Royal Institute of Technology, Stockholm, and
the Stockholm School of Economics. He is currently President of the Senate
and Dean of the Faculty, Mediterranean Institute for Advanced Studies,
empeter pri Gorici, Slovenia.
Among the recognitions awarded him are Knight (First Class) of the Order
of the White Rose of Finland, Commander of the Order of the Lion of
Finland, Award of Recognition for Outstanding Contributions to the
Development of the Faculty, University of Ljubljana, Slovenia, (where he
also is Honorary Visiting Professor) and Honorary Corporal, Kungl. Svea
Trngregemente, Sweden. He is Honorary Research Fellow, Lancaster
University, Honorary Professor, University of Nottingham Business School,
United Kingdom, and Honorary President of the Economic Club of
Linkping. He is Past President and Fellow of the International Society for
Inventory Research (ISIR) and Fellow of the Royal Academy of
Engineering Sciences.
He is Editor-in-Chief of the International Journal of Production Economics

(Elsevier) and is author/co-author/editor of some 15 books and has written
about 300 articles and working papers, including publications in the
International Journal of Production Economics, Management Science, The
Mathematical Scientist, International Journal of Production Research,
Journal of Cybernetics, European Journal of Operational Research,
Managerial and Decision Economics, Kybernetes, Omega, Economic
Systems Research, Applied Energy, Annual Reviews in Control, and
International Journal of Energy Optimization and Engineering.
His current educational interests include modern information technology

applied to interactive educational processes, such as designing the
International Logistics Management Game (ILMG), used by several
European universities and for vocational training. His scientific interests are
focused on the development of a general theory for multi-level, multi-stage
production-inventory systems applying Laplace transforms and input-output
analysis (MRP Theory), and on the integration of economics and
thermodynamics.
8
Keynote Speaker
Robert W. Grubbstrm
On the True Value of Resource Consumption, When Using Energy in

Industrial and Other Processes
In this lecture I will attempt to provide a partial answer to the question of

why energy is a scarce resource. Scarcity is a fundamental concept in the
science of economics. If resources, goods or services were not in scarce
supply, we need not economise when utilising them. Indeed, free
commodities we need not pay for, their prices are zero, we attach no
economic value to them, and their supply is in abundance at least beyond
the point at which our needs and wants are satisfied. However, energy is
regarded as a scarce resource, although energy as such is not scarce. To
describe energy as a useful and therefore a valuable quantity, to which a
price may be attached, energy will thus have to be characterised in further
dimensions than energy content alone. Apart from quantity, there is a need
for a uniform qualitative measure of energy. The obvious field to revert to
for such considerations is thermodynamics, which offers a method for
defining a uniform measure for the qualitative content of energy, namely
exergy.
Although exergy is defined from purely physical properties, it is shown to
have an important rle to play when comparing the economic value of
energy in different forms. In particular, this paper will focus on the
economic value of heat, in particular heat delivered through a district
heating system.
Robert W. Grubbstrm, Linkping Institute of Technology, SE-581 83

Linkping, Sweden
9
Keynote Speaker
Paul Benneworth
Paul Benneworth is a senior researcher at the Center for Higher Education

Policy Studies (CHEPS) at the University of Twente in the The Netherlands
and a visiting professor in University-community engagement at Central
Queensland University, Australia.
He is also a Project Leader for a research project within the UK Economic
and Social Research Councils Initiative The regional economic impact of
HEIs, at the Centre for Knowledge, Innovation, Technology and
Enterprise. The project is entitled Universities and community
engagement: learning with excluded communities, and aims to study how
universities are engaging with a range of excluded communities in the
regions of the North East, North West and Scotland. It will develop a
typology of university-community engagement that will help identify a
number of successful case-studies across these regions. With a method of in-
depth qualitative research, the project will examine the impact of university-
community collaboration on social capital and learning within the relevant
excluded communities as well as inform future policy frameworks.
Mr. Benneworths research interests are related to the relationships between
knowledge production and society, through university-society interaction,
technological clusters, innovation and technological development, and its
relation to wider societal and governance systems. For the last decade he
has been working with the Organization for Economic Co-operation and
Development in the area of universities, innovation and regional
development. He is an associate of the PASCAL network, and editor of the
recently published volumes Higher education and regional development
(together with Romulo Pinheiro and Glen A. Scott) and University
engagement with socially excluded communities.
10
Keynote Speaker
Paul Benneworth
Social innovation futures: beyond policy panacea and conceptual

ambiguity
Social innovation is once more an increasingly popular notion circulating as

an apparent means to solve the Grand Challenges of the 21st Century. But
this common-sense idea of social innovation is based on a quasi-concept,
where processes of innovation are absent. To restore some academic rigour
to this important concept, we argue more attention need be paid to these
innovation processes in social innovation, and that there is value in using
innovation concepts drawn from other areas of innovation studies
(disruptive innovation, innovation systems, institutional innovation and
socio-technical transitions) in highlighting how small-scale social
experiments can ultimately lead to the solution of pressing societal
problems. Through a subtle critique of the current policy conception of
social innovation, it is possible for Innovation Studies in general, and the
Eu-SPRI Forum in particular, to help provide better insights into social
innovation processes and ultimately to lead to better support frameworks
and interventions for promoting solutions to these Grand Challenges.
Paul Benneworth, Center for Higher Education Policy Studies, University of

Twente, the Netherlands.
Effie Amanatidou, Manchester Institute for Innovation Research,
Manchester University, UK
Monica Edwards Schachter, CSIC-INGENIO, Valencia, Spain
Magnus Gulbrandsen, Centre for Technology, Innovation & Culture (TIK),
University of Oslo, Norway
11
12
Day 1: 26th June
8h30 Start registration
09h15-09h45 Opening Session
09h45-11h15 Session A: Business Management
Experiences and social representations of entrepreneurship among

Portuguese graduates: a case study
Ana Paula Marques, Helena Moreira
Costing Systems Models Under Uncertainty Contexts

Victor Jimenez, Paulo Afonso
Isomorphic Social Behavior of Organizations Seen From the

Perspective Of Management Accounting
Adelaide Bogo, Alan Schmitt
Activity Based Costing and Time-Driven Activity Based Costing:

Towards and Integrated Approach
Alex Santana, Paulo Afonso, Ana Maria Rocha
How can I know when its time to stop an IT project?

Catherine Crowley, Clare Thornley
11h15-11h30 Coffee Break
11h30-13h00 Plenary Session

On the True Value of Resource Consumption, when Using Energy
in Industrial and Other Processes
Professor Robert Grubbstrom
Social innovation futures: beyond policy panacea and conceptual

ambiguity
Professor Paul Benneworth
13h00-14h30 Lunch Break
14h30-16h00 Session B: Entrepreneurship and Innovation
Social entrepreneurship and social innovation: are both the same?

Jorge Cunha, Paul Benneworth
Entrepreneurial intention: a study with MIEGI students

Leonardo Skinner, Filipa D. Vieira e Cristina S. Rodrigues
13
Innovation Practices in a Non-Profit Portuguese Organization

Fernando Barbosa, Fernando Romero
Key success factors to implement a customized corporate travel

expense software
Ana Lusa Vaz, Manuel Lopes Nunes
The lean innovation approach utilization in the stage gate model

innovation management
Levi Guimares, Fernando Romero, Hyggor Medeiros
Risk Analysis in Product Development Projects

Cludio Santos, Madalena Arajo, Nuno Correia
16h30-18h00 Session C: Energy Decision Making
Energy Indicators: Crucial Tool Towards Sustainability Assessment

Ftima Lima, Manuel Lopes Nunes, Jorge Cunha, Andr Lucena
A Pilot Study on the Public Perception of Renewable Energy

Sources in Brazil
Lunardo de Sena, Paula Ferreira, Manoel de Sena
Revisiting short-term electricity planning: a simplified approach

Srgio Pereira, Paula Ferreira, Ismael Vaz
Integrating Bottom-up and Top-down techniques with MCDA

approach in energy efficiency projects
Carla Henriques, Dulce Coelho, Patrcia Pereira da Silva
How to design reliable Discrete Choice surveys: The Use of

Qualitative Research Methods
Anabela Botelho, Lina Loureno-Gomes, Lgia Costa Pinto, Sara Sousa
18h30-19h30 Social Programme

Guided tour to Historical Quarter of Guimares, classified by UNESCO
as World Heritage site since 2001
20h00 Conference Dinner
14
Day 2: 27th June
09h30-11h00 Session D: Tools for Project Evaluation
Integrating Public Policy and Private Strategy Interdependencies in

Project Evaluation: From CBA to CoBAYe
Richard Le Goff, Satya-Lekh Proag
Cost-Benefit Model Applied to the Optimization of Thermal

Systems Based on a Stirling Engine
Ana C. Ferreira, Lus B. Martins, Manuel L. Nunes, Senhorinha F.
Teixeira
A Multi-Criteria Analysis of Low Carbon Scenarios in Portuguese

Electricity Systems
Maria Joo Santos, Paula Ferreira, Madalena Arajo
The Use of the Delphi Method for the Validation of a Conceptual

Model of Environmental Management Strategies
Wellington Alves, Ciliana Colombo, Claudio Vasconcelos, Paula
Ferreira, Rassa Paulino
Global Review of Energy Policy Lessons For Renewable Energy

Technologies
Wagner Oliveira, Paula Ferreira
Commercial Analysis In Project Appraisal

Nuno Moutinho, Helena Mouta
11h30-13h00 Session E: Investment Appraisal
Economic Evaluation Of Wind Power Projects: An Integrative

Perspective With LCOEwso Methodology
Wagner Oliveira, Antonio Fernandes, Joaquim Borges Gouveia
Evaluation of the Economic Viability of Purchasing an Electric

Vehicle in Portugal
Jos Fontainhas, Jorge Cunha, Paula Ferreira
Integration of Risk Management in Occupational Health and Safety

Systems
Delfina Ramos, Ana Costa, Paulo Afonso
15
Removable Battery Packs to Remove Air Pollution in Paris:

Economic Evaluation by the CoBAYe Decision-Making Tool
Satya-Lekh Proag, Jonathan Baine
Human Resources And Management In Projects

Nuno Moutinho, Helena Mouta
13h00-14h30 Lunch Break
14h30-16h00 Session F: Project Management and Innovation
Organizational Context for Learning and Knowledge Management

in Projects An Overview
Antnio Amaral, Madalena Arajo, Cristina S. Rodrigues
Implementation and Case Study Application of a Conceptual

Framework for Embedding Useful Project Management
Improvement Initiatives
Aldora Gabriela, Madalena Arajo, Valter Henriques
Pr-Inova: Project to Implement Innovation Management in

Industrials SMEs Rio Grande Do Norte, Brazil
Jernimo Santos, Karla Motta, Mnica Luna, Ana Gergia Barbosa,
Edjanio Brito, Mariana Nunes, Fernando Romero
Knowledge implications for the NITEC Program: a preliminary

analysis of an innovation program directed at building innovation
capabilities in SMEs
Dorota Silva, Fernando Romero, Filipa Vieira
Small Condominium for Generation of Bioenergy and Fertilizer: A

Case Study Within Rio Grande do Sul, Brazil
Rodrigo Barichello, Nelson Casarotto Filho, Ronaldo Hoffman, Paula
Ferreira
Improving Competitiveness Using Lean Principles The Irish

Experience
Richard Keegan
16
EXPERIENCES AND SOCIAL REPRESENTATIONS OF

ENTREPRENEURSHIP AMONG PORTUGUESE GRADUATES: A
CASE STUDY
Ana Paula Marques,1* and Helena Rita Moreira2

1
Department of Sociology, University of Minho, Portugal
2
PhD student and junior researcher of Research Centre for the Social Sciences, University of Minho,
Portugal
* Corresponding author: [email protected], University of Minho, Campus de Campus de Gualtar
4710-057 Braga, Portugal
KEYWORDS
Higher Education; Entrepreneurial experiences; Social representations
ABSTRACT
This paper focuses upon a case study in entrepreneurial learning, involving students from different scientific
fields from the University of Minho. The specific purpose of this paper is to analyse the experiences and
perceptions regarding entrepreneurship viewed as an alternative means of accessing a profession or a career
as well as to explore the main initiatives/programmes, forms of support and infrastructure deployed in
academic preparation and training for the labour market. We will make specific use of the key deliverables
from two projects, namely The Potential of Entrepreneurship at the University of Minho (2010-2012) and
the on-going PhD project Qualified Entrepreneurship: Higher Education Policy and (Re)configuration of
the Career Paths of Graduates (2010-2013). The present study is based on the results from sixteen semi-
structured interviews conducted with young people from different socio-demographic and educational
profiles, all of whom were in a professional transition phase. Specifically, we point out: i) the main
stakeholders, their missions and strategies for fostering entrepreneurial learning, ii) the entrepreneurial
experiences undertaken by young people and the meanings and representations of - entrepreneurship and
its effects on identity re-composition. The conclusion presents a summary of the main results, highlighting
the privileged relationship between non-formal/ informal entrepreneurial learning.
COSTING SYSTEMS MODELS UNDER UNCERTAINTY

CONTEXTS
Victor Jimnez,1* Paulo Afonso1

1
Department of Production and Systems, University of Minho, Portugal
* Corresponding author: [email protected], University of Minho, 4800-058 Braga, Portugal
KEYWORDS
ABC, Uncertainty, Monte Carlo Simulation
ABSTRACT
Companies face an increasingly fast-changing environment and the variability in processes, products,
technology and prices affect the performance of the organization. One measure of performance is the cost
of products, as this may indicate not only the level of efficiency but also define the business strategy of
organizations. Given this changing environment, the cost of a product or service may be changing over time
and deterministic models for costing systems may be inappropriate. Thus, this paper proposes a model for
calculating costs which considers the variability of endogenous and exogenous variables. It uses the logic
of Activity Based Costing and Monte Carlo Simulation. The proposed model may allow to some extent to
predict the risk associated with the variability in costs and support the necessary steps which should be
taken to better manage such risk, whether from the point of view of processes rationalization and of cost
management.
17
ISOMORPHIC SOCIAL BEHAVIOR OF ORGANIZATIONS SEEN

FROM THE PERSPECTIVE OF MANAGEMENT ACCOUNTING
Adelaide Maria Bogo* and Alan Christian Schmitt

1
Department of Chemistry, Santa Catarina State University, Brazil
2
Department of Production Engineering, Santa Catarina State University, Brazil
* Corresponding author: [email protected], UDESC, Rua Paulo Malschizki, s/n,
Campus Univ. Prof. Avelino Marcante, Zona Industrial, Joinville, SC Brazil 89.219-710
KEYWORDS
Isomorphism, Management Accounting, Corporate Social Responsibility, Culture
ABSTRACT
This article aims at bringing forward the isomorphic behavior of organizations in social issues upon
Management Accounting vision. It seems that social disclosures are homogenized in a certain degree and
some studies are conducted to understand why this occurs, as well as how management accounting
participates in this process. The methodology used was Content Analysis and Descriptive Statistics. The
data base utilized is ISEBOVESPA where 36 organizations were analyzed. The findings show that the
Labor Practices and Decent Work present a significant coercive isomorphic power, the Human Rights and
Society have a more normative isomorphic power, and the Management Accounting is presented in all
moments of Corporate Social Responsibility (CSR) activity, and it is perceived in the financial and non-
financial information, as well as absolute values of investment and cost, indices, percentage, and the
information system that assist to decision making.
ACTIVITY BASED COSTING AND TIME-DRIVEN ACTIVITY

BASED COSTING: TOWARDS AN INTEGRATED APPROACH
Alex Santana,1 Paulo Afonso1* and Ana Maria A. C. Rocha2

1
Research Centre for Industrial and Technology Management, University of Minho, Portugal
2
Algoritmi Research Centre, University of Minho, Portugal
* Corresponding author: [email protected], University of Minho, Campus of Azurm, 4800-058, Guimares,
Portugal
KEYWORDS
Cost Management, Activity Based Costing, Time-Driven Activity Based Costing
ABSTRACT
Activity Based Costing (ABC) methods and models have been presented in the literature as sophisticated
approaches for cost management and costing purposes. Kaplan and Nortons Time-Driven Activity Based
Costing (TDABC) represented an update or improvement of the initial ABC models proposed by Cooper and
Kaplan. The relevance and applicability of the TDABC approach is still an open question. The purpose of this
paper is to discuss TDABC from a critical analysis of the literature, checking and comparing methodologies and
research techniques, as well as contributions to mitigate difficulties encountered in the implementation of the
model. As a result, it is established a relation between ABC and TDABC approaches and an integrated TDABC-
ABC model and methodology is proposed. Some ideas for future work and managerial implications are also
discussed.
18
WHEN IS IT TIME TO STOP AN IT PROJECT?
Catherine Crowley,1* and Dr. Clare Thornley1

1
Innovation Value Institute (IVI), National University of Ireland, Maynooth, Ireland
* Corresponding author: [email protected], National University of Ireland, South Campus, Maynooth, Co
Kildare, Ireland.
KEYWORDS
Project escalation, Business value management, Capability approach.
ABSTRACT
IT projects should deliver value to organizations but there are cases when, however well planned a project
may have been, changes in the environment and/or in the strategic priorities of the organization mean it can
never deliver value. Value is a subjective term and simply means, in this context, something that is
important to the organization which would generally result in profit, in a commercial entity, or improved
service, in a public entity. This paper addresses the problem of how to ensure that you will have the
capabilities in place to know when your project can no longer deliver value and to take appropriate action.
It does not discuss in detail the technical issues of project management execution, as a well-executed project
can still fail to deliver value. Rather, it looks at the specific question of knowing when projects can no
longer deliver value and putting measures in place to both prevent and address project escalation. We show
how a capability based approach supported by the IT-CMF framework can improve your ability to quickly
identify projects that have started but now can no longer deliver value. This capability approach increases
the agility of the organization and makes it easier to develop and maintain competitive advantage.
SOCIAL ENTREPRENEURSHIP AND SOCIAL INNOVATION:

ARE BOTH THE SAME?
Jorge Cunha,1* Paul Benneworth 2

1
Center for Industrial and Technology Management, University of Minho, Portugal
2
Center for Higher Education Policy Studies, University of Twente, the Netherlands
* Corresponding author: [email protected], University of Minho, Campus de Azurm, 4800-058, Portugal
KEYWORDS
Social innovation, Social entrepreneurship, Social enterprise
ABSTRACT
In the last two decades, a renewed interest on the concepts of social innovation and social entrepreneurship
has emerged. In fact, a large body of theoretical developments that occurred in the fields of innovation,
territorial development, social economics, and public governance (among others), have emphasised the
need to adopt new approaches to new (or emerging) problems, such as: climate change; chronic diseases;
increasing inequalities in income distribution; high rates of unemployment (particularly, among young
people); the impact of ageing population; and mass urbanisation and social exclusion phenomenon.
This paper aims at contributing to these literature by making an attempt to distinguish both concepts: social
innovation and social entrepreneurship. For that purpose, the definition of each of these concepts, their
main features as well as their major differences are presented. Then, some examples of social innovations
are briefly described in order to illustrate that social innovation is a broader concept than social
entrepreneurship.
19
ENTREPRENEURIAL INTENTION: A STUDY WITH MIEGI

STUDENTS
Leonardo Skinner1, Filipa D. Vieira2,3* and Cristina S. Rodrigues2,4

1
Student of the Program Cooperao Brasil from the Pontifical Catholic University of Rio de Janeiro,
Brazil
2
3
CGIT, University of Minho
4
Algoritmi Centre, University of Minho
* Corresponding author: [email protected], University of Minho, Campus de Azurem, 4800-058, Guimaraes,
Portugal
KEYWORDS
Entrepreneurial intentions, Theory of Planned Behavior, MIEGI students
ABSTRACT
In the actual complex economic context, entrepreneurship is seen as a hope and an alternative to the crisis,
reducing poverty and creating new jobs. Understanding entrepreneurial intentions is the key to predict,
enhance and foster entrepreneurship. However, it is a hard task to really understand and predict these
intentions, given the fact that they are related to many variables as personal traits, family influence, self-
efficacy, social background, and others. Regarding this, there is a well-known model, the Theory of Planned
Behavior (Ajzen, 1991), that enables accurate outcomes predicting the entrepreneurial intentions, and
consequently the entrepreneurial behavior. The aim of this paper is to explain the entrepreneurial intentions
using the Ajzens Theory of Planned Behavior. This was done by a survey developed to measure attitude
towards the behavior, subjective norms, perceived behavioral control and self-efficacy in students of
industrial engineering and management (MIEGI) from University of Minho.
INNOVATION PRACTICES IN A NON-PROFIT PORTUGUESE

ORGANIZATION
Fernando Barbosa1 and Fernando Romero1*
*Corresponding author: [email protected], University of Minho, Campus Azurm,
Portugal
KEYWORDS
Innovation, Strategy, Social Economy, Nonprofit sector, Alternative Economy, Organizational Change
ABSTRACT
This article is a case study of a Social Economic Organization, where we will examine, in the light of the
literature on strategic management, and innovation, its organizational change, which was critical to ensure
its survival. Through this case study we intend to increase the understanding and the knowledge on the
main motivations, barriers and facilitating factors leading to the improvement of the quality of the services,
and the efficiency of the management of the Social Economy Organizations, which contribute to its
competitiveness and sustainability. The case study highlights a number of best practices in the design of
structured innovation processes, which were supported by the Portuguese Program Q3-Qualifying the Third
Sector, which may help similar organizations to improve their innovation and organizational processes,
which are essential to increase their competitiveness and sustainability.
20
MANAGEMENT PROCESS OF CORPORATIVE TRAVEL

EXPENSES: A CONCEPTUAL MODEL
Ana Lusa Vaz,1* Manuel L. Nunes1

1
Department of Production and Systems, School of Engineering, University of Minho, Guimares,
Portugal
* Corresponding author: [email protected], University of Minho, 4800-058, Portugal
KEYWORDS
Management Control Systems, Cost Modelling, Business Process Modelling
ABSTRACT
The need to travel, such as visits to clients or suppliers, has always been a necessity of corporations. In
nowadays worldwide business context, travel costs represent the second larger category of corporative
expenses for the majority of companies and because of its complexity its found hard to manage.
This case study is about the reengineering project of a multinational companys business travel expenses.
The automation of the paper based process through the creation of a software was intended to allow a better
control on these expenses and consequently to represent reduction of these costs. Therefore, the main
objective of this paper is to discuss the development of a management control system for the travel expenses
process based on the business process reengineering approach. This business process reengineering
demanded the application of business process modelling to better represent As is and To be processes,
according to IDEF0 and BPMN models, respectively. This modelling allowed deep analysis of the process.
Results can be used to identify some key success factors in the management control of a business travel
process.
THE APPLICATION OF THE LEAN INNOVATION APROACH

IN THE STAGE-GATE MODEL
Levi Guimares,1* Fernando Romero1 , Hyggor Medeiros1

1
Department of Production and Systems Engineering, University of Minho, Portugal
* Corresponding author: [email protected], University of Minho, Azurm, Guimares
KEYWORDS
Lean innovation, Stage-gate, New product development
ABSTRACT
Innovation has become over the last decades an essential factor for survival of the organizations. Its scope
and its its importance includes not only technological aspects but also the administrative area, with the clear
objective of increasing competitiveness, thereby making the mission to innovate not only the responsibility
of a single area, but the responsibility of all employees in all areas.
Accelerated competition has pushed companies to use innovation management tools in research and new
product development. Although several models exist in the literature of innovation management, with
regard to new product development, there is room for improvement in the management of innovation, from
idea generation until product launch.
This paper seeks to identify an alternative for improving innovation management, building on the stage-
gate model, and using the concept of lean innovation, which is a new approach toward the management of
the innovation process, based on the concepts of the Toyota Production System. With the use of the lean
innovation approach during some stages of the stage-gate model, it is possible to achieve results in time
and cost reduction in new product development.
21
RISK ANALYSIS IN NEW PRODUCT DEVELOPMENT

Cludio Santos1*, Madalena Arajo1 and Nuno Correia2
1
2
Institute of Mechanical Engineering and Industrial Management (INEGI), University of Porto, Portugal
* Corresponding author: [email protected], University of Minho, Azurem Campus, 4800-058, Portugal
KEYWORDS
New product development, risk, economic attractiveness
ABSTRACT
New product development is a key determinant of the competitiveness of product innovation oriented
organizations. Notwithstanding this, the development of new products is exposed to numerous risks and
uncertainties that could compromise their success. The new product development process is intrinsically
linked with market and economic goals. While innumerous qualitative risk analysis methods have been
developed, they still lack the rigor and managerial capabilities of quantitative methods. As such, reviewed
methodologies indicate that quantitative methods of risk analysis provide none or few procedures that link
risk to the economic attractiveness of the project, which could support an adequate risk-benefit analysis of
these projects. This paper presents a new method that is based on a theoretical demand model. This demand
model evaluates the value and expected demand of a certain product, on the basis of each products attribute
target specifications. The method is applied in three projects from the industrial project partner of this study.
ENERGY INDICATORS: CRUCIAL TOOL TOWARDS

SUSTAINABILITY ASSESSMENT
Ftima Lima,1* Manuel Lopes Nunes,1 Jorge Cunha, 1 Andr F P Lucena2

1
2
PPE/COPPE, Universidade Federal do Rio de Janeiro, Brasil
* Corresponding author: [email protected], University of Minho, Campus de Azurm, 4800-058 Guimares,
Portugal
KEYWORDS
Sustainable Development, Energy Indicators, Renewable Energy Sources
ABSTRACT
Energy has been considered an intrinsic factor to attain Sustainable Development (SD). However, it has not
always been viewed, projected or recognized within sustainabilitys scope. To address this issue, the use of
indicators, namely Energy Indicators for Sustainable Development (EISD), allows to convey to policy-
makers multidimensional implications of energy related decision-making. Besides contributing to assess
current energy trends at a national level, this tool, contextualized within a countrys economic and energy
mix, allows to establish a comparison between different countries. This effectively contributes to
identifying common concerns and strategies to overcome barriers towards sustainable development. This
paper compares the path to SD in Portugal and Brazil by making use of the EISD framework.
22
A PILOT STUDY ON THE PUBLIC PERCEPTION OF

RENEWABLE ENERGY SOURCES IN BRAZIL
Lunardo de Sena1, Paula Ferreira2* and Manoel de Sena3

1
Instituto Federal do Rio Grande do Norte, Brazil
1
Universidade do Minho, Department of Production and Systems, Portugal
3
Universidade Federal de Pernambuco, Departamento de Estatistica, Brazil
* Corresponding author: [email protected], Universidade do Minho, Department of Production and Systems,
Campus Azurm, 4800-058, Guimares, Portugal
KEYWORDS
Renewable Energy, Public perception, Brazil
ABSTRACT
Renewable energy sources (RES) are often associated with the production of clean electricity and free of
significant adverse impacts. However, several studies, mostly in Europe and the United States of America
(USA), highlight that social impacts and the management of the grid issues should not be overlooked. Some
of these impacts are positive, as it is the case of its potential contribution to local and regional job creation
or development. However, issues such as noise, changes in the landscape or availability of land for
agricultural activities are often a matter of controversy or rejection by the population. The energy matrix in
Brazil is already largely supported on hydroelectric plants. However, following the example of other
countries, other renewable technologies with particular emphasis on wind or solar power have been gaining
relevance. This paper addresses the integration of renewable energies in the Brazilian energy matrix and
the evaluation of its external impacts and social acceptability. For this, a questionnaire is proposed aiming
to evaluate the knowledge about RES and its social acceptance. The results of its first application in a test
group are described drawing conclusions both on the implementation procedure and the expected outcomes.
REVISITING SHORT-TERM ELECTRICITY PLANNING: A

SIMPLIFIED APPROACH
Srgio Pereira1, Paula Ferreira1,* and A. I. F. Vaz2

1
2
* Corresponding author: [email protected], Universidade do Minho, Department of Production and Systems,
Campus Azurm, 4800-058, Guimares, Portugal
KEYWORDS
Electricity planning, short-term planning, renewable energy sources, thermal power plants
ABSTRACT
Combined with the already large dimension of most of all power systems, the variable electricity output of
the RES (Renewable Energy Sources) power plants, such as wind and hydro power technologies, is seen as
an important challenge for the electricity system managers. This study addresses the electricity planning of
units allocation based on the available resources, considering an increase in wind capacity. A simplified
short term electricity planning approach is proposed resulting in a non-linear optimization model, aiming
to demonstrate that this new model can bring considerable advantages for energy decision makers. The
model is applied for the particular case of the foreseen electricity system in Portugal in
2020. The results demonstrate that in general the simplified version leads to a possible underestimation of
costs comparatively to extended version but rather similar values for CO2 emissions. In what concerns to
the model running time, a significant reduction can be achieved which means that the simplified approach
may be used with significant benefits in the computational time. The model is also used for the analysis of
different wind power scenarios, leading to results close to the ones obtained with the extended version.
23
INTEGRATING BOTTOM-UP AND TOP-DOWN TECHNIQUES

WITH MCDA APPROACH IN ENERGY EFFICIENCY PROJECTS
Carla Oliveira,1,2* Dulce Coelho2,3 and Patrcia Pereira da Silva2,4

1
ISCAC, Polytechnic Institute of Coimbra, Portugal
2
INESC Coimbra, Portugal
3
ISEC, Polytechnic Institute of Coimbra, Portugal
4
Faculty of Economics, University of Coimbra, Portugal
* Corresponding author: [email protected], Polytechnic Institute of Coimbra, Portugal
KEYWORDS
Economic evaluation, MCDA, energy efficiency renovation projects
ABSTRACT
The purpose of this paper is to provide an integrated methodology which follows different stages and
connects top-down and bottom-up approaches, such as Input-Output (I-O) multipliers, traditional capital
budgeting assessment tools and Multicriteria Decision Analysis to facilitate the combined evaluation of
different energy efficiency renovation projects. In the current context of environmental concerns along with
energy efficiency targets, the case study presented focuses on the global and local impact assessment of
renovation projects on buildings from the residential, private services and public services sector, built
within the range of 1946 to 1990.
HOW TO DESIGN RELIABLE DISCRETE CHOICE SURVEYS:

THE USE OF QUALITATIVE RESEARCH METHODS
Anabela Botelhoa, Lina Loureno-Gomesb, Lgia M. Costa Pintoa, Sara Sousac,d*
a
NIMA, University of Minho, Portugal
b
University of Trs-os-Montes and Alto Douro, Portugal
c
PhD Student in Economics, University of Minho, Portugal
d
*Corresponding author: [email protected], ISCAC, Polytechnic Institute of Coimbra, Quinta
Agrcola, Bencanta, 3040-316 Coimbra, Portugal
KEYWORDS
Discrete Choice Experiments, Qualitative Research Methods, Renewable Energy Sources
ABSTRACT
Discrete choice experiments (DCEs) present individuals with choices between scenarios described in terms
of attributes and associated levels. Despite its significant potential in the analysis of individual preferences,
the application of this method raises some important issues, namely whether the elicited preferences behave
in accordance with the axioms of preference-based consumer theory. In DCEs, individuals are assumed to
hold rational preferences, but many empirical studies report evidence of preferences that violate this
foundation. This may be the result of several factors, including problems in the design and implementation
of the DCEs questionnaires. This paper aims to demonstrate the importance of using qualitative research
methodologies in the design of complete and accurate DCEs questionnaires in the domain of renewable
energy sources (RES). Two specific qualitative techniques are used and explained in detail in this paper:
the focus group and the think aloud technique, which have revealed to be fundamental tools in the
questionnaires design process.
24
INTEGRATING PUBLIC POLICY AND PRIVATE STRATEGY

INTERDEPENDENCIES IN PROJECT EVALUATION:
FROM CBA TO COBAYE
Richard LE GOFF1,2 and Satya-Lekh PROAG1,2*

1
Unit dEconomie Applique, ENSTA ParisTech, FRANCE
2
Centre dEconomie de la Sorbonne, FRANCE
* Corresponding author: [email protected]
Unit dEconomie Applique, ENSTA ParisTech, 828 Boulevard des Marchaux 91762 Palaiseau, France
KEYWORDS
Cost-Benefit Analysis (CBA), uncertainty, interdependencies
ABSTRACT
The CoBAYe method is a decision-making tool revisiting standard CBA which uses a typology based on
the consideration of direct, indirect and induced effects of the public policy to be evaluated ex-ante.
CoBAYe considers interdependencies between public policies and private strategies, and therefore operates
a real paradigm shift in decision theory through two innovations. First, the time horizon to consider for the
evaluation is now determined endogenously in the political decision. Second, using opportunity benefits
in the analysis will enable identifying and evaluating the public and private interdependencies that are part
of the policys spatio-temporal framework. After a brief presentation of the theoretical concepts of Cost-
Benefit Analysis, this paper aims to show both the theoretical foundations of the CoBAYe model and a
practical way on how to use this tool for decision support, whether public or private-oriented.
25
COST-BENEFIT MODEL APPLIED TO THE OPTIMIZATION OF

THERMAL SYSTEMS BASED ON A STIRLING ENGINE
Ana Cristina Ferreira,1* Lus B. Martins2, Manuel L. Nunes1 and Senhorinha F. Teixeira1
1
Portugal
* Corresponding author: [email protected], University of Minho, 4800-058 Guimares, Portugal
KEYWORDS
Cost-benefit Analysis, Stirling Engine, Optimization
ABSTRACT
This paper presents a cost-benefit analysis applied to the optimization of a cogeneration thermal plant. This
methodology was applied because it discloses a measurable way in assessing the system economic viability.
The model is based on the definition of an objective function (i.e. maximization of the annual worth of the
cogeneration system) with terms including all costs and revenues from its operation. These terms
correspond to the quantification of the investment, operational and maintenance costs, revenues from
selling electricity to the grid, avoided costs from using renewable energy sources and from not having a
full separate system to produce the heat, and the avoided carbon dioxide emission costs. Concerning the
thermal systems case, the cost-benefit analysis should include not only the internal financial evaluation, but
also the evaluation of the external variables (i.e. social and environmental aspects arising from the use of
cogeneration technology). Therefore, the main objective of this paper is to discuss the development of a
thermal-economic optimization model for a cogeneration system based on the cost-benefit approach. The
system operates accordingly to the Stirling engine cycle able to deliver 1-5 kW of electricity and a larger
heat load, i.e., to fulfil the main energy needs of a residential building. The relevance of heat crediting
electrical feed-in-tariffs and interest rates in combined heat and power plants is also discussed along the
paper. The present work allowed to conclude that the evaluation of the economic feasibility of the system
may be processed in three main steps: (1) assessment of the technical data; (2) definition of the costing
methodology; and (3) evaluation the economic indicators. The costing methodology permits the
characterisation of the expenditures, so that the options are validated and compared in an equitable way.
Furthermore, the economic indicators may, or may not, turn an investment in an appraisal choice. The
levelized cost of electricity has become one of the most popular methodologies for comparing electricity
production costs from different scenarios. Considering the weight of revenues from the electricity sold to
the grid in the total economic balance, the developed thermal-economic model seems to be very sensitive
to the electricity tariffs.
26
A MULTI-CRITERIA ANALYSIS OF LOW CARBON SCENARIOS

IN PORTUGUESE ELECTRICITY SYSTEMS
Maria Joo Santos,1 Paula Ferreira1* and Madalena Arajo1

1
* Corresponding author: [email protected], University of Minho, Guimares, 4800, Portugal
KEYWORDS
Electricity scenarios, Renewable Energy Sources (RES), Multi-criteria Decision Analysis (MCDA)
ABSTRACT
Renewable technologies are suitable investments to achieve a low carbon electricity production system and
to reduce the external energy dependency of Portugal in a long term period. The aim of this work was to
develop and evaluate a variety of scenarios to promote these goals until 2030. A long-term electricity
expansion planning model is used to design these scenarios and multi-criteria analysis is applied in the
evaluation. The results demonstrated that imposing a minimum contribution of renewable energy sources
(RES) for the electricity system, can be more costly than imposing CO2 emissions limitations. Taking into
account the technical criteria, scenarios with high coal power share are favoured. However, under a pure
social approach, the best scenario would be a 100% RES electricity system. When environmental and
economic dimensions are more valued, the best options seems to be the ones with higher investments on
natural gas and wind power plants.
THE USE OF THE DELPHI METHOD FOR THE VALIDATION OF

A CONCEPTUAL MODEL OF ENVIRONMENTAL
MANAGEMENT STRATEGIES
Wellington Alves, 1* Ciliana Regina Colombo2, Claudio Ruy Portela3, Paula Ferreira1 and Rassa
Dlia3
1
Department of Production and Systems, University of Minho, Guimares, Portugal
2
Department of Engineer of Production, Federal University of Rio Grande do Norte, Brazil
3
Department of Engineer of Production, Federal University of Paraba, Brazil
* Corresponding author: [email protected], University of Minho, Campus de Azurm
4804 - 533 Guimares
KEYWORDS
Delphi Technique, Conceptual Model, Environmental Management
ABSTRACT
Concern over environmental issues has become a major discussion in the business context, these
discussions have driven organizations to pursue environmental strategies. There are several environmental
strategies presented in the literature, however, no consensus on the appropriateness of these strategies in
specific dimensions have been reached. In this context, this study aims to propose a conceptual model that
grouped twenty-eight environmental strategies raised in the national and international literature. To validate
the model we used the Delphi Technique for consultation with experts in the field of Environmental
Management, aiming on the agreement in grouping strategies in the proposed dimensions. At the end of the
technique implementation we could obtain a final conceptual model on environmental management
strategies. This is expected to contribute to facilitate the choice of strategies that can better assist companies
in reducing their environmental impact, but also on increasing their competitiveness.
27
GLOBAL REVIEW OF ENERGY POLICY LESSONS FOR

RENEWABLE ENERGY TECHNOLOGIES
Wagner Sousa de Oliveira,1*and Paula Ferreira1

1
Department of Production and Systems, University of Minho, Country Portugal
* Corresponding author: [email protected], University of Minho, Campus de Azurm, 4800-058, Country
Portugal
KEYWORDS
Energy Policy, Renewable Energy Technologies, Global Instruments Review
ABSTRACT
Governments tend globally to appreciate the advantages of renewable energy production more than
conventional energy production. Therefore, supporting the expansion of production capacity of Renewable
Energy Technologies (RETs) in many manners, which basically aim to reduce the disadvantages of most
technologies for renewable energy production: the cost and the lack of controllability. Also essential are
policies that create markets, and ensure a fair rate of return for investors. Its notoriously known wind and
solar power are more mature and establish with some competitive costs, taking into consideration the public
incentives. Most of the countries with a significant level of RETs in its energy matrix, such as Brazil,
Germany, US, China and others have demonstrated that it is possible to create vibrant markets for RETs,
and to do so very rapidly; but the results in these same countries also shows that the renewable energy
policies have been unsuccessful to date, in some aspect. Most of the renewable energy policies development
experienced has been driven by countries with feed-in or pricing approach schemes. In order to adequate
the most efficient renewable energy policy instruments most applied by governments to RETs this paper
aims to organize a framework to compare and evaluate these instruments (wind and solar power for
electricity production) for a different classification as discussed in the specialized literature.
COMMERCIAL ANALYSIS IN PROJECT APPRAISAL
Nuno Moutinho1, Helena Mouta 1*

1
School of Technology and Management, Polytechnic Institute of Bragana, Portugal
* Corresponding author: [email protected], IPB, Campus de Santa Apolnia, Apartadao 1134, 5301-857 Bragana,
Portugal
KEYWORDS
Project appraisal, Commercial analysis
ABSTRACT
An adequate analysis of investment projects should provide a knowledge of the commercial factors that are
critical to the success of the project. The evaluation of a project should identify the problems associated
with the market where the project will be placed and develop the relevant market competencies to allow
the project to meet the markets expectations and face its competition. As such, project appraisal should
analyse the aspects associated with the projects commercial dynamic and, therefore, this work supports
the idea that project appraisal should include an analysis of the commercial area.
28
ECONOMIC EVALUATION OF WIND POWER PROJECTS: AN

INTEGRATIVE PERSPECTIVE WITH LCOEwso METHODOLOGY
Wagner Sousa de Oliveira,1*, Antonio Jorge Fernandes2 and Joaquim Jos Borges Gouveia2
1
2
Department of Economics, Management and Industrial Engineering, University of Aveiro, Country
Portugal
* Corresponding author: [email protected], University of Minho, Campus de Azurm, 4800-058, Country
Portugal
KEYWORDS
Economic Analysis, Wind Power Projects, LCOEwso methodology
ABSTRACT
Economic evaluation of power projects in case of Renewable Energy Projects (REPs) present different
approaches and perspectives. There is an exhaustive list of authors, institutions about economic evaluation
methodologies and approaches applied to energy projects. This article presents the LCOEwso model
proposed for economic evaluation of (onshore) wind farms as a new tool applied for an efficient planning
of this type of Renewable Energy Technology (RET) which is one of the key-drivers for REPs. Wind energy
is one of the most potent alternative renewable energy technology, however, the economics of wind energy
is not yet universally favorable to place wind at a competitive platform with coal and fossil fuels power
plants. Economic evaluation models of wind projects developed are based on NREL/LCOE methodology
can allow investors, developers and related-professionals to better plan their REPs, as well as provide
valuable insight into the areas that require further development to improve the overall economics of wind
energy projects.
EVALUATION OF THE ECONOMIC VIABILITY OF

PURCHASING AN ELECTRIC VEHICLE IN PORTUGAL
Jos Fontanhas,1* Jorge Cunha,1 Paula Ferreira1

1
* Corresponding author: [email protected], University of Minho
KEYWORDS
Electric vehicle, Investment appraisal, Risk analysis
ABSTRACT
Every day news show that the environment is being destroyed due to human intervention. Green house gas
emissions have been increasing excessively and much hasnt been done to avoid this. With this scenario,
electric vehicles appeared many years ago and were always seen and presented as a green solution.
However, they have been repeatedly put aside in detriment of internal combustion engine vehicles.
Portuguese governments have already acknowledged the importance of this matter and have already
invested, as well as other European and American countries, on this technology. It is noticeable, due to the
issues previously referred, that the interest on this technology has been increasing. Therefore, it is important
to evaluate if it is viable to purchase an electric vehicle when compared to a conventional vehicle, in the
Portuguese context.
29
INTEGRATION OF RISK MANAGEMENT IN OCCUPATIONAL

HEALTH AND SAFETY SYSTEMS
Delfina Ramos1,* Ana Costa1 and Paulo Afonso2

1
Technology School, Polytechnic Institute of Cvado and Ave, Portugal
2
* Corresponding author: [email protected], Polytechnic Institute of Cvado and Ave, Vila Frescanha S. Martinho,
4750-810, Portugal
KEYWORDS
Risk Management, Occupational Health and Safety, Questionnaire
ABSTRACT
Risk management can be considered as part of the Occupational Health and Safety System (OHS) of an
organization and can be used to develop and implement the OHS policy and manage the associated risks.
The success of the integration of risk management in OHS depends on both technical and human aspects.
Thus, this paper presents and discusses the case of a company working in the area of solid waste treatment.
This company was certified in 2009 with an Integrated Management Systems for Quality, Environment,
Occupational Health and Safety. The evolution of accidents before and after the implementation of the
integrated system was analysed and a questionnaire was used to capture the perceptions of the technicians
on the risk management system. The analysis of the findings showed that the frequency of accidents
increased since 2009 but the severity has been reduced. Several interrelated causes and consequences were
analysed and discussed. Furthermore, the analysis of the opinions of the companys technicians permitted
to highlight some important aspects on the integration of risk management in the OHS system of the
company. In line with this discussion some hypothesis have been formulated.
REMOVABLE BATTERY PACKS TO REMOVE AIR POLLUTION

IN PARIS: ECONOMIC EVALUATION BY THE COBAYE
DECISION-MAKING TOOL
Satya-Lekh PROAG1,2* and Jonathan BAINE1,2

1
2
* Corresponding author: [email protected], Unit dEconomie Applique, ENSTA ParisTech, 828
Boulevard des Marchaux 91762 Palaiseau, France
KEYWORDS
CoBAYe, Economic evaluation, electric battery packs
ABSTRACT
In November 2013, the Council of Paris voted the implementation of a charging point network
infrastructure in the French capital, intended to both private and professional road users (Conseil de Paris
2013). This policy is part of a wish to promote the emergence of electromobility and hence curb air pollution
in Paris. However, another choice could have been made in order to achieve the same objectives: for
instance the implementation of a dense infrastructure in the French capital, similar to the existing filling
stations, but of removable battery pack exchange stations, following the example of Better Place in Israel,
but also in the Netherlands, especially for taxis. In this paper, we propose to apply CoBAYe (Cost-Benefit
Analysis under interdependency and uncertainty) as a methodology to assess and compare the two
abovementioned public policies, while considering the interdependencies of a wide variety of public
policies and private strategies associated with the emergence and the diffusion of the contemporary electric
automobile. More precisely, we will explore the case of the diffusion of taxi fleets equipped with removable
battery packs in Paris.
30
HUMAN RESOURCES AND MANAGEMENT IN PROJECTS

1
* Corresponding author: [email protected], IPB, Campus de Santa Apolnia, Apartadao 1134, 5301-857 Bragana,
Portugal
KEYWORDS
Project appraisal, Human resources analysis, Management analysis
ABSTRACT
When valuing an investment project, all the factors that affect its viability should be analysed. As such, not
only financial aspects are important, but also non-financial aspects. In effect, in project appraisal we should
analyse the human resources and the role of the project manager and his personal characteristics and
attributes. We support the idea that human resources and project manager areas have to be analysed when
determining a projects viability.
ORGANIZATIONAL CONTEXT FOR LEARNING AND

KNOWLEDGE MANAGEMENT IN PROJECTS AN OVERVIEW
Antnio Amaral,1,2,3* M. Madalena Arajo2,3 and Cristina S. Rodrigues2,4

1
Faculty of Economics and Management, University Lusfona of Porto (ULP-FCESE)*
2
3
4
* Corresponding author: [email protected], University of Minho, Campus de Azurm, 4804 - 533
Guimares, Portugal
KEYWORDS
Knowledge Management; Organizational Learning; Project Managers
ABSTRACT
There is an increasing recognition that the competitive advantage of firms depends on their ability to create,
transfer, utilize, develop and protect the Organizational knowledge assets. Therefore the projects context
should be wisely used for properly foster the learning collection through the lessons learned gathered during
project life cycle. However, organizations do not seem to learn from their mistakes, rarely exploring the
reasons for their projects success or failure, and very rarely applying those lessons learned to the business
management. In fact, there is little or no point in learning unless management adapts its behavior
accordingly. Usually top management does not give sufficient resources for activities such as reflecting and
learning. Another recurrent problem is the timing for the lessons identification, only at the end of a project,
which is clearly insufficient. This research is focused on assessing the organizational environment in order
to properly explore the factors and dependencies amongst the social demographic variables. The questions
addressed intent to highlight the key determinants that might foreseen a proper learning and knowledge
management environment.
31
IMPLEMENTATION AND CASE STUDY APPLICATION OF A

CONCEPTUAL FRAMEWORK FOR EMBEDDING USEFUL
PROJECT MANAGEMENT IMPROVEMENT INITIATIVES
Gabriela Fernandes,1* Madalena Araujo1, Valter Henriques2

1
2
Shortcut, Portugal
* Corresponding author: [email protected], University of Minho, Campus de Azurm, 4800-058
Guimares, Portugal
KEYWORDS
Project management, improving, embedding
ABSTRACT
This paper describes the steps for the application of a developed conceptual framework for embedding
useful project management improvement initiatives (PMIIs) in organizations, and exemplifies its
implementation in a single case study of a small information and technology organization. In summary, the
framework is conceptualized into two constructs: improving and embedding. In the improving construct 15
key PMIIs are identified that organizations might handle to improve their performance. In the embedding
construct, it identifies 26 key factors contributing to the successful embedment of these initiatives. An
EXCEL template was created to facilitate its application and it was subsequently improved throughout the
development of the case study. The framework proved to be a useful analytical tool and appeared able to
improve and embed project management practice in the company. However, the results of exploratory
studies such as this require replication in other case studies from different organizational contexts.
32
PR-INOVA: PROJECT TO IMPLEMENT INNOVATION

MANAGEMENT IN INDUSTRIALS SMEs RIO GRANDE DO
NORTE, BRAZIL
Jernimo Santos,1,2 * Karla Motta,1,3 Mnica Luna,3 Ana Gergia Barbosa,1
Edjanio Brito,1 Mariana Nunes1 and Fernando Romero2
1
Ncleo de Inovao Tecnolgica, Inst. Fed. de Educao, Cincia e Tecn. do Rio Grande do Norte,
Brasil
2
Departamento de Produo e Sistemas, Escola de Engenharia, Universidade do Minho, Portugal
3
Departamento de Engenharia de Produo, Universidade Federal de Santa Catarina, Brasil
* Corresponding author: [email protected], IFRN, Rua Nilo Bezerra Ramalho, 1692, Tirol, CEP: 59015-300
Natal/RN, Brasil
KEYWORDS
Competitiveness, Industrial SMEs, Innovation
ABSTRACT
This article aims to contribute with the learning and difusion of the organizational innovation, presenting
an experience of the Pr-Inova project in the Rio Grande do Norte state, located in Brazils Northeastern
region, conducted between 2012 and 2014. The project was promoted by the Financiadora de Estudos e
Projetos (FINEP) [Studies and Projects Funder] and developed nationaly, aiming to motivate, mobilize
and capacitate entrepreneurs; perform diagnostic and elaborate plans and projects of enterprise innovation
management. In order to reach this goal, the case here analyzed adopted the action research methodology
(Coughlan & Coghlan, 2002), splited in (1) data gathering, (2) data feedback and (3) data analysis, (4)
action planning, (5) implementation, (6) evaluation and (7) monitoring of the actions. As results, it has been
identified the innovation practices there are in the project participants industries, and it has been realized
actions towards the development of this management culture, being implanted 88 innovating initiatives in
the industries, with 117 new practices in the implementation stage. The performed study stimulates the
researchers to think about the innovation management by consolidating the results of a practical experience,
accomplished with a scientific approach, that can be expanded over the other project participants industries
in the state and in the country, providing a larger amplitude and deepening to the subject in question, as
well as replicated in another projects.
33
KNOWLEDGE IMPLICATIONS FOR THE NITEC PROGRAM: A

PRELIMINARY ANALYSIS OF AN INNOVATION PROGRAM
DIRECTED AT BUILDING INNOVATION CAPABILITIES IN
SMES
Dorota Silva,1* Fernando Romero1 and Filipa Vieira2

1
Department of Industrial Engineering, University Minho, Portugal
* Corresponding author: [email protected], University Minho, Azurm, Portugal
KEYWORDS
Knowledge management; innovation program; indirect impacts
ABSTRACT
Economists and others scientists have demonstrated that R&D activities generate widespread benefits
enjoyed by consumers and society at large. As a result, the overall economic value of R&D to society often
exceeds the economic benefits enjoyed by the innovators as a result of their efforts. Economists describe
this phenomena as a positive externality or spillover (Jaffe, 1996) (European Commission, 2005) (Cohen
& Levinthal, 2000) (Richard Gray and Stavroula Malla, 2007).
Similarly, one can say that the intended results of specific innovation programs directed at SME are usually
complemented by results that were not specifically aimed at. The first type of results, which are the specified
objectives of the program, are called direct impacts, and the second type of results are called the indirect
impacts of the innovation program.
This paper identifies and analyses the indirect impacts of an innovation program, implemented and financed
by the Portuguese state under the aegis of the 6th Portuguese Framework Program, and directed at SMEs.
The program, called NITEC, aimed to foster and support the creation of R&D structures inside SMEs, by
providing financial support to hire research personnel and acquire research equipment.
This program was conceived to address a key problem in the National Innovation System (NIS) in Portugal:
the low level of in-house technology and innovation capabilities in Portuguese firms. This specific program
was selected because of its features: 1) the funds are governmental; 2) promotes activities related to R&D;
3) the people involved are expert in the working and research area; 4) the project-base has a limited period
of time (maximum five years); 5) each company has its own project. These features are essential to identify
knowledge acquisition in the firms which participated in the program, as a main topic being evaluated in
the results.
34
SMALL CONDOMINIUM FOR GENERATION OF BIOENERGY

AND FERTILIZER: A CASE STUDY WITHIN RIO GRANDE DO
SUL, BRAZIL
Rodrigo Barichello1, Nelson Casarotto Filho1, Ronaldo Hoffmann1 and Paula Ferreira2
1
Department of Production and Systems, Federal University of Santa Catarina, Brazil
2
Corresponding author: [email protected], Federal University of Santa Catarina, Brazil
KEYWORDS
Small condominium; bioenergy; fertilizer; renewable energy
ABSTRACT
Energy sources have become the focus of legal and ethical debate, mainly due to increased environmental
challenges and socio-economic change. Non-renewable energy sources are thus increasingly being replaced
by renewable ones. The agriculture sector is also targeting less polluting technologies for ensuring
sustainability aiming to harness equitable, viable solutions for both agricultural businesses and the world
within which they operate.. This study analyses a case of waste to energy, within the State of Rio Grande
do Sul, Brazil, where two small rural pig farmers assessed production cycles and waste generated in order
to exploit new opportunities for organizational cost reduction and energy self-sufficiency. Pig waste acts as
biomass for each digester installed in the farming properties. These digesters produce enough power to
maintain a central biogas generation unit, and thus providing animals heating and drying of the grain
produced in the respective properties. Biofertilizer produced by digesters can, furthermore, help fertilize
corn crops and cattle grazing. The findings of our study demonstrate that investment into such a project can
provide an excellent return, with savings up to 50% in electric energy and 50 % in fertilizer. Cost saving
was also recorded in the overall production.
IMPROVING COMPETITIVENESS USING LEAN PRINCIPLES

THE IRISH EXPERIENCE
Richard Keegan1
1
Manager Competitiveness Department, Enterprise Ireland, aa Professor Business School, Trinity
College, the Dublin University, Ph. D, CEng, FIEI
ABSTRACT
Ireland is a small island nation, located on the Western periphery of Europe. Our closest neighbour and
largest trading partner is the United Kingdom. Our economy is based on an Open business model where
we have organised ourselves to be export led. Per capita of population Ireland is one of the leading global
export economies. This openness is generally seen as a good thing for our country, but, it also means that
we are very sensitive to negative changes in the global economy. This paper deals with an aspect of the
efforts of Enterprise Ireland to help indigenous manufacturers software and service companies deal with
the consequences of the 2008-2013 global downturn, through helping companies address their
competitiveness issues.
35
36
EXPERIENCES AND SOCIAL REPRESENTATIONS OF

ENTREPRENEURSHIP AMONG PORTUGUESE GRADUATES: A CASE
STUDY
Ana Paula Marques,1* and Helena Rita Moreira2

1
Department of Sociology, University of Minho, Portugal
2
PhD student and junior researcher of Research Centre for the Social Sciences, University of Minho, Portugal
* Corresponding author: [email protected], University of Minho, Campus de Campus de Gualtar

4710-057 Braga, Portugal
KEYWORDS the gradual increase of graduates have been followed by

Higher Education; Entrepreneurial experiences; Social empirical evidence that points to the possibility of
representations obtaining a qualified job linked to higher instruction
levels. We may presume that many of these young
ABSTRACT workers in the beginning of a career and holders of high
academic qualifications, base their professional
This paper focuses upon a case study in entrepreneurial performances on autonomy and creativity, and that they
learning, involving students from different scientific also hold high organizational and professionals
fields from the University of Minho. The specific expectations, particularly in highly competitive and
purpose of this paper is to analyse the experiences and innovative sectors.
perceptions regarding entrepreneurship viewed as an However, access to the labour market does not present
alternative means of accessing a profession or a career itself as being uniform and stable to most young adults.
as well as to explore the main initiatives/programmes, Research on academic and labour markets tends to focus
forms of support and infrastructure deployed in on "new" emerging risks of individualization,
academic preparation and training for the labour market. precariousness and vulnerability of employment
We will make specific use of the key deliverables from relationship (Marques & Alves, 2010; Leccardi, 2005).
two projects, namely The Potential of Entrepreneurship The average waiting time until starting a first job is now
at the University of Minho (2010-2012) and the on- between nine and twelve months after graduation, and
going PhD project Qualified Entrepreneurship: Higher the flexibilisation of working conditions and
Education Policy and (Re)configuration of the Career precariousness of tenure have led to significant
Paths of Graduates (2010-2013). The present study is segmentation of the labour market. Also, in main
based on the results from sixteen semi-structured scientific literature it has been accepted - that whilst
interviews conducted with young people from different youth entrepreneurship is far from being the solution, it
socio-demographic and educational profiles, all of is likely to be part of a response for unemployment.
whom were in a professional transition phase. Therefore, it is important to analyse the extent to which
Specifically, we point out: i) the main stakeholders, their entrepreneurship is, or is not, perceived by young people
missions and strategies for fostering entrepreneurial as an alternative means of accessing a profession or a
learning, ii) the entrepreneurial experiences undertaken career, and to explore the main initiatives/programmes,
by young people and the meanings and representations forms of support and infrastructure deployed, as well as
of - entrepreneurship and its effects on identity re- identifying the obstacles and shortcomings in academic
composition. The conclusion presents a summary of the preparation and training for the labour market.
main results, highlighting the privileged relationship In a broad sense, entrepreneurship and entrepreneurial
between non-formal/ informal entrepreneurial learning. learning are related to the acquisition of skills, certain
attitudes, creativity, innovation and risk, which are
INTRODUCTION attributes applicable to various areas of personal and
Entrepreneurial learning and transition to work are professional life (EC, 2012, 2006). Also, underlining
central be it in the context of transnational processes of social and cultural dimensions of entrepreneurial
human resource qualifications and job creation or in the learning is crucial in order to overcome the economic
framework of a de-regulation of wage relationships and and managerial as well as the psychological/ individual
the increasing rates of sub-employment and perspectives only focused on business opportunities/
unemployment. The expansion of higher education and business creation. In fact, the recognition of the societal
37
and cultural level is visible in the Europe 2020 strategy, In which concert to the first project the research sought
which highlights the importance of entrepreneurship to: i) address the shortcomings of current empirical
education. studies on entrepreneurship, and ii) understand the
Although the acquisition of knowledge, skills and importance of higher education in the development of
entrepreneurial attitudes could be developed in the knowledge and skills that influence the process of
context of an institutionalized education system, it can professional transition. Its methodological design
also be promoted in many ways, resorting to non-formal combined both quantitative and qualitative approaches.
and informal learning strategies, such as, for example: 1) In the first methodological stage, an online survey was
internships and curricular experiences of mobility applied to a universe of graduates from the University of
(Erasmus Programme); 2) participation in different sort Minho (North of Portugal), who terminated their course
of civic associations (sports, cultures, and so on); 3) between 2002 and 2008. In the second methodological
participation in organizational initiatives (seminars, stage, in-depth interviews of the graduates who
ideas competition, prizes, etc. ); 4) and supporting participated in the first stage of this research, especially
scientific, cultural and social events, among others. In those with high entrepreneurial potential took place.
fact, according to Werquin (2012) informal learning Likewise, the ongoing second project mentioned above
results from daily activities of individuals at work, in aimed to: i) understand and explain the so-called
family or in the community and that are usually entrepreneurial spirit among students and graduates of
unintended and therefore are called experiments. Also, higher education through adopting a more
Gibb (2005, 2002) suggests that the entrepreneurial comprehensive perspective on entrepreneurship
learning might develop outside of intentional education education, with a focus on the emergence and/or
through students involvement in communities of development of new skills and professional knowledge;
practices. This perspective put forward that non-formal ii) deepening knowledge about the processes of
learning acquired through previous work experience, professional transition, in particular the impact of the
participation in social networks and mentoring schemes transformations of the Bologna process in the (re)
can have positive implications for the development of configuration of the career pathways of graduates and
the entrepreneurial potential of students and appears to professionals. The scope of this research are national,
be important in the transition to the labour market, in covering graduates from all public Portuguese
getting a job, in structuring a career by the anticipation universities and it has involved, in the first
of projects and a professional future (Marques e methodological phase, an extensive survey, and, also, in
Moreira, 2013; Marques, 2007). second phase, in-depth interviews. Therefore, for the
purpose of comparison of these projects only qualitative
OBJETIVES AND METHODOLOGICAL ISSUES data gathered by in-depth interview of the graduates
belong to the University of Minho will be mobilised.
In this paper we intend to pursuit the following The following two sections of this paper it will be based
objectives: firstly, to identify the main stakeholders on a case study delimited to the University of Minho
presents in the University of Minho (University located (UM) (Marques, Moreira, Cairns and Veloso, 2014).
at North of Portugal), their missions and strategies for
fostering entrepreneurial learning; secondly, to present
THE ROLE OF STAKEHOLDERS AT THE
entrepreneurial experiences undertaken by young
UNIVERSITY OF MINHO
people, particularly skills mobilised, obstacles and
success factors; finally, to analyse meanings and In order to develop entrepreneurial spirit and enhance an
representations of the entrepreneurship and its effects on entrepreneurial culture and innovation at the higher
identity re-composition. In other words, mapping the education level, it is vital to consider collaborative and
main stakeholders involved in the academic dynamic complementarity between various actors - and
entrepreneurial ecosystem and answering the question key partners that are part of the ecosystem of academic
regarding what does entrepreneurship mean to young entrepreneurship. Thus, the higher education institutions
people are the key issues in this paper. have been designing new collaborative learning student-
Therefore, we will make specific use of the key centred strategies, involving the entire academic
deliverables from two project, namely: 1) The Potential community and diverse stakeholders (such as, students,
of Entrepreneurship at the University of Minho (2010- academics, researchers, technical staff and others types
2012) which was already concluded; and 2) the on- of actors) in the learning process.
going PhD project Entrepreneurship Qualified: Higher On in other hand, it well known that stakeholders have
Education Policy and (Re)configuration of the Career an interest in intervening at higher education level
Paths of Graduates (2010-2013) . The selection of (Amaral and Magalhes, 2002), primarily by
young people for the interview was made from surveys strengthening entrepreneurship related to innovation,
designed to assess the entrepreneurial potential of technology transfer and business creation. Plus, their
graduates and have been applied in earlier research. involvement has created a dynamic regarding
stimulation of new attitudes and behaviours towards
38
entrepreneurship among students and graduates (Matlay services and infrastructure to support business projects
2009) and consequently, has a positive effect in the (scientific mentoring, patenting, etc.); to date, it has
transition to the labour market. supported the creation of 37 spin-offs. Among the
Portuguese universities have, in recent years, diversified projects developed in the area of entrepreneurship are
their strategies to promote entrepreneurship; these issues the Laboratory of Business Ideas (IdeaLab) and the
being addressed, in most cases, by government or Office of Entrepreneurship (Start@TecMinho). In
academic units depending of their respective Rectories. parallel, the unit is involved in organising ideas
In the case of University of Minho (UM), the promotion competitions (SpinUM), conferences, seminars and
of entrepreneurship, for the purpose of carrying out entrepreneurship fairs.
duties (Article No. 2, Statutes of A) and skills is In which concerns to the infrastructure support, UM also
entrusted to the Vice-Rector (www.uminho. en). Direct supports academic business projects through other
stimulus of entrepreneurship by UM is embodied in new entities such as Spinpark, a technology incubator
structures and an academic interface, in close (www.spinpark.pt) that supports companies throughout
cooperation with other organisations supporting their evolutionary development (e.g. physical space and
entrepreneurship education. This has meant an increased specialist technical services), and AvePark, Park of
in extracurricular activities and support that, through a Science and Technology (www.avepark.pt), that helps
non-formal approach, seeks to engage students via a more mature companies in terms of the access to
series of outreach initiatives (e.g. events and networks of contacts, training and support for
competitions for ideas) and training (courses and internationalisation.
programmes) in the area of entrepreneurship, and
support for the creation of businesses (mentoring, ENTREPRENEURSHIP: EXPERIENCES AND
counselling, etc.). SOCIAL REPRESENTATIONS
These activities have made visible the growing
The remainder of this paper concentrates upon on most
importance of the role of various stakeholders in the
important aspects of non-formal learning, in this
expansion of entrepreneurial learning opportunities
instance among young graduates from UM. The specific
within academia, especially the role of the Office of
purpose is to understand the main experiences and
LIFTOFF-Entrepreneur and TecMinho. The LIFTOFF-
representations of the entrepreneurship and reflect on its
Office of the Entrepreneur (www.liftoff.aaum.pt) is a
effects on identity re-composition, taking into account
project carried out by students via the UM Students
the status assumed by graduates from University of
Union. This primarily focuses on training and awareness
Minho.
for those training in entrepreneurship, seeking to
To ensure theoretical and empirical relevance, we have
introduce into their courses and activities, skills that
purposely selected individuals from a diverse range of
foster the entrepreneurial spirit in the academic
higher education contexts in relation to scientific fields
community. Overall, the initiatives undertaken by this
(i.e. "Education", Humanities", "Social Sciences and
office are well received and accepted among students of
Law", "Science and Computing", "Engineering and
UM. In fact, numerous activities are important to the
"Health and social care) and study cycles (i.e.
students in order to prepare their professional
undergraduate, masters and doctoral levels), thus
integration into labour market, namely training courses
representing a heterogeneous range of entrepreneurial
of short duration and workshops on various topics (e.g.
learning pathways in an academic context. Moreover,
jobsearch skills, project management and coaching).
the inclusion of cases with different profiles in terms of
With the aim of strengthening relationships with the
gender, socio-economic or employment status was made
surrounding community, LIFTOFF also promotes
in order to obtain a systemic view of the problem under
awareness sessions with the participation of
consideration.
entrepreneurs, seminars and conferences on this subject.
The analysis of our interviews exposes various forms of
It is also responsible for the organisations annual
entrepreneurial learning undertaken by respondents.
Entrepreneurship Week.
This was mostly through work experience or internships,
On the other hand, TecMinho
participation in student mobility programmes,
(www.tecminho.uminho.pt) is also institutionally
volunteering and associational activity. The following
responsible for implementing a set of activities to
testimonies support this issue, such as: I worked in a
promote entrepreneurial culture in academia, establish
restaurant and several shops ... did quality audits ...
relationships with the exterior and support custom-made
working in several areas led me to gain confidence in
technological and knowledge-intensive entrepreneurial
myself, when I finish the course I know now how
projects. Specifically, TecMinho plays an important role
difficult the world of work will be, I also gained
in fostering entrepreneurship education in the context of
maturity, both in terms of money and responsibility
UM, at different stages of the process. This includes
(Joana, 22, Public Administration , Unemployed); I had
awareness raising (provision of general information to
several vacation jobs and did part-time jobs and an
students, production of brochures and other information
internship ... these experiences were important because
media, etc.) and training courses in entrepreneurship,
39
it was through them that I got others, on a likewise, between entrepreneurial education and
recommendation, directly or indirectly ... I was able to entrepreneurship education.
find people who taught me how things were done in
practice (Maria, 36, Marketing, Self-Employed). CONCLUSIONS
This revealed what these graduates learnt in practice;
The instability, risk and uncertainty to predict or plan
skills and competencies relevant to their personal and
the future, as well as the increasing of flexibility/
professional development, for example, confidence,
precariousness of the labour market, have forced a
autonomy, responsibility, decision-making,
change of attitudes in the career choices of young adults,
interpersonal skills and the ability to react, among
providing a favourable environment for the creation of
others. We have also noted that in most cases the
self-employment, which explains the renewed interest in
reported acquisition of these skills was closely linked to
entrepreneurship as an alternative for professional
stronger links to the labour market and, in essence, the
transition or facilitating the access of graduates to the
opportunity to learn to work, make contacts or to
labour market. The evidence previously discussed
build a CV.
provides a vivid example of how entrepreneurialism can
Also, it is possible to observe here an emphasis on non-
be learnt in Portugal. Despite the relative novelty is this
formal and extracurricular activities, as well as
development, we have seen how the young people
experiences that lead to professional development via
interviewed provide illustrations of what can be
the acquisition of soft skills; and this is something that is
acquired in non-formal and informal learning processes,
consistent with the findings of previous studies
as well as illustrating some shortcomings, e.g. in relation
(Marques, 2007; Marques Moreira, 2011a and 2011b).
to the relatively limited scope in terms of field of study.
There are also graduates who talk about their
This case study also shows the importance of interface
participation in mobility programmes and volunteering,
institutions that use a university as a platform of support,
as we can confirm in the next testimonies: [Erasmus]
particularly in the promotion of non-formal learning
was the best experience of my life ... I had to deal with a
initiatives through extra-curricular activities. These
totally different culture. Undoubtedly, I grew-up a lot
successes do however need to be tempered by
during this period. I had to make decisions and I became
realisation that the deteriorating economic situation in
much more responsible (Sara, 23, Civil Engineering,
Portugal brings with it the risk that much of this work
Intern); the volunteer work I did [with the elderly]
will be undermined by a lack of opportunities and
helped me to overcome the problem of relationships
declining working conditions.
with adults and also allowed me to get a part-time at a
clinic and find clients (Paulo, 27, Economics, Self-
employed). REFERENCES
Analysing some respondents discourses regarding the Amaral, A. and Magalhes, A. 2002. The emergent role of
meaning of is being an entrepreneur allows us to external stakeholders in European higher education
highlight the social representation of entrepreneurship. It governance. In Amaral, A., Jones, G.A. and Karseth, B.
is apparent that what is meant by entrepreneurship (ed.) Governing Higher Education: National Perspectives
among graduates is broad and not always the same. This on Institutional Governance. NY: Springer.
EC (European Commission). 2012. Entrepreneurship 2020
ambiguity in relation to the concept of entrepreneurship
Action Plan - Reigniting the entrepreneurial spirit in
means that a large number of the respondents have Europe.COM(2012)795.
difficulty in assigning meaning to the concept, and, for EC (European Commission). 2006. Fostering Entrepreneurial
some, is a term that is fashionable in political Mindsets through Education and Learning.
discourse while for others it signifies being pro-active COM(2006)33 final.
and creative. But for most, it clearly means a project of EC (2000) Memorandum on Lifelong Learning, SEC (2000)
setting up a business. These three testimonies illustrate 1832.
this confusion: Unfortunately it is used to connote Gibb, A. A. 2002. In pursuit of a new entrepreneurship
entrepreneurship as a fashion (Maria, 36, Marketing, paradigm for learning: creative destruction, new values,
new ways of doing things and new combinations of
Self-employed); I dunno, its entrepreneurship, I relate a
knowledge. International, Journal of Management
lot with being pro-active and that everyone has to have Reviews. 4 (3): 233- 269.
it. ... I believe that an entrepreneur has to have ideas and Gibb, A. A. 2005. The future of Entrepreneurship Education.
be creative (Paulo, 27, Economics, Self-employed); Determining the basis for coherent policy and practice. In
[Entrepreneurship] is not for everyone ... Not all Kyro, P and Carrier, C. (ed.) The Dynamics of Learning
courses impart the development of products. For Entrepreneurship in a cross cultural University Context,
example, a Law School will not develop a product, will pp 44-68: University of Tampere Research Centre for
it? (John, 28, Computer Engineering, Entrepreneur). Vocational and Professional Education.
Given the evident plurality of meaning, it is clear that Leccardi, C. 2005. Facing Uncertainty. Temporality and
Biographies in the New Century. Young 13: 123-146.
there is a need for conceptual clarification between
Marques, A. P. 2007. MeIntegra Mercados e estratgias de
entrepreneurial initiative and entrepreneurship and, insero profissional. Licenciados versus empresas da
40
Regio Norte. Relatrio final. Universidade do Minho:

Coleco DS/CICS. http://hdl.handle.net/1822/8633.
Marques, A. P., Moreira, R., Cairns, D. and Veloso, L. 2014.
Learning by Practice? Entrepreneurial dynamics among
Portuguese graduates. In Maria-Carmen Pantea e Raluca
Diroescu (ed.). Young people, entrepreneurship and non-
formal learning: A work in progress, Brussels: IPM
Printing
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na Universidade do Minho. O potencial empreendedor dos
diplomados do ensino superior numa perspectiva
educative. paper presented in II Encontro de Sociologia
da Educao Educao, Territrios e (Des)igualdades.
Porto: January 2011.
http://repositorium.sdum.uminho.pt/handle/1822/15247.
Marques, A. P. and Moreira, R. 2011b. Transio para o
mercado de trabalho: empreendedorismo numa perspectiva
de gnero. paper presented in Actas do XIV Encontro
Nacional de Sociologia Industrial, das Organizaes e do
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Marques A.P., Alves, M G.(Eds.) 2010. Insero Profissional
de Graduados em Portugal. (Re)configuraes Tericas e
Empricas. Famalico: Editora Humus Lda./ CICS
Universidade do Minho;
Matlay, H. 2009. Entrepreneurship education in the UK. A
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Werquin, P. 2012. The missing link to connect education
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Beck U. London: Sage Publications.
41
42
COSTING SYSTEMS MODELS UNDER UNCERTAINTY CONTEXTS
Victor Jimnez,1* Paulo Afonso1

1
* Corresponding author: [email protected] , University of Minho, 4800-058 Braga, Portugal
KEYWORDS outflow of resources, that is consciously made with the

ABC, Uncertainty, Monte Carlo Simulation expectation of benefit the organization in terms of goods,
property, or services acquired. A good cost estimation
ABSTRACT has a direct bearing on the performance and effectiveness
of a business because overestimation can result in loss of
Companies face an increasingly fast-changing business and goodwill in the market, whereas
environment and the variability in processes, products, underestimation may lead toward financial losses to the
technology and prices affect the performance of the enterprise. Because of this sensitive and crucial role in an
organization. One measure of performance is the cost of organization, cost estimation has been a focal point for
products, as this may indicate not only the level of design and operational strategies and a key agenda for
efficiency but also define the business strategy of managerial policies and business decisions (Niazi et al.
organizations. Given this changing environment, the cost 2006).
of a product or service may be changing over time and Whether an organization sells a product or provides a
deterministic models for costing systems may be service, managers must understand how revenue and
inappropriate. Thus, this paper proposes a model for costs behave, or risk losing control. Indeed, the cost
calculating costs which considers the variability of accounting information system is indispensable to make
endogenous and exogenous variables. It uses the logic of decisions with a strategic formulation, for research and
Activity Based Costing and Monte Carlo Simulation. The development, budgeting, production planning and
proposed model may allow to some extent to predict the pricing, among others (Horgren et al. 2012).
risk associated with the variability in costs and support Nevertheless, like the value of economic goods, the value
the necessary steps which should be taken to better of a management accounting system depends on its costs
manage such risk, whether from the point of view of and benefits for an organization. The benefit of its
processes rationalization and of cost management. management accounting system rests on the system's
ability to the transmission of information which will help
INTRODUCTION reach wise economic decisions and the motivation of
Many firms are interested in determining their costs more users to aim and strive for organizational objectives or
accurately with the objective to integrate strategies and goals (Horngren 2004). The cost management system, as
improve their efficiency indicators and profitability. part of a management accounting system, is no exception.
(Gunasekaran and Sarhadi 1998). Product costing models Cost management provides information to internal users
should reflect the real situation of production and cost and specifically identifies, collect, measure, classify and
structure as accurate as possible. However, the report information to determine the cost of cost objetcts
circumstances are changing rapidly (Alnestig and (e.g. products) and also serve as a tool for decision
Segerstedt 1996). making. Furthermore, nowadays, cost management has a
Indeed, the globalization of markets and operations much broader approach than that found in traditional
standards has been pushing twenty first century firms to costing systems (Hansen and Mowen 2006).
develop new perspectives of various managerial When used for internal purposes, cost accounting
functions that include marketing, design, engineering, provides cost information about products, customers,
production, finance, human resources and accounting services, projects, activities, processes, and other details
(Gunasekaran and Kobu 2007). All these changes should that may be of interest to management. The cost
meet the goal of any organization which is to increase its information provided plays an important support role for
value. planning, controlling, and decision making. This
Furthermore, the ability of a company to compete information need not, and often should not, follow
effectively on the increasingly competitive global market General Accepted Accounting Principles (GAAP).
is influenced to a large extent by both the cost and the Management accounting is concerned specifically with
quality of its products but also by the ability to bring how cost information and other financial and
products onto the market in a timely manner (Asiedu and nonfinancial information should be used for planning,
Gu 1998). For Stenzel and Stenzel (2003) cost is an controlling, continuous improvement, and decision
43
making. Management accounting has an overall Quantitative techniques, on the other hand, are based on
objective of making sure that organizations make a detailed analysis of a product design, its features, and
effective use of resources so that value is maximized for corresponding manufacturing processes instead of
shareholders and customers and other interested simply relying on the past data or knowledge of an
shareholders. estimator (Niazi et al. 2006) .
This article presents an Activity Based Costing (ABC) Assuming that he aim of a companys activities is to
model that includes the uncertainty in some parameters increase and ensure its profit since profits equal the
of process with a Monte Carlo simulation model for earnings less the costs, we may consider that there are
including the probability distribution of the uncertain basically three approaches to maximizing profit
variables used. (Ehrlenspiel et al. 2007). The three approaches are the
increase earning, the rationalization of the product
COSTING MODELS realization process and the development of cost-effective
products focusing on reducing the cost from the product
Various methods have be developed and applied to
design.
estimate costs in organizations. For example as shown in
Cost management is targeted and systematic steering of
Figure 1 (Niazi et al. 2006) oth quantitative methods and
costs. The aim is to influence the costs of products,
qualitative methods have been developed all in order to
processes and resources by using concrete measures,
know what is the cost of producing a good or providing a
such that an appropriate company success is achieved,
service.
and its competitive strengths are improved for a long
time to come (Ehrlenspiel et al. 2007).
It is not only concerned with how much something costs
but also with the factors that drive costs, such as cycle
time, quality, and process productivity. Thus, cost
management requires a deep understanding of a firms
cost structure.
Implementing a successful cost management
methodology requires utilizing appropriate standards,
concentrating efforts for maximum effectiveness, and
being consistent (DellIsola 2002). Managers must be
able to determine the long and short-run costs of
activities and processes as well as the costs of goods,
services, customers, suppliers, and other objects of
interest.
To Charlita (2009) cost figures should be the result of
Figure 1. Classification of product cost estimation proper management of data in response to factors such as
techniques (Niazi et al. 2006). the organizational structure of the company, the
production process of goods and services and the type of
As shown in Figure 1 there are several methods for information required by the organization and by
estimating costs in an organization, methods ranging stakeholders. The processing of such data is provided by
from intuitive techniques, where there is little or no a costing system which should respond to the
information available, to quantitative techniques where abovementioned characteristics. Different costing
are required and a lot of information to estimate the cost. systems can be classified depending on some features
Qualitative cost estimation techniques are primarily such: 1. according to its components: absorbent versus
based on a comparison between a new product and variable, 2. according with the cost object (job order
products that have been manufactured previously in order costing versus process costing), 3. according to the time
to identify the similarities with the new one. The of determining them (historical or real versus standard
identified similarities help to incorporate the past data and predetermined), 4. according to the allocation of
into the new product so that the need to obtain the cost indirect costs (by volume or based on activities (Activity
estimation from scratch is greatly reduced. In that sense, Based Costing, or ABC) - (Charlita 2009).
the past design and manufacturing data or previous These costing methodologies can be framed depending
experience of an estimator can provide useful help to how the problem is addressed.
generate reliable cost estimations for a new product that Firstly, according to its components.Absorption costs
is similar to a past design case. Sometimes, this can be means that all costs, fixed and variable are applied to the
achieved by making use of the past design and product and therefore are included in the inventory. In the
manufacturing knowledge encapsulated in a system case of variable costing, it is accepted as elements of
based on rules, decision trees, etc. Historical design and product cost only direct materials and direct labor and the
manufacturing data for products with known costs may variable proportion of indirect costs. The fixed indirect
also be used systematically to obtain cost estimates for expenses are considered period costs (Gx 2000).
new products.
44
Secondly, in accordance with the object of cost. Job order (Nachtmann and Needy 2003a; Gupta and Maranas
costing is used when the cost object is a single product, a 2003).
batch or an identifiable service usually with a specific Thus, ABC was developed to allocate more accurately
destination, or a particular client, costs are accumulated indirect costs which are an increasingly important
throughout the time when the work is been done as component of the total cost. This occurs by focusing on
working in progress and in the end accumulated as the activities. ABC and traditional costing differ in terms
finished good. Process costing is used when it comes to of cost behavior and and cost assignment. When applied
massively processed products. Raw materials are in manufacturing, differences between ABC and
introduced in several departments or production sections traditional costing are mainly related to the handling of
where it undergoes transformations and are converted manufacturing overhead (all production-related costs that
into costs that may or may not be transferred to next are not direct materials or direct labor). Traditional
department or section in the production process. In this costing divides costs into those that vary with some
system it is computed the product unit cost by dividing measure of volume, variable costs, and those that do
the accumulated costs by the number of units processed not vary, called fixed costs. For manufacturing
(Horgren et al. 2012). overhead, the volume measure used has been units
Thirdly, according to how indirect costs are allocated. produced or one that varies with units produced, such as
The allocation by volume has been a common practice direct labor hours (DLHs) worked or machine hours
through the years, by dividing the cost (real or expected) worked (MHs).
by production volumes. The allocation is done in one step In an ABC system, those costs which do not vary with
since it is assumed that products consume resources. unit, batch, or product-level cost drivers, are called
The activity-based costing method will be explained in facility-level costs. They include costs such as
detail in next section. depreciation on equipment and property, taxes on
It is noteworthy that the accumulation of direct costs is facilities, as well as costs associated with such activities
not an issue, regardless of the costing method used. as factory security and maintenance (Dickinson and Lere
2003).
Activity Based Costing Models The ABC is one of the methodologies more used at
Activity based costing (ABC) is particularly important present for it high level of acceptance and credibility in
for modern or more sophisticated costing systems and the calculation of costs. The ABC cost system uses a
models. The ABC is a methodology that assigns costs and single cost driver for each activity. This is a difficulty for
accumulates them primarily to the activities, since they the activities that may have multiple cost drivers. In these
are the consumers of resources, in a second step costs are cases, one possible solution is to divide the activity into
allocated to cost objects usually product or services - several sub-activities. But such division into sub-
which use or consume activities. The ABC is used to activities may generate difficulties in estimating the time
calculate more accurately and allocate indirect costs staff dedicated to each of the sub-activities and, therefore,
which are an increasingly important component of the their cost (Ayvaz and Pehlivanl 2011).
total cost. By focusing its interest in activities, ABC
offers, among others, the following advantages: it Time-Driven Activity-Based Costing
identifies the activities that do not add value, identifies The Time-Driven Activity-Based Costing TDABC- is a
expensive or inefficient processes, facilitates continuous new approach which try to solve some of ABC problems.
improvement, and reduces costs. Indeed, this is one of the The TDABC methodology allocates resources to
methodologies used today by greater acceptance and activities as follows:
credibility in terms of costing (Gosselin 2006).
The data used to develop ABC systems are uncertain due 1. Identifies the activities that are performed by the same
to a heavy reliance on parameter estimation. This means to resource groups.
primarily exists because gathering the necessary 2. Considers the resources consumed by each group of
information to generate product costs is an expensive resources.
process, in some cases the processes are varied and 3. Estimates the normal capacity of each resource group
difficult to standardize. Since ABC data are historically in terms of working hours.
based and often estimated, the true values of these data 4. Calculates the unit costs of the cost drivers (the most
are uncertain, and the input data are likely to be common is working minutes) of each resource group by
inaccurate. The need to take into account the uncertainty dividing the cost of the resources consumed by the
in planning decisions dating back to the models of normal capacity.
functional planning, where resources for the future are 5. For each task determines the time required according
allocated based on current data and future projections. to their characteristics.
Given that the true value of each data parameter may 6. To rate each task, multiply the unit cost of resources
never be known, it is important to acknowledge and by the time required to carry it out (Kaplan and Anderson
handle the uncertainty within the ABC system. This will 2004).
allow the system user to have a better understanding of
the behavior of the system and the risk inherent in this
45
The TDABC approach identifies the different resource relationships between his behavior and environmental
groups or departments, their costs and their normal variables to the occurrence of a future self-environment
capacity. For example, the item's receiving normal relation and (c) the place of future self-environment
capacity may be calculated by multiplying the number of relations within the longer time frame of a self-
employees working in the department for its monthly environment relations hierarchy (Downey and Slocum
working hours which do not consider product 1975).
nonproductive time or breaks. Then, dividing the total The data used to develop activity based costing systems
cost of that department by the normal capacity it is are uncertain due to a heavy dependence on parameter
obtained the unit cost (usually cost per minute). estimation. This primarily exists because gathering the
The use of time as the main cost parameter allows the necessary information to generate product costs is an
TDABC to avoid the complex phase of an ABC system expensive process. Since ABC data are historically based
devoted to allocate resource costs to activities before and often estimated, the true values of these data are
linking them to cost objects. The completion time of an uncertain, and the input data are likely to be imprecise.
activity is estimated for each case (stopwatch, interview Given that the true value of each data parameter may
people, etc.) - (Kaplan and Anderson 2004). never be known, it is important to acknowledge and
Furthermore, in those cases where the time required to handle the uncertainty within the ABC system. This will
perform an activity depends on various parameters, it is allow the system user to acknowledge that the system
modeled in a time equation. A time equation is a results are not certain and potentially improve decisions
mathematical equation that expresses the time required to affected by the system output by accounting for the
perform an activity according to several product features inherent risk (Nachtmann and Needy 2003b).
as shown in (1). Several methods have been designed for handling
uncertainty in mathematical models, among these
methods include the Monte Carlo simulation and the
= fuzzy method (Chansaad and Rattanamanee 2012).
= + 1 1 + 2 2 + 3 3 + (1) The main difference between these methods is in line
with the different techniques used for describing the
Where: uncertainty of input parameters. For example, fuzzy
0 is the standard time for the basic activity method uses membership functions for describing an
is the estimated time for the incremental activity i uncertain parameter while the stochastic methods use
probability density function. The similarity of them is
is the amount of incremental activity i. that all of them try to quantify the effect of input
parameters on model's outputs These methods can be
TDABC is an alternative form of ABC to apporach classified as: probabilistic approach, possibilistic
costing problems as it allows to incorporate more aprocach, hybrid possibilistic-probabilistic and robust
flexibility in the costing process. This approach is optimization.
interesting because it may allow to measure not only the The Monte Carlo simulation method can be included in
cost of the goods or services, but also to give an idea of the experimental branch of mathematics that deals with
the potential risks that may occur in relation to each cost experiments on random numbers based on statistical
category. probabilities (Hammersley and Handscomb 1964). The
The management of the inherent uncertainty and simulation can be used to value certain financial
imprecision adjacent to ABC input parameters provides instruments and to derive risk measures, when they are
the user with information that can be useful for many not available or when an analytical model is inapplicable.
functions including product, activities and process Essentially, the analyst describes, in a probabilistic sense,
decisions, quote and budget development, and make-or- the variables that determine the value by their respective
buy analyses. Particularly, uncertain analysis is most probability distributions. Then, using a random number
beneficial when: the company is operating in an uncertain generator, a possible value of the variable under analysis
environment, the existing ABC input data is inaccurate is obtained.
and/or inadequate, there is a lack of confidence in the By repeating this process thousands of times, the analyst
accuracy of estimated ABC input data, the level of the gets many possible values for the object variable. From
total overhead (indirect) costs is large enough to affect these values we can determine a mean value and a set of
relevant decisions; and a perceived need and potential statistics that provide a quantification of uncertainty.
uses for uncertain ABC system output exist. For example some authors have approached the subject
of uncertainty in costing systems using either the Monte
UNCERTAINTY HANDLING METHODS Carlo Simulation or other techniques such as Fuzzy
Uncertainty can be defined as a state that exist when an methods (e.g. Nachtmann and Needy 2003; Nachtmann
individual defines himself as engaging in directed and Needy 2001; Chansaad and Rattanamanee 2012;
behavior based upon less than complete knowledge of (a) Rivero and Emblemsvg 2007). Theses cases shown the
his existing relationship with his environment, (b) the importance of measuring risk in cost management.
existence of and knowledge of conditional, functional
46
THE PROPOSED MODEL

The model presented in this article consists of the For the estimation of costs the following model was
following steps: 1. Identifying the Activities, 2. Resource used, taking into account the following parameters:
Identification, 3. Identification of cost drivers, 4.
Calculation of the cost driver rates, 5. Identifying , ( = 1, . , )
probability distributions of consumption and , ( = 1, . . . , )
Construction of the ABC probabilistic model, simulation , ( = 1, . . , )
and analysis of results.
=
1. Identifying the Activities
The knowledge of the process is essential for the design =
of an accurate product costing model. Besides identifying
products they must be identified each and every one of =
the activities, or which are necessary for the completion =
of such products. This is achieved by performing an = (m=1, . ,
analysis of the process map of the organization M)
=
2. Resource Identification =
One of the major problems encountered in the =
implementation of the ABC is to do with the number and
diversity of resources found. Resources may be classified With this information, the traditional ABC model can be
into human resources, equipment, informatics resources, described as follows:
materials and others. The more variability exists in terms
of resources more will be the number of calculations that 1
must be performed to calculate the cost associated with 11 1 11 1 2
products or services.
[ ][ ] 3
1 1
3. Identification of Cost Drivers

For the distribution of indirect costs, cost drivers should 1
link activities to resources, products and activities. The 2
most common drivers are the number of machine hours,
= 3 (2)
number of man-hours, square footage, number of
products, number of lots, number of setups, etc.

4. Calculation of the Cost Driver Rates
= , (3)
With the information already computed we can calculate
=1
the default rates to calculate the consumption of resource Where,
by activities and also by the related products. These
default rates generally are obtained by dividing the total = 1, (4)
cost by the number of units associated with the cost
=1
drivers.

= (5)
5. Identifying probability distributions of consumption (, , , . )
This model includes the uncertainty in the estimation of
costs, using a probability distribution of the activities and With this model, we can calculate the cost of the products
processes which support the production process. To in a deterministic way. It is important to note that due to
accomplish this purpose there are several methodologies the large amount of information that we can have, once
such as, statistical tests of fit (e.g. Anderson Darling or the calculation of the cost of products, a Pareto analysis
Kolmogorov Smirnov). In the cases that we have little must be performed to identify products, activities and
information, the first approach may be to use uniform or resource worth continuing to study in depth and which
triangular distributions until it has sufficient information can be used in the model with uncertainty. This allows us
to refine the model. to reduce the information needed to support more
efficiently the decision making.
6. Construction of the ABC probabilistic model, The Equation 1 can be used to calculate the cost of each
simulation and analysis of results of the products, taking into account the resources
Through a simulation analysis we can estimate the consumed and the activities necessary for its realization.
expected cost of a product (or other relevant cost objetct) Meanwhile, Equation 2 is used to calculate the cost of
and its corresponding probability distribution. unused capacity, comparing the resources used versus the
resources that were available within a period of time.
47
This measure gives an idea of the waste or the variability Euros/kg, the type 2 material can be represented by a
between projected consumed and realy consumed triangular distribution at least 15, up to 30 and likely 21
resources. Equation 3 ensures that the activities are Euros/kg.
associated with the products, and Equation 4 is used to
calculate the allocation rates for each resource. Table 2: Resource rates
To build the ABC model with uncertainty, it is assumed Type of resource Rate Units
that AR ij ,Pki and TR j are uncertain parameters. A Material type 1(kg) 10 Euros/Kg
sample AReij , Pkie and TRej are generated for each input Material type 2 (kg) 21 Euros/Kg
parameters AR ij , Pki and TR j , using their probability Man-Hours 39 Euros/hour
density function (PDF). Machine-Hours 226 Euros/hour
The value of Xke are the outcome variable, which is
calculated considering: Table 3 shows the distribution of activities for each of the
products with their respective utilization rate.
Xke = f(AR ij , Pki , TR j ) (6)
Where: Table 3: Relation between products and activities
Product Activities
AReij = [ AReij,1 , AReij,2 . , AReij,M ] (7)
A 0,50 0,20 0,60 1,00 0,30
Pkie = [Pki,1
e e
, Pki,2 e
, Pki,M ] (8) B 0,30 0,20 0,40 - 0,20
TR j = [TR j,1 , TR j,2 , TRej,M ]
e e e
(9) C 0,20 0,60 - - 0,50
The procedure is repeated for number of iterations. With this information and applying the computed
Finally, the outcomes are analyzed using statistic criteria, products costs without considering the uncertainty is
histograms, confidence intervals, among others statistics. shown in Table 4 model.
APLICATION OF THE MODEL Table 4: Results for the deterministic model

Considering the case of an organization which has three Product Total Cost
types of product, Product A, Product B and Product C; A 206.354
and that it is necessary four types of resources to B 81.330
manufacture such products, Material 1 and 2, Man Hours C 145.727
and Hours of Machine; in a process characterized by 5 Total cost 433.412
activities.
Once the calculations have been performed with the
Table 1: Relationship between activities and resources deterministic model, we proceed to include the
Activities Material Material Man Machine uncertainty in the variables under study. After including
1 (kg) 2 (kg) Hours Hours uncertainty we proceeded with the Monte Carlo
Prepare - - 150 15 simulation, so that the @ Risk 6 software was used.
equipment Results after performing 20,000 iterations are shown in
Begin - - 250 150 Table 5. Output variables include the cost of products A,
production B, C and the variability of the total cost. The variability
Revise - - 300 200 of total cost is one of the most important indicators for
production measuring risk in regard to cost.
Apply 8.000 - 15 35
material A Table 5: Results of the probabilistic model
Apply - 8.000 - 300 Summary Total cost of product Variability
material B Statistics of total cost
A B C ALL
To proceed we will assume that the preparation time is Min. 157.9 71.7 122.0 -22,15%
not completely deterministic, and the man hours can be Max. 341.5 96.0 181.9 31,59%
adjusted to a normal distribution with a mean of 150 and Mean 236.8 83.0 149.9 1,82%
a standard deviation of 15 hours. Std. Dev. 36.4 4.9 12.3 9,34%
Table 2 then shows the cost per unit of resource use, both
type 1 and type 2 material have a high variability because Figure 2 shows graphically the expected behavior of the
they are traded products and also have a seasonality in total cost given the variability of the input variables. In
production. In a real case, a statistical analysis of the 5th percentile is worth -12.65% and 18.19% in the
historical prices can be made in order to figure out the 95th percentile. This shows that although it is unlikely
distribution of values. In this case, we are assuming that the maximum value of 31.59% variation occurs, we can
the type 1 can be represented by a triangular distribution expect considerably higher variations so resources and
with a minimum of 8, a maximum of 20 and likely 10 activities related must be carefully controlled. For that
48
you must find out which are the variables that most discussion and can be considered a limitation. This
influence the variability of the total cost. method asks for a considerable knowledge of the process
and a large amount of information that must be available
Figure 2:Variability of total cost to be analyzed statistically. It is also possible that in cases
of large-scale and with a large number of products, the
application of the probabilistic costing model can result
problematic. Indeed, the computation of the probability
distribution of the cost of each product can be a difficult
task or even it could be not possible to generate relevant
information to the decision maker. In this case, strategies
to prioritize those products worth performing a risk
analysis must be developed. The selected products could
be those ones most difficult to be produced or those that
consume most of the resources.
CONCLUSIONS AND FUTHER RESEARCH

Cost management is very important for the understanding
of the behavior of costs which is a task that is increasingly
important given the variability in markets, prices,
methods of work, which are reflected in product
variability. This variability can affect the efficiency of
Figure 3 shows which are the variables that impact more the organization by an exogenous element; thus, not
in the expected variation of the total cost, if the total cost controllable by managers and administrators.
is mainly influenced by the cost of Material 1. Such Furthermore, a better understanding of the process
information is important because it shows where we variability contributes for a better control of costs. The
should focus operational efforts to control the total cost Monte Carlo simulation models proposed here may allow
of the products. This information can be used to measure to some extent to predict the risk associated with the
the potential risk of product cost variability. Furthermore, variability in costs and support the necessary steps which
such information should be contrasted with the potential should be taken to better manage such risk, whether from
income associated to such product in order to determine the point of view of processes rationalization and of
the expected (minimum and maximum) margin(s) for management.
subsequent periods. As future research, the results obtained with this model
can be compared with the results and the information
Figure 3: Sensitivity Chart provided by a TDBAC model. As well as to explore the
possibility of probabilistic TDABC where uncertainty is
included in the time equations.
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50
ISOMORPHIC SOCIAL BEHAVIOR OF ORGANIZATIONS SEEN

FROM THE PERSPECTIVE OF MANAGEMENT ACCOUNTING
Adelaide Maria Bogo* and Alan Christian Schmitt

1
Department of Chemistry, Santa Catarina State University, Brazil
2
Department of Production Engineering, Santa Catarina State University, Brazil
* Corresponding author: [email protected], UDESC, Rua Paulo Malschizki, s/n, Campus

Univ. Prof. Avelino Marcante, Zona Industrial, Joinville, SC Brazil 89.219-710
KEYWORDS
Isomorphism, Management Accounting, Corporate
Social Responsibility, Culture
By institutionalization, Burns & Scapens (2000) define
ABSTRACT as being a prevalent and permanent form of thought or
This article aims at bringing forward the isomorphic action that is embedded in the habits of a group or the
behavior of organizations in social issues upon customs of a people. This institutionalization can lead to
Management Accounting vision. It seems that social homogenization of practices by organizations. The
disclosures are homogenized in a certain degree and concept that best captures the process of
some studies are conducted to understand why this homogenization between the companies is the
occurs, as well as how management accounting 'isomorphism' and there are three mechanisms of this
participates in this process. The methodology used was process: coercive, mimetic and normative (Dimaggio &
Content Analysis and Descriptive Statistics. The data Powell, 1983). The coercive isomorphic mechanism
base utilized is ISEBOVESPA where 36 organizations originates from the external environment and can arise
were analyzed. The findings show that the Labor from political influence or law enforcement, the mimetic
Practices and Decent Work present a significant to standardize responses to uncertainty and normative
coercive isomorphic power, the Human Rights and professionalism institutionalized (Dimaggio & Powell,
Society have a more normative isomorphic power, and 1983; Kondra & Hurst, 2009).
the Management Accounting is presented in all Therefore, in order to homogenize the voluntary
moments of Corporate Social Responsibility (CSR) disclosure of information from social organizations, the
activity, and it is perceived in the financial and non- Global Reporting Initiative (GRI) Report 3 in the section
financial information, as well as absolute values of on social issues divides this section into four other sub-
investment and cost, indices, percentage, and the sections: Labor Practices and Decent Work, Human
information system that assist to decision making. Rights, Society and Product Responsibility (GRI, 2014).
From what has been contextualized, some questions
INTRODUCTION arose: How does the homogenization of social
This article aims at demonstrating the isomorphic commitment of organizations occurs? This
behavior of organizations in social issues upon homogenization can be considered coercive, mimetic or
Management Accounting vision. It appears that social normative? In this process how Accounting
disclosures are homogenized to a certain point, also few Management participates?
studies are conducted to understand why this This article is organized with the following sections: In
homogeneity occurs, as well as understand how the the first section is explained the concept of Corporate
Accounting Management participates in this process. Social Responsibility and, complementarily is present
The Management Accounting is a set of practices used the CSR in the Brazilian scenery. In the section two, the
to achieve certain purposes within the organizations, and concept presented is the isomorphism and the section
management tools such as budget, product cost, three the Management Accounting. The following
performance measurement, for example, make up this present the methodology and the analysis of results, and,
set, and that when used consistently is called Accounting finally, the Discussion and the Conclusion.
Management System (Chenhall, 2003). Management
Accounting is seen as a provider of information for SOCIAL RESPONSIBILITY OF
decision making (Scapens, 1994). This can be ORGANIZATIONS
considered as comprising institutionalized routines that Man is allways looking for personel satisfaction, in this
create some measure of stability in daily organizational sense, his necessity presentation it in a scale were the
behavior (Scapens, 1994). first necessity to be satisfied is phisiologyc, next comes
51
needs for security, met this two need, comes the social accountability (ISEA, 2008). The way of thinking and
needs, self-steem and, finally, the self-realization as noticing the environment can influence the decisions of
Hartley (2010), whitch is based on Abraham Maslow. A organizational social responsibility about the option to
new conception of society arises to the organizations a adopt a socially responsible behavior or in the actions
new responsibility denominated Corporate Social choice and social business segment.
Responsibility (CSR), which can be understood with a
organization which aims at monitoring constantly the The CSR in the Brazilian Organizations
scenario (social, political, economic and legal) in which Bassetto (2010) identified that the Brazilian
the organization operates and in their relation with this organizations incorporate the concept of ETHOS
environment (L'Etang, 1995). Institute to social area, and generally are signatory of
Carroll (1979) define social responsibility as Global Pact, Millennium Objectives or AA1000 Norms.
organizations obligation and should involve four In the brazilian context the practice of social work by
categories tri-dimensional of business development firm still occur very focused in philanthropy actions
integration: economic, legal, ethic and discretionary, (Reis, 2007), disclose the social indicators
while this, Falck & Heblich (2007) notice the CSR with recommended in ONU Guide aligning their disclosures
a voluntary compromise that exceeds the explicit and to international standards accepted (Oliveira, De Luca,
implicit obligation of the conventional corporative Ponte, & Pontes Jr, 2009) and anchor companies have
behavior which is imposed to organization by influenced small and medium-sized suppliers to the
expectations of society. Asif, Searcy, Zutshi, & Fisscher implementation of management actions based on
(2013) explain that CSR is based on premise that socially responsible (Moyss Filho, Rodrigues, &
organizations need to behave in a way socially Moretti, 2011).
responsible, on the other hand, Schaltegger & Wagner Some studies back up exclusively to the publication of
(2006) argue that the CSR is a subset of corporate Social Balance without getting into the issues of
responsibility. corporate practices of CSR (Perottoni, 2002; Pinto &
The CSR can also be seen as a set of actions of type Ribeiro, 2005; Trevisan, 2002). Carrieri, Silva, &
win-win in which the strategy is a primordial factor Pimentel (2009) identified that the discourse of CSR in
and, in this process the stakeholders necessity are organizations and their incorporation on the
perceived, this stakeholders preferably participate on the environment permeates the organization and is in talks
process of the actions choice, the decision are than taken and actions of high organizations, managers and the
and, finally, the strategy is elaborated (Falck & Heblich, much of technical, however, there is a silence in the
2007). It is also seen with a set of politics and practices limits of their matter. Carvalho & Medeiros (2013)
clearly articulated and communicated that reflect the identified the predominance of the instrumental
organizational responsibility to some of broad societal rationality elements in the actions of CSR.
benefits (Matten & Moon, 2008), a ideologic movement
destinated to consolidate the power of the organizations ISOMORPHISM IN THE CSR ACTIVITY
(Banerjee, 2008) Organizations tend to homogenize their organizational
Gray, Owen, & Maunders (1988) identified that the CSR practices because they understand that this mechanism
is seen by the public something like an instrument to allows them to increase their efforts to survive in this
increase the image of the corporation and fulfill the sense, the need for internal changes to adapt to external
accountability. Mainly in social responsibility they need changes can lead them to a process of isomorphism
to base it in values, supported by words more than just (Fennell, 1980; Meyer & Rowan, 1977). The concept
in actions (Ketola 2007). that best captures the process of homogenization
Many efforts are done to the organizations to adopt a between the companies is the "isomorphism" and there
common language in terms of social responsibility, for are three mechanisms: coercive, mimetic and normative
example, the ONU officially launched in 26 of July of (Dimaggio & Powell, 1983), and both stem from a need
2000 the Global Pact, that is the one planned initiative to legitimize the organization (Dimaggio & Powell,
to entity compromised in aligning their operations and 1983; Kondra & Hurst, 2009). The binding process is
strategy with the ten principle universally accepted in characterized by political influence and legitimacy's
areas of human rights, work, environment and combat to problems, in this way, the mimetic behavior stems from
corruption (ONU, 2000b). The Millennium Objectives, standardizing on responses to uncertainty and the
launched in 08 of September of 2000, that in the Brazil regulatory environment stems from professionalization
was denominated of 8 ways to change the word, (Dimaggio & Powell, 1983.
established eight objectives to development of the Business sector's values and assumptions and the
millennium (ONU, 2000a), or the AA1000 country itself influence the standards of CSR and induce
Accountability Principles Standard aims at providing to organizations to adopt CSRs structures and practices,
the organizations a set of accepted principles and are perceived and appropriate to yours target
internationally and freely available that allowing them audience (Aerts, Cormier, & Magnan, 2006). Thus, for
to structure the form how understand, manage, these authors, determinants trend imitation practices can
administer, implement, evaluate and communicate their be mimetic and coercive institutional pressures of
52
stakeholders, and the media exposure and the group to the prosecution of organization objectives (Major &
which they belong as the fundamental determinants Ribeiro, 2009). Sulaiman, Ahmad, & Alwi (2004)
(Aerts et al., 2006; Shah, 2011). present the tools of MA in two groups, the traditional
By institutions, Burns & Scapens (2000) define as being componds this of budget, Standard Cost,
a prevalent and permanent way of thought or action that cost/volume/profit relation and ROI, and the modern
is involved in the habits of a group or the customs of a tools compound this of ABC System, TQM, Target Cost
person. This institutionalization can lead to and BSC.
homogenization practices of organizations. Its importante to notice that MA is always present in
Isomorphism is a practice that leads to homogenization activity of the gathering information and providing them
of practices and is driven by the prospect of survival and to decision makers that from the perception of the
the need for change, which may lead to the adoption of external environment can make choices about social
a formal organizational structure (Fennell, 1980; Meyer actions that best meets the needs of stakeholders and the
& Rowan, 1977). organization itself. Extensively, this system enables to
Campbell (2007) identified that socially responsible the managers to plan, do, check and control the social
behavior is higher when it is compared with the level of activities.
competition and that organizations tend to act socially
when they find a strong state regulation, collective self- METHODOLOGY
regulation in the industry, non-governmental Initially made use of the Content Analyze
organizations (NGOs) and other independent technical, a set of communication analyses technical
organizations that monitor, as well as an institutionally with heuristics function and of evidence administration
regulatory environment that encourages such behavior. (Bardin, 2014), commonly used in the qualitative
There are factors that challenge institutionalized research with exploratory objectives. The aims of this
practices causing the previously accepted or understood analysis is identified in the social actions by brazilian
regulations or culturally atrophied leading to fragment organizations the isomorphic mechanism of coercion,
the organization to reject specific cultural practices. mimetic and normative (Dimaggio & Powell, 1983), as
Examples of these factors can be the external social well as perceive the expression of MA in this activities.
pressure, changes in law, social values and expectations To complement this analysis was utilized descriptive
(Kondra & Hurst, 2009). statistics, especially the relative frequency in order to
So, it is possible to notice that the business sector in identify the actions concentration.
which the company operates, the society and the country
where is installed can exert pressures that can Population The population understood 36
compromise the survival of the organization. Realizing organizations listed in the ISEBOVESPA, grouped by
this, organizations tend to adapt and may adopt sectors (Tab. 01). Make use of the total organization
institutionalized practices existing on the environment, listed, except COELCE and ENERGIAS BR, because
or innovate. In this case they can only enforce the law, these organizations not disclosed the Sustainability
or go beyond, still can only mimic what is done or Report 2012 (BOVESPA, 2013).
innovate. Or even realize what is happening and
normatively adopt on his own practices. Such behavior Data The data were collected in the Sustainability
may stem from the perception of their social Report 2012, the analysis was in the Social
responsibility or desire to be a good corporate citizen. Responsibility group and involved the actions directed
to the internal and external public of organization
MANAGEMENT ACCOUNTING employers and society/community.
In order to check whether the objectives have been
achieved, always and any fact in the organization need Methodological process Two group of social actions
to have registered your facts in the accounting systems was analyzed with de MA - employers and
and their effects was controlled. In this sense, a society/community. In this group was observed the lay-
Management Accounting (MA)arising as a set of out and the nature of information, and each of these
practice that support the organization and to do this task groups was observed the type and the intensity of MA
they use the tools such as budget, cost of products, information. The Product Responsibility was excluded
performance measurement (Chenhall, 2003). It can be from this research. Then carried out the data analysis and
understood as a set of information system of accounting was utilized the frequency of content analysis and
nature that support the decision makers in the descriptive statistics to check the relation. The analyses
prossecution of organization objectives (Major & of MA participate was made by criteria of intensity of
Ribeiro, 2009), as well as ansuring that the organizations the use of information in the report, to the organization
objectives are achieved (Cuguer-Escofet & Rosanas, that little explored the MA information received the
2013);(Nixon & Burns, 2005). (we) letters, of weak. Those explored in the better level
The MA is seen as suppliers of information to decision was inserted the (st) letters, of strong. In the analysis of
making, (Scapens, 1994), comprises a set of accounting homogenization was used the equal criteria, in other
information system that support the decision makers in words, when the disclosures were equal to each other
53
was used the letter (e), and that nothing reported for or Management, retirement plan, training program. Seven
were inexpressive received the letters (ni/ewe), of organizations little explored the management
nothing informed/extremely weak. information and focused these in textual type with little
The isomorphic analysis was made by two management data.
forms, in the first was used the frequency defined in the Relative the information about community, verify that
Content Analysis (Tab. 02), and the second was used the not exist equality in de way of to present the
SPSS Statistics to identify within each group of actions information, evidenced by number zero. In the
the isomorphic mechanism of the more preponderance intensity, verify that fourteen organizations little
(Tab. 03). explored the MA, twenty explored accordingly, and two
even informed their social actions, or if presentation,
ANALYSIS OF RESULTS were confused in the text to be confused with routine
Management Accounting: in the item employers the operational activities of organization or by legal
organization was unanimous in presentation requirement, thus, not characterized by an action of
management information such as targets, indicators, voluntary nature (Tab. 02).
results, expenditures values, relative values, percentage, Isomorphism: verify in the information about employers
ranges and averages of wages, age group by functional a coercive isomorphic character regarding legal
category, service time, benefits, expenditures values compliance and a mimetic isomorphism regarding to
with training, frequency indices, listing of employees by information disclosed once that the most of organization
gender, race, locality, type of contract, schooling, presentation the data exactly similarly, on the other
turnover, absenteeism. In general, the information was words, frameworks to inform salary, age, service time,
characterized for financial and non-financial nature gender, training, expenditure values, benefits, retirement
(Tab. 02). and safety and health at work (Tab. 02).
In the society/community item, the management Referring to information relative the actions with the
information available was monetary values invested, society verify predominance of normative isomorphism,
planning and target established and met. Some once, although the actions are not the same between the
organizations were more transparent, what did inform organizations, but are presented the objectives, the
about the strategic planning, corporate governance, team targets, periods, amounts invested, number of
work and means of communication with the public. beneficiaries, types of actions, whether program or
Relative to management system utilized, five systems projects, the locals were was realized these actions,
are indicated, the Integrated Management System for donations and sponsorships. The normative arise with
Quality, Environment, Social Responsibility and Health more appropriate mechanism by reasons which the
at Work (IMS), Balanced Scorecard (BSC), Corporate sector professionalization requires, expressed these by
Social Responsibility Management System (CSRMS), a stakeholders and by need of transparency of information
Decision Support System (DSS) and System Integrated (Tab. 02).
Automated Management (SIMA) (Tab. 02) In summary, there is a tendency to coercive
In summary, its possible to understand that the isomorphism regarding to employees, mimetic to
Management Accounting participate of the process for presentation, and normative isomorphism to actions
provide financial and non-financial information to with the society. In terms of the information about
decision making, to the execution of the actions and to employees, twenty three organizations presented
analyze of development of these actions. It is present in similarity in the information characterizing the mimetic
three moments of the management, in other words, in isomorphism, and these presentations was perceived in
the Planning, Execution and in the Control. In the the choice of lay-out, nature and in the information order
Planning to bring internal and external data of (Tab. 02).
organization, in the Execution to organize the data in the Analyzing in more detail (Tab. 03), was perceived that
form that may subsequently was used managerially, in "Works Practices" there are great predominance of
such as a Chart of Accounts, informative table, and in mechanism coercive and normative and nothing of
the Control to analyze the development of the action and mimetic. In the "Human Rights" verify the existence of
possible correction. a slightly different distribution predominating the
As for expressions of MA, verify that from 36 normative mechanism. Interestingly to observe that in
organizations that disclosed Sustainability Report this actions group the coercive mechanism has little
always present social information, however, the level of influence, with 16,7% to influence against 83,3% to not
the expression of MA differ from each other. In terms of influence. This can indicate that the practice of Human
the information about the employers, twenty nine Rights not need arises from legislation, on the contrary,
organizations may be considered with strong intensity in can arise by maturing of society that, because of this,
the use of de management information. From these, exerts influence on organizations.
twenty three disclosed in the same lay-out and
informations nature, and the six organizations explored
more than others the management information about
their employees, to insert information about People
54
In the Society group verify a little influence of coercive Table 02 Intensity of use of Management Accounting
and normative mechanism, prevailing the freedom of
organizations of choice their actions. This also can
characterizing a maturity of society or the notion that the
organizations also are part of this society and that to
improve this society it is necessary to make positive
actions.
Table 1 Analysis of Industries by Sector
Table 03 Isomorphism Practices in Actions to

Employees and Society
DISCUSSION
The data presented permit to notice that the Management
Accounting is include in all the moments of social
activity management, from the stage of decisions in the
planning to choice de actions, in the execution of this
actions and in their control, where made the analyses of
objectives achieved. The information more frequent of
MA comprises the financial and non-financial nature the
absolute values of investments and expenditures, indices
and percentages. The MA also can allow identify the
classification of actions, that which in a consequence
accounting logic are adequately classified to their
nature.
Its possible to perceive that the information provided by
MA in SR analyzed is in isomorphic characteristics for
each of the three mechanisms. It could be observed that
the labor area for an identity of coercive isomorphism,
which derives particularly in Brazil due to the strong
existing of legal power. There is also a normative
behavior in this area and this may be due to the needs to
adapt to new technological requirements of market
organizations.
Relatively to Human Rights and Society it was observed
that the coercive power not yet exert much influence, on
the contrary, there is a relative discretionary freedom of
organizations regarding the choices of the actions due to
requirements that the society exert on the organization
55
and that their requirements are connected to the new BOVESPA. (2013). ISE - Indice de Sustentabilidade
concepts of social values. Empresarial. Retrieved 15 nov., 2013, from
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Burns, J., & Scapens, R. W. (2000). Conceptualizing
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organization behaves in the environment in which it is, framework Management Accounting Research, 11,
and reveals how society is constructed in terms of social 3-25.
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Carrieri, A. d. P., Silva, A. R. L. d., & Pimentel, T. D. (2009).
O Tema da Proteo Ambiental Incorporado nos
CONCLUSION
Discursos da Responsabilidade Social
This research allowed the answer the questions of Corporativa Revista de Administrao
departure, which is to understand how the Contempornea, 13(1), 1-16.
homogenization of social engagement occurs, and if it Carroll, A. B. (1979). A Three-Dimensional Conceptual
can be considered coercive, mimetic or normative, and Model of Corporate Performance. Academy of
how the MA participates in this process. The answers Management Review, 4(4), 497-505.
can be found in Tables 02 and 03 and talk, however, can Carvalho, O., & Medeiros, J. (2013). Racionalidades
here assert that without the MA would not find any Subjacentes s Aes de Responsabilidade Social
answer. The MA enables to understand the expression Corporativa. Organizaes & Sociedade, 20(64),
of the behavior of the organization and, from the 17-36.
Chenhall, R. H. (2003). Management control systems design
information disclosed, also notice the behavior of within its organizational context: findings from
society since organizations need to be in line with the contingency-based research and directions for the
prevailing social values. future Accounting, Organizations and Society, 28,
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researcher's choices, enhanced by the lack of and use of management control systems as
standardization of reporting. Thus, it is felt that there are requirements for goal congruence Management
still many studies to be conducted in this area and use Accounting Research, 24(1), 23 40.
the SR as a data source for perhaps we can reach a more Dimaggio, P. J., & Powell, W. W. (1983). The Iron Cage
Revisited: Institutional Isomorphism and Collective
standardized form of disclosure. Rationality in Organizational Fields. American
Many studies can also be performed from the SR to Sociological Review, 48(2), 147-160.
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met by social actions taken by organizations, or under Responsibility in Brazilian Companies:The Role of
an internal look of operations, how the accounting Managers Values in the Maintenance of CSR
classifications of social actions are made, how the Cultures. Journal of Business Ethics, 96(3), 355-
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decision makers, and so on. responsibility: Doing well by doing good. Business
Horizons, 50, 247-254.
Fennell, M. L. (1980). The Effects of Environmental
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58
ACTIVITY BASED COSTING AND TIME-DRIVEN ACTIVITY BASED

COSTING: TOWARDS AN INTEGRATED APPROACH
Alex Santana,1 Paulo Afonso1* and Ana Maria A. C. Rocha2

1
Research Centre for Industrial and Technology Management, University of Minho, Portugal
2
Algoritmi Research Centre, University of Minho, Portugal
* Corresponding author: [email protected], University of Minho, Campus of Azurm, 4800-058, Guimares, Portugal
KEYWORDS Therefore, the aim of this article is to discuss TDABC from

Cost Management, Activity Based Costing, Time-Driven a critical analysis of the literature, checking and comparing
Activity Based Costing both methodologies and research techniques, as well as
contributions to mitigate the difficulties encountered in
implementing the model. As a result, it may be possible to
ABSTRACT
understand better the established relationship between
Activity Based Costing (ABC) methods and models have ABC and TDABC.
been presented in the literature as sophisticated approaches This article presents briefly the concepts of ABC and
for cost management and costing purposes. Kaplan and TDABC. Then, the methodology used to develop the
Nortons Time-Driven Activity Based Costing (TDABC) research is described. Subsequently, the results are
represented an update or improvement of the initial ABC displayed and discussed. Finally, the concluding remarks
models proposed by Cooper and Kaplan. The relevance are outlined.
and applicability of the TDABC approach is still an open
question. The purpose of this paper is to discuss TDABC STATE OF THE ART
from a critical analysis of the literature, checking and
Activity Based Costing
comparing methodologies and research techniques, as well
as contributions to mitigate difficulties encountered in the The ABC or Activity Based Costing enables a detailed
implementation of the model. As a result, it is established a analysis of the costs of a product, giving attention to the
relation between ABC and TDABC approaches and an activities and processes that characterize the organization's
integrated TDABC-ABC model and methodology is business (Swenson, 1995). ABC is a particularly
proposed. Some ideas for future work and managerial appropriate methodology to deal with complex and diverse
implications are also discussed. manufacturing systems (Afonso and Paisana, 2009), which
allows support strategic decision making at the level of
INTRODUCTION three distinct areas: the definition of the price of the
products, the production mix and the development and
Studies addressing a critical analysis of the literature are a
design of new products (Mitchell and Innes, 1998).
kind of research often used to survey the quantity and
Regarding the production mix, ABC allows to measure the
quality of articles on a topic that is considered relevant to a
cost and performance of activities and cost objects, based
particular area. This type of study is important because it
on three basic premises: products require activities,
maps the authors involved, in turn, researchers are
activities consume resources and resources cost money
contributing to promote science. The Activity Based
(Afonso, 2002). Conceptually Kaplan (1984) summarizes
Costing ABC is a costing system based on activities,
these assumptions in the following statement: activities
that arose as a consequence of the recognition that
consume resources and products, in turn, consume
traditional systems no longer met the new practices of
activities.
companies, requiring adaptation to new market
As this methodology assumes that not all costs can be
conditions and assuming a new cost structure. However,
related to production volume or the volume of use of
in an attempt to reduce some limitations of ABC, Kaplan
resources, these are treated more strictly (Afonso, 2002),
and Anderson (2004) proposed another approach to this
thus making the overhead an element more noticeable, i.e.
methodology: the Time-driven Activity Based Costing
it makes the overhead chargeable (Tippett and Hoekstra,
(TDABC). This approach uses new tools, such as time
1993). ABC is assumed to improved precision with respect
equations. Additionally, among other innovations, it
to the product cost when compared to traditional systems
eliminates the need to carry out interviews with staff,
(Tsai, 1996).
which would serve to assess what activities they work for a
period.
59
However, the ABC system is often viewed as a system of is effectively executed. Secondly, the model distributes
high cost of development, relatively complex and difficult costs of the resources using the rate of the cost of capacity
to be modified or adapted which often leads to be non-used and the estimated resource requirements for each cost
(Stouthuysen, Swiggers, Reheul and Roodhooft, 2010). object (typically, time is the considered measure of
Cucuzza and Ness (1995) state that many companies have capacity) (Everaert et al., 2006).
adopted and explored the feasibility of ABC, however, It should be pointed out that the model only requires the
they found that less than 10% have used it to support the estimation of process time to meet customer orders, not
management of its operations, and that the other 90% have being necessary that such order are equal, since the model
stagnated or dropped their use in the enterprise, due to the allows the estimation of several times depending on the
difficulty of training and employee engagement on the specific characteristics of each application using dummy
potential of the tool. variables and equations.
Kaplan and Anderson (2004 ) recognized the limitations of
ABC and understood that criticism was justified by the Differences between ABC and TDABC
following factors: (i) high investment to implement the
The differences between the steps for the implementation
method, (ii) complexity to keep it in the company and (iii)
of ABC and TDABC models are presented in Table 1.
difficulty to modify ABC models when needed.
(Everaert, Bruggeman and De Creus, 2008).
Time-Driven Activity Based Costing
Table 1: ABC versus TDABC
In this context, emerged the Time-Driven Activity Based ABC TDABC
Costing (TDABC), that is a variation of the ABC system Step 1: Identify the different Step 1: Identify the
but with a simpler and friendlier operation because it overhead activities various resource groups
considers the execution times of the activities necessary to (departments)
produce the product or provide the service (Dalci , Kosan Step 2: Assign the overhead Step 2: Estimate the total
to the different activities cost of each resource
and Tanis, 2009). A TDABC system is presented in the
using a resource driver group
form of time equations which reflect the execution time of Step 3: Identify the activity Step 3: Estimate the
different cost objects taking into account the particularities driver for each activity practical capacity of each
of consumption of the various activities by the cost objects resource group (e.g
that characterize the production or business processes. available working hours,
There are several case studies on the implementation of the excluding vacation,
TDABC model, where their advantages were observed. meeting and training
Particularly, it is considered a model of easy design, ease hours)
integration with management software and one which Step 4: Determine the activity Step 4: Calculate the unit
facilitates obtaining information about the consumption of driver rate by dividing the cost of each resource
total activity costs by the group by dividing the
resources by cost objects (Pernot, Roodhooft and Abbeele,
practical volume of the total cost of the resource
2007). Through the TDABC it is possible to study the activity driver group by the practical
effectiveness of the processes at the level of available capacity
capacity versus capacity utilization (Kaplan and Anderson, Step 5: Multiply the activity Step 5: Determine the
2007). These authors argue that the "time-equations" or driver rate by the activity time estimation for each
cost equations result in a simpler and less costly system driver consumption to trace event, based upon the
than the traditional ABC methodology. costs to orders, products or time equation for the
Among other advantages, the TDABC model allows assess customers activity and the
the value added that determines the existence of each characteristics of the
event
activity, simulating the operationalization of resources and
Step 6: Multiply the unit
test processes of rationalization of capacity used or defray
cost of each resource
the cost of the unused time. But also limitations were noted group by the time
in some case studies in which, for example, have been estimation for the event
required a huge amount of data for estimating time
equations (Varila, Seppanem and Suomala, 2007). In an ABC, different rates of cost drivers are used to
The TDABC is supported on two parameters underlying, distribute the costs of a cost pool to each cost object, for
the cost of capacity per unit time and the time required to example based on the number of requests, number of
complete an activity (Kaplan, 2007). The TDABC is complaints from customers, etc. (Kaplan and Anderson,
presented as a simpler system more affordable and 2007).
economically much more powerful than the ABC. It Regarding TDABC, the phase of definition of resource
simplifies the process of costing and eliminates the surveys consumption by the activities is ignored, so there is not
and interviews of a typical ABC system (Kaplan, 2007). necessary to allocate such costs. In this cost model there
The TDABC model assigns costs of resources directly to are used time equations, which directly distribute resources
cost objects (Kaplan, 2007). So, firstly the costs of all costs of the activities performed and processed transactions
resources (equipment, personnel, etc.) are calculated and to cost objects (Kaplan and Anderson, 2007).
are divided by the capacity, giving the time when the work
60
METHODOLOGY
This study can be considered as a critical and descriptive
analysis with a qualitative and exploratory approach.
According to Cassel and Symon (1994), this approach is
especially relevant for cases in which the themes are
emerging, in order to discuss matters with a great degree of
intensity.
Descriptive research is concerned to observe, register,
analyze, classify and interpret the facts without the
interference of the researcher (Andrade, 2002). The
qualitative approach, according to Denzin and Lincoln
(2006), involves the study of the use and collection of a
variety of empirical materials that describe routine and
problematic moments and meanings in one's life. In the
literature it can be conceptualized as a systematic study
that is based on materials published in books, magazines,
newspapers, electronic databases, i.e., materials that are
available to the general public (Vergara, 2005).
Based on the study of Srivastava (2007), the research is
driven by theoretical pre-considerations and follows a clear
Figure 1: Application of TDABC
process, as this allows conclusions to be drawn on the
reviewed literature. It may be classified as an archival
research method in the framework for conducting and The objective of this study was to verify, through
evaluating research suggested by Searcy and Mentzer published articles, how the ABC model is related with
(2003). Our process of analysis comprised the following TDABC. Other relationhisps, with other models and
steps: methodologies emerged from the analysis of the
Definition of the unit of analysis: the unit of analysis has published work. Indeed, a thorough analysis of
been defined as a single research paper. We further published articles was undertaken. Table 2 presents the
delimited the material in the research papers which should methodologies and research techniques used by the
be analysed considering the research scope; different papers.
Classification context: we selected and defined the
classification context to be applied in the literature review
Table 2: Methodologies and Research Techniques
and to structure and classify the material, checking and
Type Authors
comparing methodologies and research techniques, as well Oztaysi, Baysan and Dursun, (2007); Pernot,
as contributions to mitigate difficulties encountered in the Roodhooft, and Van den Abbeele, (2007);
implementation of the model; Everaert, Bruggeman, De Creus, (2008);
Collecting publications and delimiting the field: our Bank and McIlrath, (2009); Demeerec,
literature review focused upon papers and journal articles Stouthuysena and Roodhooft (2009); Manalo
only. To establish a time span, a starting point was set at and Valenzuela-Manalo (2010); ker and
2004. This seems justified, as the beginning of the debate Case Study Adigzel (2010); Ratnatunga and Waldmann
on TDABC can be traced to this period. A keyword search (2010); Stouthuysen et al, (2010); Hajiha and
using some important keywords such as TDABC, Time- Alishah (2011); Kont and Jantson (2011);
Lee and Enzmann (2012); Ratnatunga, Tse
Driven ABC, Time-Driven Activity Based Costing was and Balachandran (2012); Reddy, Venter and
made. Thus, this work integrates and takes forward the Olivier (2012); Somapa, Cools and Dullaert
literature on Time-Driven ABC since its conceptualization. (2012).
According with the database, they were found and
analyzed 24 papers on the topic. Ayvaz and Pehlivanl (2011); Hedman et al,
Theoretical
(2013); Vogl, (2013)
Zhang and Yi, (2008); Wu et al, (2011);
FINDINGS Modelling Sarokolaei, Bahreini and Bezenjani (2013);
Initially, an analysis of published articles was conducted to Sarokolaei et al, (2013)
ascertain what were the different forms of research which Cardinaels and Labro, (2007); Hooze and
have been undertaken. The application of the model was Questionnaire
Bruggeman (2010)
studied and also the existence of other theories and models
related with TDABC were verified, the result of such
analysis is presented in Figure 1.
61
With respect to the methods and techniques of research, it ABC. They also stated that the new ABC approach
was realized that they were used mainly Case Studies. provides better analysis of customer profitability and
For Oztaysi, Baysan and Dursun, (2007), one of the main efficiency of logistics processes than other costing
advantages of TDABC over ABC is that the calculations methods. Finally, integration with Enterprise Resource
are primarily based on measuring resource consumption Programs (ERPs) was cited as another substantial
which facilitates an integrated cost simulation advantage of TDABC. They were not mentioned
methodology. According to the authors, these two methods difficulties in the implementation of the methodology in
complement each other and the contributions or advantages TDABC. However, it is noted that the research requires a
of TDABC are mainly two: 1) it reduces the cost of the series of interviews with company employees. In this case,
costing system and 2) allows to compute the costs of more it was observed that these interviews consisted of an
products. obstacle to be overtaken by the executors of the new ABC
Pernot, Roodhooft, and Van den Abbeele, (2007) did not approach. Furthermore, the authors emphasized that the
find problems with the implementation of the TDABC involvement of employees in the application of TDABC
model. Such implementation resulted facilitated by the seems to be fundamental. Thus, one can say that employee
accurate information of the companys Enterprise engagement is another problem identified in this research.
Resource Program (EP). ABC also appeared to cause two Demeere, Stouthuysen and Roodhooft (2009) stated that
significant problems. First, setting up an ABC system can the TDABC system seems to be well suited since it
be very costly, especially if the current accounting system incorporates the advantages of the traditional ABC system
does not support the collection of ABC information. with some extra features like faster model adaptability, a
Second, the system needs to be regularly updated, which simpler set-up and a higher reflection of the complexity of
further increases its cost. It was emphasized the benefits the real-world operations. The TDABC model in this paper
brought by TDABC empirically analyzed in organizations. was set up for five different departments: Urology,
The difficulties were hardly mentioned. It is believed that, Gastroenterology, Plastic Surgery, Nose-Throat and Ears
due to the small number of samples analyzed in the study, and Dermatology. The TDABC system challenged
it was not possible to conclude on the difficulties healthcare managers and department heads to identify and
encountered in implementing the TDABC methodology. analyze the underlying activities that drove the overhead
However, despite the many advantages of TDABC pointed costs. Thus, the TDABC analysis allowed managerial
out by the proponents of this costing method, some recommendations concerning improvement opportunities.
criticisms have been made by some researchers. Furthermore, the TDABC approach introduced a healthy
Cardinaels and Labro (2008), for example, in their study competition and an open communication between the
found problems related with time estimates, which may different departments concerning possible operational
be not so easy to compute as it has been argued by improvements. The introduction of interactive meetings on
Kaplan and Anderson argue (2004). In this case, a business and operational matters promoted inter-
significant degree of subjectivity is still found in TDABC, hierarchical and more important inter-disciplinary
the same as in conventional ABC. Sherratt (2005), in turn, (between physicians and managers) communication.
states that the TDABC is restricted to some routine and Finally, while the interaction between cost accounting
pre-determined activities. systems and strategy has been frequently viewed as a
Bank and McIlrath (2009) reconducted a study in a passive one, in this study the TDABC information clearly
children's hospital, where the TDABC model was utilized improved the department heads and healthcare managers
to estimate costs of provided resources. Their study was understanding of the different organizational processes.
applied to three specific clinical scenarios common to any Hence, the clinics management was able to pursue
emergency department (ED). TDABC may be utilized as strategic changes that increased the value and effectiveness
an effective and accurate tool to estimate the true cost of of the current and future outpatient clinic.
the Emergency service. For any given patient encounter, Hooze and Bruggeman (2010) show how collective
the costs of service vary greatly based on the proportion worker participation and leadership style influence the
and time of resources utilized. TDABC analysis can be emergence of operational improvements during the design
used by ED directors to help to determine the allocation of process of a TDABC system in a case study setting. In
ED clinical resources. These author did not make any particular, in the case company, the costing project was
connection between TDABC and ABC. initiated at different warehouses, which allowed to
The research of Everaert, Bruggeman and De Creus distinguish two types of design processes. With the first
(2008) was performed on a wholesale company. For them, type, the participation of all organizational members,
TDABC is extremely satisfying to support cost modelling especially at the lowest levels, fostered dialogue about the
of complex logistics operations, especially those that input parameters of the costing model. In addition, when
require numerous tasks. For the authors, in each task, or these discussions about costing data were held in groups
even sub-task, it is possible to identify a time driver. These guided by a superior with a considerate, people-oriented
tasks can be, according to the method of study used, leadership style, operational improvements appeared. With
included in an time equation. Moreover, these authors the second type, operational employees were not involved
explained that the cost information generated by TDABC in the design process; they feared the new costing system,
is more accurate than those generated by conventional because it was used to enforce compliance, and no
62
operational improvements emerged. Hence, the case The study of Stouthuysen et al. (2010) describes the
findings suggest that, to appear operational improvements development and application of a TDABC system for a
during the design process of a time-driven ABC system, small to medium sized academic library in a Belgian
collective worker participation and appropriate leadership University. The TDABC may improve the cost
styles are indispensable. management of several library processes, only focusing on
The study of Manalo and Valenzuela-Manalo (2010) deals the acquisition process. More specifically, the acquisition
with a framework that combines the complementary process concerns print formats (books, journals and grey
features of ABC and TDABC. The framework or Standard literature) and covers key traditional acquisition concepts
Activity Measurement Plan (Stamp) is anchored in the (ordering, receiving, paying, and using integrated library
computing unit cost given the required minimum resources systems and online vendor databases in an acquisition's
for a particular activity. The activity unit cost is standard workflow). The implementation of the TDABC model
and fixed for a certain period until such time significant revealed much about the acquisition process. Using this
variables change significantly. The standard unit time per TDABC information, library management was able to
activity is also used to establish the percentage of time identify several factors that drive the cost of the acquisition
spent. In this manner, ABC data collection is minimized if process of library items. The TDABC model indicated that
not eliminated totally. TDABC is not a replacement of the the acquisition of local books was far more expensive than
traditional ABC. They should complement each other. the acquisition of other items due to the use of specific
Their strengths should be combined to minimize their purchasing software. Secondly, TDABC information
weaknesses. Thus, the Stamp is developed to combine the revealed that pooling of activities could lead to substantial
complementary features of both methods. time and cost savings. Finally, TDABC cost information
ker and Adigzel (2010), demonstrate the demonstrated that costs increase considerably if a category
implementation of TDABC in a manufacturing company, of personnel is involved in the acquisition process.
showing how it can provide far more relevant information Hajiha and Alishah (2011) verified the implementation
about product profitability and capacity utilization than feasibility of TDABC in hospitality industry and analyzed
standard costing. The benefit of TDABC is to enable profitability of various costumer groups by this system in
capacity utilization analysis. Through capacity utilization Iranian context. The results showed that using TDABC
analysis, the company can determine the excess capacity. model, in comparison with the existing traditional system
The management of the company can eliminate the excess in Parsian Hotel, provides more proper data on cost and
capacity, which means extra cost for the company. The profitability of customers. Also, the proposed model
conclusion from the study is that the TDABC model is distinguishes non-added value activities and demonstrates
more appropriate and easier for service companies to real capacity of each parts of the hotel. can calculate
implement than the manufacturing companies. This is necessary time for activities by time equations in TDABC.
because the capacities are generally measured in terms of According to the results, it allowed managers to design an
labor times, and sometimes it is difficult for manufacturing optimized strategy to increase productivity and improve
companies to measure capacity in terms of labor time. processes. Consequently, time equations provide this
Ratnatunga and Waldmann (2010) found that TDABC is situation for a manager to update the equations without
preferable to ABC in the TC modelling of research only doing repeating and time-consuming interviews. TDABC
departments and institutes; both approaches do not provide enables the managers to know about the existing capacities
accurate information in teaching and research and exploit human resources more and better.
departments. In these departments more accurate The study of Kont and Jantson (2011) provides an
estimations could be obtained from studying the workload overview of how university libraries research and adapt
allocation methods and conducting direct interviews of the new cost accounting models, such as ABC and TDABC,
staff undertaking research on ACG and other externally focusing on the strengths and weaknesses of both methods
funded grants. The TDABC model is a variant of the ABC to determine which of these two is suitable for application
model which is specifically designed to simplify the in university libraries. However, setting up an ABC system
implementation and maintenance of activity-based cost can be very costly, and the system needs to be regularly
management systems (Kaplan and Anderson, 2004; updated, which further increases its costs. The TDABC
Kaplan and Anderson, 2007). The TDABC has an system can not only be implemented more quickly (and
advantage over ABC in the service organizations, however thus more cheaply), but also can be updated more easily
when obtaining equivalent-time for the research activity than the traditional ABC, which makes the TDABC the
of staff in teaching departments will result in erroneous more suitable method for university libraries. The TDABC
estimates of research effort over a annual period, and thus considers many aspects that affect employees efficiency
the costs of data collection would far outweigh the benefits and performance, e.g., rest periods, personal time for
(if any). However, such estimations would be more breaks, arrival and departure, and communication and
relevant in university departments and research institutes reading unrelated to actual work performance.
that are only conducting research. Here, overall estimations The paper of Wu, Wang, Yue and Sun (2011) sets up a
based on in-situ observations, face-to-face interviews and mathematical model to solve problems on the cost of cost
the study of comparative information could be used for objects and analyzes errors occurred during the
TDABC modelling. implementation process of TDABC. By taking a case, it
63
demonstrates the applications of this model and the effects and logistics sector. However, the lack of quantitative data
on cost account by errors. The emphasis is laid on the on cost drivers remains a problem. TDABC has advantages
demonstration of data source in the model's applications. over traditional ABC which works well in the limited
After the construction of the TDABC model it was verified setting in which it was initially applied, typically a single
that there are three types of errors, aggregation, department, plant or location, but becomes difficult when
specification and measurement. In a TDABC model, it is rolling out on a large scale on an ongoing basis.
generally presumed that the cost of direct resources can be Sarokolaei et al. (2013) and Namazi (2009) introduced the
directly allocated to cost objects. It is assumed that direct third generation of ABC as Performance Focused Activity
costs are measured without error for every cost object, and Based Costing (PFABC). This system, unlike TDABC that
hence excluded from the analysis; as far as the share of the has a great emphasis on time driver, allows to select the
cost in indirect resources is concerned. Concluding that appropriate cost drivers and has more flexibility in
TDABC model can give misleading information. allocating costs to activities. In fact, PFABC first allocates
The authors Lee and Enzmann (2012) applied the model costs to activities and then allocates costs to products.
TDABC in a radiology department in the U.S.. The study However, this system like other costing systems is faced
stated that, according to the current model, there was a with the phenomenon of ambiguity and uncertainty in
difference of values. With the application of TDABC was estimating of standards as system input. To solve this
really verified what are the costs related to each patient and problem, in this article, it has been tryied for the first time
helped to manage the porting department. There was no using fuzzy logic to reduce of ambiguity and uncertainty in
difficulty in deploying TDABC model, and there was no PFABC in the estimation of standards. Finally, the new
comment on the traditional ABC. system will be introduced as Fuzzy Performance Focused
For Ratnatunga, Tse and Balachandran (2011) the ABC Activity Based Costing (FPFABC).
model, despite its theoretical superiority, has had only Sarokolaei et al. (2013b) used fuzzy logic to compensate
moderate success in replacing the traditional volume-based the lack of absolute data in TDABC system and design a
absorption costing models in complex organizations new system entitled: fuzzy time driven activity based
worldwide. Even in organizations that have launched ABC costing, to minimize the error coefficients of data by the
projects, the implementations often do not sustain. In new system. Time-driven activity based costing system is
response to this general lack of enthusiasm worldwide for broadly relying on time estimations and because that it can
ABC, accountants developed the TDABC model as an be considered subjective. If the least error occurs in
alternative cost allocation model. A comparison between estimating the key time activities, this system will result in
the two models considers the TDABC easier to implement, damaging effects which are sometimes broader than the
from an international perspective, and provides comparable negative effects of not using this system. Thus, it should try
cost information for decision making. The research is a to use fuzzy logic in order to minimize errors in time
case study to ascertain if any countryspecific factors estimations and managers should make decisions with
prevent the ABC implementation. To conclude: the higher assurance levels. Finally it can be stated that using
TDABC model has similar implementation complexities to fuzzy time driven activity based costing not only will result
ABC if modelling conditions are strictly respected to; these in losing the data in TDABC system, but also it will
complexities are independent of countryspecific factors; present more complete and accurate data for managers
and in its simplest form, the model generates the same besides supplying the data.
decision information errors of traditional costing. The main objective of the work of Vogl (2013) was to
In the paper of Reddy, Venter and Olivier (2012) the ABC develop ways to improve patient-level cost apportioning
is discussed since it is the basis from which TDABC was (PLCA) in the English and German inpatient DRG cost
derived. To the authors, the TDABC was developed to accounting systems, to support regulators in improving
help to overcome the problems with ABC which resulted costing schemes, and to give clinicians and hospital
in ABC having a low rate of uptake. The advantages of management sophisticated tools to measure and link their
TDABC are classified into three areas: cost, ease of use management. The paper analyzes and evaluates the PLCA
and/or maintenance, and accuracy. The cost TDABC is step in the cost accounting schemes of both countries
cheaper to implement due to the fact that the TDABC according to the impact on the key aspects of DRG
process is simpler. Thereby, the TDABC differs from introduction: transparency and efficiency. The goal is to
traditional costing methods that do not provide cost generate a best available PLCA standard with enhanced
information at the activity and task level cost. Similarly, accuracy and managerial relevance, the main requirements
the use management TDABC, you need to consider issues of cost accounting.
such as the potential for resistance that may be encountered Concluding, a best available PLCA standard in DRG cost
as a result of increased cost transparency. accounting uses: (1) the cost-matrix from the German
Somapa et al. (2012) report on the development of a system; (2) a third axis in this matrix, representing service-
TDABC model in a smallsized road transport and logistics lines or clinical pathways; (3) a scoring system for key cost
company. ABC leads to increased accuracy benefiting drivers with the long-term objective of time-driven activity
decision-making, but the costs of implementation can be based costing and (4) a point of delivery separation. Both
high. TDABC tries to overcome some of the disadvantages systems have elements that the other system can learn
of ABC and seems particularly useful for the road transport from. By combining their strengths, regulators are
64
supported in enhancing PLCA systems, improving the others approaches. In the studies where the model was
accuracy of national reimbursement and the managerial applied, it was possible to identify the implementation
relevance of inpatient cost accounting systems, in order to process, as well as its contributions and limitations. Among
reduce costs in health care. the contributions, some are usually highligted namely, cost
One of the proposals of the article was to determine which control, the simplicity of the model which be rapidly
are the contributions regarding the ABC model in the new applied and the fact that it represents a tool that provides
methodology TDABC. data for managerial decision making. These ontributions
correspond to the arguments of Kaplan and Anderson
Table 3: Relationship between ABC and TDABC (2004, 2007). Regarding the difficulties, the main problems
Type Authors identified are related with the formulation of the time
Oztaysi, Baysan and Dursun, (2007); equations. It was observed that a large volume of data is
Complements Zhang and Yi, (2008); Manalo and required for the validation of such equations. Moreover,
Valenzuela-Manalo (2010); their applicability in unstable environments in which the
Pernot, Roodhooft, and Van den activities are not a routine, is apparently very limited.
Abbeele, (2007); Everaert, Bruggeman,
Finally, we made a general characterization of how the
De Creus, (2008); Ratnatunga and
Waldmann (2010); Stouthuysen et al, TDABC method has been researched. We notice that it has
Extends been deeply studied under some perspectives but little
(2010); Kont and Jantson (2011);
Somapa, Cools and Dullaert (2012); explored in others. As a recommendation for future
Sarokolaei, Bahreini and Bezenjani research, we suggest the investigation of other sources of
(2013); Sarokolaei et al, (2013) information about TDABC in practice in order to extend
Cardinaels and Labro, (2007); Wu et al, the understanding of this costinf system approach.
Critical (2011); Ratnatunga, Tse and
Balachandran (2012); ACKNOWLEDGMENTS
Bank and McIlrath, (2009); Demeerec,
Stouthuysena and Roodhooft (2009); The first author acknowledges CAPES - BEX 1066/13-7 for
Hooze and Bruggeman (2010); ker the PhD grant. This work has also been supported by FCT in
and Adigzel (2010); ); Hajiha and the scope of the projects: PEst-OE/EME/UI0252/2014 and
No connection
Alishah (2011); Ayvaz and Pehlivanl PEst-OE/EEI/UI0319/2014.
(2011); Lee and Enzmann (2012);
Reddy, Venter and Olivier (2012);
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66
WHEN IS IT TIME TO STOP AN IT PROJECT?
Catherine Crowley,1* and Dr. Clare Thornley1

1
Innovation Value Institute (IVI), National University of Ireland, Maynooth, Ireland
* Corresponding author: [email protected], National University of Ireland, South Campus, Maynooth, Co Kildare, Ireland.
KEYWORDS Over the last two decades IT has become a commodity

good, i.e. providing little differentiation (Carr, 2003).
Project escalation, Business value management, Despite the ubiquitous nature of IT, effective IT
Capability approach. management continues to be a challenge for many
organizations. Today, the focus needs to be on the
ABSTRACT business value that can be derived from IT projects. This
IT projects should deliver value to organizations but business value results from the optimized application
there are cases when, however well planned a project of IT to deliver planned benefits which contribute to the
may have been, changes in the environment and/or in the creation of value for the business. Changes in the
strategic priorities of the organization mean it can never internal and external environment and consequent risks
deliver value. Value is a subjective term and simply and opportunities need to be anticipated, and the ability
means, in this context, something that is important to the of each IT project to deliver business value has to be
organization which would generally result in profit, in a ensured. Capabilities related to IT Project management
commercial entity, or improved service, in a public need to be developed to support this outcome.
entity. This paper addresses the problem of how to In this paper we examine how a capability based
ensure that you will have the capabilities in place to approach can inform and enhance an IT projects
know when your project can no longer deliver value and business value delivery. Peppard and Ward (2004)
to take appropriate action. It does not discuss in detail describe a capability approach as the strategic
the technical issues of project management execution, as application of competencies to achieve organizational
a well-executed project can still fail to deliver value. goals. IVI has developed an IT capability maturity
Rather, it looks at the specific question of knowing when framework using design science methodology to
projects can no longer deliver value and putting produce artifacts which address the problem of how to
measures in place to both prevent and address project realize value from IT investments (Carcary, 2011). The
escalation. We show how a capability based approach intent of this paper is to outline how a capability
supported by the IT-CMF framework can improve your approach can provide support for organizations to get
ability to quickly identify projects that have started but true value out of their IT resources by building their
now can no longer deliver value. This capability project management business value focussed
approach increases the agility of the organization and capabilities. This includes the capability to stop projects
makes it easier to develop and maintain competitive as well as manage well ones that should be continued.
advantage. In general stopping projects is the last thing we want to
do. It seems to be human nature to see project
INTRODUCTION completion as a success and project abandonment as a
failure. However, sometimes it is important to stop a
Organizations implement IT projects to improve the project because changes have occurred and the project
efficiency and productivity of their value creation completion can no longer provide the anticipated
processes. Value is something that is important to the business value for the organization. Even a well planned
organization which would generally result in profit in a project, in terms of its original business case, that
commercial entity or improved service in a public entity. appears successful on objective metrics such as
Creating effective business value through IT will budgetary control and scheduling can arrive at this crisis
provide an competitive advantage (Mukhopadhyay et point. A project can be going well in terms of cost,
al., 1995, Soh and Markus, 1995, Melville et al., 2004, time, and meeting defined requirements, but at the same
Peppard and Ward, 2004). However, the mere time may be drifting out of alignment with the overall
implementation of IT alone can no longer assure strategic needs of the organization because of important
business value and its associated competitive advantage. changes in the external or internal competitive
67
environment. This paper concentrates on the readiness need to be stopped because of the nature of the changing
to recognize these changes and ability to deal competitive environment.
appropriately with them. If an IT project that can no longer deliver value is
The ideas discussed in this paper develop in more detail allowed to continue this is known as project escalation
the initial research outlined in our whitepaper How can (Keil, 1995). This specific term is used to describe the
I know when it is time to stop an IT project (Crowley way that failing projects are allowed to continue despite
and Thornley, 2014). The paper is structured as follows: overwhelming evidence that they are destined to fail.
following this introduction, section 2 outlines the need Project escalation is about continuing commitment to a
for a new approach to IT project value delivery. Section failing course of action arising due to changing business
3 provides a review of how a capability approach value priorities or a changing competitive environment.
supports business value realization. Section 4 discusses Project escalation represents a decision to continue in
how the capability approach helps to address particular the face of negative feedback. We are referring here to a
problem of knowing when to stop an IT project and continued commitment to failing projects such as
finally section 5 outlines key insights and future runaway or de-railed projects. This should not be
research. confused with the usual use of the word escalation,
which normally refers to the action of raising an issue
A NEW APPROACH TO IT PROJECT VALUE for resolution to a higher authority.
DELIVERY The decision to call a halt to a problem project is not an
easy decision to make. The negative feedback about the
Business Value is a term that has not been well defined
project can be about uncertainty surrounding the
either in literature or in its everyday use. Since value is
likelihood of goal attainment, and the lack of clear
contextual in nature, for this paper we use the term to
evidence about whether to continue or not (Keil, 1995)
describe what is important to achieve for the
(Brockner, 1992). A choice has to be made on
organization, which for example could be increased
continuing the project, which is associated with certain
market share in a commercial entity or improved service
costs, or abandoning it, and normally there is some
delivery in a public entity. But what is important to the
ambiguity associated with the consequences of either
business and what constitutes value can change,
action. Although, currently facing negative interim
sometimes very quickly, because business priorities
outcomes, the eventual project outcomes may or may
change and/or the external environment changes. Clearly
not be negative (Pan, 2006). The Hubble telescope and
the relationship between the business priorities, as
Sydney Opera House are some notable examples that
reflected in the strategic business plans and the external
were initially viewed as project failures, due to being
environment is one of complex interaction. There are at
over budget and schedule, but are seen as outstanding
least two possible scenarios for a value shift to occur.
successes today in terms of delivering long term value
Firstly, the project is capable of delivering the (Baker, 2002).
planned value but there has been a change in A project arrives at an escalation decision point of
what is important to the organization so that the whether to stop or carry on through a combination of
planned value is no longer of value. psychological, social, and organizational factors (Keil,
1995). The Project Manager and Project Sponsor have
Secondly, what is of value to the organization several, sometimes conflicting, considerations to take in
does not change but new, unforeseen a decision to de-escalate a project. How do they know
information or events such as economic the project is escalating if the criteria to judge this have
and/or political instability in the target region - not been clearly defined at the project start? Is there a
mean that it has become impossible for the IT good business case to refer to, which details the
project to deliver value. expected generation and realization of benefits?
Both these scenarios change the ability of a project to (Zwikael and Smyrk, 2012). Are there relevant metrics
deliver the intended value. available to judge the effectiveness of the investment in
These in turn present the problems of knowing when it is delivering value? There are usually multiple
time to change priorities (what is of value to the stakeholders with varying expectations, and perceptions
business) and the problem of making sure that this of success and failure are complex in that one persons
change is reflected quickly in what the business is success can be another persons failure (Al-Ahmad et
actually doing and also not doing (and how quickly the al., 2009).
value can be re-assessed). In this paper we are focussed Additionally the problem of sunk costs and justifying the
on the second problem. We provide guidance drawn project decision-making to date in the face of prior
from both literature review and practical artifacts on resource use needs to be addressed (Keil et al., 2000).
practices and approaches which make it easier to What level of additional risk is appropriate to take,
identify and stop projects that need to be terminated. It when so much has already been invested? Large risks
is important to remember though, that even the best can produce very large rewards. (Keil and Mhring,
planned project, with an excellent business case, may 2010).
68
A good project team will have a high commitment to the projects that are well past their ability to deliver value
project. In the case of escalating projects, this very and make informed and timely decisions on when to
commitment can work against the project manager. pull the plug? We argue that a capability approach can
Commitment is an emotional state which can impact improve performance in this difficult area of project
negatively on ones ability to make a rational and management. A multi-faceted and integrated strategy is
objective decision in relation to project termination. The needed to address all the complex issues that can block
project sponsor, who usually makes the decision, has the stopping of projects that should be stopped.
their reputation, and the resulting likely taint of failure
to think about also. To address project escalation there
HOW THE CAPABILITY APPROACH
must be a way to overcome both the mum effect i.e.
SUPPORTS IT PROJECT VALUE REALIZATION
reluctance to report observed project issues, and the
deaf effect i.e. reluctance to hear bad news about Over the past five years the Innovation Value Institute
project problems (Cuellar, 2009, Keil and Robey, 1999). has been developing a Business Value oriented IT
Projects that can no longer deliver value that are not management framework. IVI is a not for profit research
stopped will continue to drain resources from the institute that developed the Information Technology
organization. Eventually, or in some cases quite quickly, Capability Maturity Framework (IT-CMF) in response
this can fatally impact the organization particularly, to the observation that there was no common IT and
when one considers the high cost associated with capital Business framework, using a common language and a
IT projects. The inability to identify and terminate shared IT business value management approach.(Curley,
escalating projects reduces the ability to stay in 2006, Curley et al., 2012)
business or, in the case of public organizations, can
The IT-CMF is built on Design Science methodology
negatively impact the delivery of a quality service.
and an Open Innovation approach. It is based on a
Agility, the ability to respond quickly to external
framework initially conceived as part of the Intels IT
change, is a key factor in maintaining competitive
transformation to deliver improved management
advantage. The focus is normally on being able to start
practices that will mature organizations ITs capability
new projects or products quickly but it is also important
to convert information technologys potential into new
to be able to stop quickly and cancel projects that will
business value and innovation for organizations (Curley
not bring value. Flynn (Flynn et al., 2009) suggests that
et al., 2012). Design Science aims at developing ways to
an organization that is good at knowing when to stop
achieve human goals . offers prescriptions and
projects is also good at learning from projects. Thus
creates artifacts that embody those prescriptions
improving your maturity in this area will have desirable
(March and Smith, 1995, p254).
wider positive impact of delivering successful, business
The complex nature of IT project value realization
aligned projects. The practice of continuing with
suggests that a comprehensive approach is required to
doomed projects may also be an indicator that there is
address it, involving collaboration between project
poor articulation and communication of what is really
management, IT management and business management.
important to the organization (what is value for that
The IT-CMF is a holistic management system for IT
organization). This is a problem that needs to be
capability, therefore suitable to guide IT project
addressed not only due to its drain on resources but
business value delivery in the organization, taking a
because of its corrosive effect on the ability to innovate
capability approach.
and stay competitive.
The IT-CMF is a structured body of knowledge that
The Standish Group, who carry out research on IT
enables IT capability assessment and improvement
project successes and failures with a view to improving
across all key aspects of IT management and delivery.
the value derived from these projects, state that 79% of
The model is composed of 4 macro capabilities,
IT executives in a recent survey said it was difficult or
subdivided into 35 critical IT capabilities. Macro
very difficult for project executive sponsors to
capabilities structure these 35 into groups around broad
recognize when they should pull the plug on
strategic areas. Figure 1 visualizes the IT-CMF
projects(TheStandishGroup). There is a tendency to
Framework.
continue commitment to a project even when its value is
in doubt due to underlying emotional and political
factors (Cleland et al., 2000). For example, the project
manager and team members may fear loss of power,
status or even their job as a result of such project
termination. Organizational politics may also come into
play where the project in question is a pet project of
some senior executive sponsor or where groupthink
leads the team to believe all project difficulties can be
overcome in time. So, the question is what can you do so
that your organization is less likely to carry on with
69
peoples fears of failure. A low maturity approach is

characterized by ad hoc attempts to fix the project in
hand while higher levels of maturity focus more on an
organization wide improvement in change management
and learning (Flynn et al., 2009). Improving
organizational capability drives project performance.
Having high levels of capability in project management
is critical to an organizations ability to respond to
change. (Bannerman, 2012)
A capability based approach addresses all these issues
and reduces the chance of runaway non-value
delivering projects being allowed to damage the
organization. Below are our recommendations to
counter project escalation.
Figure 1: IVIs IT capability maturity framework

(IT-CMF) (Source: Innovation Value Institute) Focus on Business Value
It is essential that every project has a sound business
This structure provides broad coverage for all aspects of case, describing how it will bring value to the
managing IT. The components, called Critical organization, and that this is reviewed regularly and
Capabilities (CCs), are configurable to address the maintained current. Too often the focus is on delivery of
various challenges facing IT management. The IT-CMF the technology itself, and not on information and its
identifies an organizations maturity in key critical effective use to deliver value.(Marchand and Peppard,
capabilities and identifies the key areas where the 2008) Instead, project definitions and methodologies
organization wants or needs to improve to deliver need to support the generation and realization of
business value through IT. benefits. Accountability for the outcome realization
Each capability can be assessed along a five-level significantly improves project success. The project
maturity curve framework, from the Initial level of no owner proposes the business case for approval by the
formal capabilities, to an Optimizing level of value- funder and therefore should be held accountable by the
centric IT management. The higher levels of maturity funder for its eventual realization. (Zwikael and Smyrk,
reflect improving organizational practices. The 2012) There must be agreement on the primary
framework provides practices, outcomes, and metrics, at objective of the project by all stakeholders which in turn
appropriate capability maturity levels within the IT should be clearly communicated and regularly enforced
specific domain, thereby enabling the creation of a (Keil and Mhring, 2010). A project should be driven
capability improvement roadmap. by a clear set of testable benefits.(Southon et al., 1999)
Focused on both processes and outcomes, project If a project claims it can deliver new unexpected value,
managers can use the IT-CMF framework in their own despite the clear failure of its originally intended value,
specific context and environment to improve IT project then Keil suggests that a new business case should be
capability and business value management practices. generated to guard against the invention of new rationale
for continuation(Keil and Mhring, 2010). The relevant
Critical Capabilities in these cases are Benefits
HOW THE CAPABILITY APPROACH HELPS TO Assessment and Realization (BAR) and Portfolio
ADDRESS IT PROJECT VALUE REALIZATION Planning and Prioritization (PPP) Portfolio Management
(PM) and Programme and Project Management (PPM).
A capability comprises the differentiated resources that Many organizations tend to focus on implementation of
generate operational and strategic value for an the technology but not sufficiently on the realization of
organization (Bannerman, 2012, p9). The IT-CMF is expected business value linked to strategic goals. IT has
based on a capability approach because this consistently no intrinsic value, other than the financial worth of the
leads to improved performance (Donnellan et al., 2011, assets. Value is only created through exploiting these
Curley et al., 2012, Kenneally et al., 2013, Grant, 2010, assets and is only achieved when people do things
Peppard and Ward, 2004). We look at particularly differently and when those changes have been planned
relevant CCs from the IT-CMF which can help improve to realize specific business outcomes for the
the performance in recognizing and stopping projects organization. Maturity in the CC BAR provides the
which have lost their ability to deliver value. What are capability to embed benefits management practices
the barriers to stopping these IT projects and how can throughout the full life cycle of an investment. This
they be overcome? includes managing the cultural and behavioural change
Reducing the chances of project escalation is a complex that the technology enables, so that benefits are actively
problem with many facets ranging from financial managed, and business value is created and sustained.
reporting issues to the softer issues such as managing
70
A high maturity in the Critical Capability PPP would With an appropriate strategy, aligned with the business
ensure that new and ongoing investments are assessed and considering appropriate feedback mechanisms, the
against their business value contribution and that investments in IT projects will be aligned to what the
business value would be a key component in evaluating organization needs.
the effectiveness of the portfolio planning and In addition to governance at the organizational level a
prioritization process. Likewise, high levels of PM mature Programme and Project Management capability
capability would result in effective value management at will ensure that in addition to organizational structure,
the programme and project levels. With mature PPM all policies, standards and processes that good governance
programmes and projects are run with a business value is established with the appropriate involvement of the
focus. stakeholders. A high BAR capability instils governance
across the full life cycle of an investment decision and
Good Governance is Vital incorporates benefits realization practices and decision-
making bodies to secure the delivery of the business
A good start to preventing IT project escalation is to
value.
pre-emptively ensure that there is a sound business case
and effective governance systems in place. There should
be separation of powers so that the person who decides Communication and Transparency is Essential
whether to stop An IT project is not the same person as There is a high level of change and uncertainty
the one whose idea the project was, avoiding the pitfall associated with IT projects (Bannerman, 2012) and
of self-justification (Staw and Ross, 1987, Zwikael and therefore a need for transparency, so that all
Smyrk, 2012, Pan et al., 2006). The governance stakeholders can see what is going on with the project.
structure needs to include regular stepping back and This will enable issues to be identified at the earliest
taking stock reviews taking an outsider perspective and opportunity. In order to stop projects there must be some
always considering other options.(Keil, 1995).The level way for bad news about the project being said and being
of sunk cost should also be disregarded when deciding heard. This is challenge as people generally dont like
whether to continue a project (Pan, 2006). Negative being the bearer of bad news and, even if this problem is
events impacting the value of the project should be overcome, the listener generally doesnt want to hear it.
prepared for in advance and, if they happen, big decisive Communication is very important in times of change
changes should be made to the IT project, including (Keil and Mhring, 2010, Charvat, 2003). Not only is it
termination, rather than small adaptations (Charvat, important to have good communication processes in
2003). It should be assumed that unless structures, place, but people must also be explicitly encouraged and
procedures and rewards are put in place to counteract rewarded for alerting projects to bad news and
them then the forces of inertia will tend towards failing problems. Straw and Ross (1987) and (Keil,
projects being allowed to escalate (Pan et al., 2006, 1995)suggest providing incentives for a good project
Keil, 1995, Keil et al., 2000). Improving capability in process, in terms of recognising problems and dealing
this area can be achieved using the critical capabilities with them rather than just rewarding completion. The
IT Leadership and Governance (ITG), Programme and idea of having bad news only reporting meeting is
Project Management (PPM) and Benefits Assessment proposed by Flynn et al (2009) and the importance of
and Realization (BAR) . dealing with barriers to bad news reporting is dealt with
The Critical Capability of IT Leadership and by (Cuellar, 2009). In terms of actual reporting systems
Governance (ITG), provides the overarching framework accurate financial information is essential and there must
for the development and implementation of capabilities also be a way of stopping the flow of money to projects
to lead the IT organization. It is well recognized that (Keil and Mhring, 2010). The relevant Critical
without visible support from the leaders any initiative Capabilities here are IT Leadership and Governance
for change has little hope of a successful outcome, so (ITG) Portfolio Management (PM) and Benefits
this capability is vital in establishing an IT project as a Assessment and Realization (BAR).
priority. ITG is concerned with IT decision-making Both leadership and governance are key activities in
processes including underlying decision criteria, ensuring appropriate communication occurs and that
definition of responsibilities and escalation paths - all of transparency is in place and seen to be in place. A
critical importance in realizing business value. mature leadership capability will foster a high
High maturity in IT Leadership and Governance performance culture of credibility, accountability and
capability is very important because ITG directs strategy teamwork - not afraid of failure. Additionally, a high
realization. In some cases, the return of the investment governance capability will provide decision and
in IT capabilities is low, because there is no coherent escalation bodies, with the appropriate composition,
strategy to define what projects would bring more value scope and decision rights for transparency in status
to the organization, or the organization does not have an monitoring and reporting. PM capability will ensure
appropriate feedback mechanism or control loop, accurate and timely reporting to enable effective and
measuring the impact of previous or current approaches. agile decision-making in relation to IT project
71
management. High BAR capability includes the High PAM capability provides business value awareness
identification, definition and use of relevant business across the organization. Strategic workforce
metrics that enable management and oversight and management policies and people strategy, culture and
communication of the benefits realization effort to foster satisfaction, outline long-term needs regarding value
awareness and support from the stakeholders. realization are all manifestations of a PAM capability.
These would support implementation of a value culture
Stakeholders Need to be Managed and realization strategy including a focus on effective
training and education in relation to business value
Project success depends on satisfying the stakeholders
realization from IT projects.
and being accepted and largely used by the end users
after deployment.(Al-Ahmad et al., 2009) There is a Definition of required skills would incorporate IT
need to be aware of the importance of stakeholder project business value realization considerations, with
resistance and its potential impact on the success of IT well-functioning processes in place to develop and
projects(Greenwood et al., 2010). Managing promote high-potential employees with proven abilities
stakeholders during the project development may prove in business value delivery. Monitoring and management
crucial to project value attainment and help offset of employee satisfaction, including employee motivation
project escalation. This includes managing evolving occurs at appropriate intervals to ensure good
stakeholder expectations and stakeholder motivation. This motivation will manifest in a
interrelationships that may develop over time. (Pan, willingness to make the necessary changes required from
2005) the employees, in order to support the business value
There is a potential tension between wanting a project realization effort. Higher employee motivation has been
manager with the charisma and drive to successfully shown to result in lower turnover rates (Mak and Sockel,
complete a project whilst also having the ability to 2001). In high PAM capability organizations satisfaction
successfully stop it if necessary. There are also complex with management is increased through regular employee
factors, including perceived credibility and gender, surveys and identification of appropriate value measures
which make it more or less likely that someone crying to further improve employee satisfaction.
stop will actually be listened to(Cuellar, 2009). It one A high level of maturity in the critical capability
sense it can be useful to have some turnover of project Relationship Asset Management is required to
staff but this can cause problems of low morale (Staw successfully manage the complex mix of expectations,
and Ross, 1987). Greenwood advocates using perceptions and inter-relationships of all stakeholders.
Stakeholder Impact Analysis methods to identify and This CC also fosters an acute awareness of the business
gain understanding of the underlying socio-complexity environment and the changes, and directing this
sources of risk to the project success (Greenwood et al., intelligence to the appropriate authority for action
2010). All the people management issues have thereby mitigating risks to the project success. High
conflicting and complex requirements, such as managing Programme and Project Management would drive the
the tension between change and continuity or success use of appropriate channels to ensure the
and failure, so it is particularly important to reach a high communication loop with stakeholders is robust in
level of maturity in people management capability. planning, execution and assessment of IT projects with
There is a case to be made for matching the risk provision of the possibility to stop or radically change
propensity of the project manager to the project to an IT Project. With a mature BAR capability the ability
enhance the probability of project success(Keil et al., to identify appropriate stakeholders and to engage with
2000). The relevant Critical Capabilities to address them to achieve the necessary changes for benefits
these issues are People Asset Management (PAM), realization, rather than just an IT project delivery focus,
Relationship Asset Management (RAM), Programme is ensured.
and Project Management (PPM) and Benefits
Assessment and Realization (BAR). Organizational Culture Must Support Failure,
The employees in any organization are key stakeholders Learning and Innovation
in the business value realization of IT projects. Unless A culture should be developed that encourages problem
the employees understand their role and are willing to disclosure(Keil and Mhring, 2010). It is easier to stop
engage in the changes required of them, it is going to projects if there is culture based around business value
prove impossible to achieve the intended project value for the whole organization rather than loyalty to
(Pan, 2005, Greenwood et al., 2010). The People Asset particular projects. There needs to be an understanding
Management organizational capability will help to meet throughout the organization that stopping projects that
an organizations demand for employees to enable the do not bring value to the organization can prevent the
IT project value delivery. There will be an organization as a whole failing.
understanding of both the quantitative and qualitative The governance of projects to allow failure sounds
requirements in the workforce to support this. initially contradictory and there is a tension between
72
rewarding competence and also allowing the possibility CONCLUSIONS AND FURTHER RESEARCH
of acknowledging failure(Staw and Ross, 1987).
From review of the IT-CMF the authors identified
There is a move towards fail fast project management
specific IT-CMF capabilities that have the potential to
approaches(Glick, 2013), which develop rough
support the value realization of IT projects, thereby
prototypes and then discard them quickly if they dont
avoiding a situation where project escalation will arise.
work out, suggesting that careful planning of complex
Increasing your maturity in project escalation
and expensive IT projects may not always be the best
management can be complex, but it has multiple
approach. There is also a suggestion that stopping
benefits. Using information from IT projects which have
projects should just become part of what a business does
been stopped provides a means of continuously learning
thus moving towards the model of an experimental
about what works and does not work in generating
organization. In some cases it can be useful to reduce
business value for your organization. The alternative,
the links of a project with the central purpose of the
not being able to stop doomed projects, is dangerous
organization. This may appear to go against
and possibly fatal to the organization.
conventional advice on the importance of business case
The IT-CMF Framework includes important capabilities
linked to organizational mission, but it can open up
that are able to support the realization of business value
space to improve innovation. If a project is labelled as
through high capability maturity in areas that help
peripheral or experimental it is treated on its own merits,
prevent IT project escalation. The IT-CMF provides
and stopped on its own flaws, rather than being seen as
guidelines on how to improve your current practices to
an integral to the organizational mission. Current work
increase your capabilities in these vital areas of IT
on project escalation also shows that getting good at
project management. This can help the organization gain
stopping projects makes an organization generally better
agility and competitive advantage.
at learning and thus increases maturity in a range of
In future research we intend to further develop our
different areas (Flynn et al., 2009). The relevant Critical
understanding of project escalation phenomenon and
Capabilities to instil a value culture and improve
its remedies, employing targeted focus groups and
capacity in learning and innovation are Benefits
questionnaires to extend our insights.
Assessment and Realization (BAR) and Innovation
Management (IM).
Identifying, trialling and adopting practices which REFERENCES
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74
SOCIAL ENTREPRENEURSHIP AND SOCIAL INNOVATION: ARE BOTH

THE SAME?
Jorge Cunha,1* Paul Benneworth 2

1
2
Center for Higher Education Policy Studies, University of Twente, the Netherlands
* Corresponding author: [email protected], University of Minho, Campus de Azurm, 4800-058, Portugal
KEYWORDS challenges SI can have an important role. In fact, as

Social innovation, Social entrepreneurship, Social Dawson et al. (2010: 2) pointed out in recent years, the
enterprise emphasis has shifted towards recognition of the
importance of social engagement in the pursuit of societal
ABSTRACT well-being. Changing contextual conditions, media
coverage and public debate has raised public awareness
In the last two decades, a renewed interest on the about social and environmental issues and with the
concepts of social innovation and social entrepreneurship growing disparity between top income earners and the
has emerged. In fact, a large body of theoretical rest of the working population, the assumptions behind
developments that occurred in the fields of innovation, the drivers for economic prosperity are increasingly
territorial development, social economics, and public being called into question.
governance (among others), have emphasised the need to Therefore, the focus of this paper is an attempt to make a
adopt new approaches to new (or emerging) problems, conceptual distinction between social innovation and
such as: climate change; chronic diseases; increasing social entrepreneurship since, although two similar ideas,
inequalities in income distribution; high rates of they do not have exactly the same meaning, and it is
unemployment (particularly, among young people); the argued that social innovation is a broader concept.
impact of ageing population; and mass urbanisation and The remainder of the paper is organised as follows.
social exclusion phenomenon. Section 2 presents several definitions of social
This paper aims at contributing to these literature by entrepreneurship that can be found in the literature,
making an attempt to distinguish both concepts: social emphasizing its main characteristics. Section 3 focus on
innovation and social entrepreneurship. For that purpose, the concept of social innovation. In Section 4, the main
the definition of each of these concepts, their main differences between social entrepreneurship and social
features as well as their major differences are presented. innovation are highlighted. Section 5 presents several
Then, some examples of social innovations are briefly examples where the concept (or idea) of social innovation
described in order to illustrate that social innovation is a has been applied. Section 6 concludes the paper.
broader concept than social entrepreneurship.
SOCIAL ENTREPRENEURSHIP
INTRODUCTION
According to Muhamad and Adham (2013), Witkamp et
There is a recent and growing body of literature about al. (2011a) and Martin and Osberg (2007), social
social innovation (SI), social entrepreneurship and social entrepreneurship has been a topic of academic research
enterprise (Lettice and Parekh, 2010). However, the in the last two decades. However, there is an intense
literature does not offer a consensus on what is implied debate on what social entrepreneurship is about, how it
by each one of the three concepts, although they often can be conceptualized and what are its main
seem an attempt to address intractable social issues characteristics. In fact, several definitions of social
(MacLean et al., 2013) that call for novel approaches and entrepreneurship can be found in the literature (and some
solutions. As emphasised by Howaldt and Schwarz, of those definitions are presented in this section). As
(2010: 5) problems have in part changed radically and highlighted by Jackson and Harrison (2011), a major
intensified in conjunction with the drastic acceleration of problem is the lack of common understanding of
change in the economy, society and culture, and definitions and a statistical base that permits to measure
awareness has clearly grown regarding the limited its impact, which means that this field of research often
potential that technological innovations and established relies on anecdotal evidence rather than empirical data.
management and problem-solving routines have to But, at the same time, social entrepreneurship is an
resolve issues. To overcome these problems or increasingly popular practice in which business solutions
75
are applied to social problems (Germak and Robinson, and risk taking, with the organization as the unit
2014). For example, there is significant social of analysis (Weerawardena and Mort, 2012).
entrepreneurship activity in emerging economies but
A social entrepreneur can be defined as an
little systematic research of the phenomenon in this
individual who utilises their commercial skills in
context (Sundaramurthy et al., 2013).
managing ventures that bring about well-being for
Some authors (e.g. Chand, 2009) argue that the roots of
others in the pursuit of social change, embracing
social entrepreneurship relies on the early corporate
economic and technological interventions as
efforts to do good to society and then evolved through
necessary to achieve their goals (Dawson et al.,
nongovernmental action through its charity, community
2010: 3).
welfare, and developmental projects, particularly in a
context of rethinking of the role of the welfare state. In The social entrepreneur should be understood as
fact, the response to the challenges of the new economic someone who targets an unfortunate but stable
environment and globalization includes advocating for equilibrium that causes the neglect,
policies that promote social as well as economic marginalization, or suffering of a segment of
development, social participation, and equality (Tan, humanity; who brings to bear on this situation his
2004). Therefore, social entrepreneurship can be or her inspiration, direct action, creativity,
promoted by different agents such as non-governmental courage, and fortitude; and who aims for and
organizations, profit-seeking firms that have some ultimately affects the establishment of a new
commitment to doing good, public sector organizations, stable equilibrium that secures permanent benefit
and social enterprises established for a social purpose but for the targeted group and society at large
operating as businesses (Weerawardena and Mort, 2012). (Martin and Osberg, 2007).
As mentioned above, several definitions of social
Social entrepreneurs may be defined as people
entrepreneurship can be found in the literature. For
with the mission to create and sustain social value.
example:
These social change agents are not limited by
Social entrepreneurship describes the efforts of resources currently at hand but pursue new
highly motivated individuals and organizations to opportunities to serve people, take calculated risks
and engage in a process of continuous social
solve economic and social problems for the
innovation, adaptation and learning" (Tan, 2004).
benefit of society in general through the use of
business methods and innovative strategies From these several definitions, some common
(Jackson and Harrison, 2011). characteristics can be underlined. Firstly, the fact that
Social entrepreneurship can be understood as social entrepreneurship opportunities are the
dynamic social change resulting from innovation constructed outcomes of entrepreneurial alertness and
motivation, and the organizational, societal, institutional,
which takes the form of new combinations. These
and market contexts in which the entrepreneur is
new combinations come about through the
embedded (Newth and Woods, 2014). Therefore, local
formation and reformation of cooperating groups
engaged in production; these groups are socially embeddedness, sociocultural and historical contexts and
and historically situated, ascribing themselves changing environmental circumstances emerge as key
features of social entrepreneurship (Shaw and Bruin,
associated identities as they are ascribed by
2013). A similar characteristic is emphasized by Maclean
others, across proscribed or prescribed
et al. (2013), when they stress the importance of the
boundaries (Tapsell and Woods, 2008).
engagement of the social entrepreneur with the
Social entrepreneurship is a new business model community for the success of the social venture. Finally,
that combines a social goal with a business it should be highlighted that social entrepreneurship is a
mentality and is heralded as an important new way field of action where diferent type of organizations can
to create social value such as sustainability have an important role (e.g. development organizations,
(Witkamp et al., 2011b). the nonprofit sector, universities, public organizations,
governments, as well as profit organizations) around the
Social entrepreneurship relates to a person. It
world (Jackson and Harrison, 2011).
describes an initiative of social consequences
created by an entrepreneur with a social vision.
SOCIAL INNOVATION
This initiative may be a non-economic initiative,
a charity initiative, or a business initiative with or As happens with the concept of social entrepreneurship,
without personal profit (Yunus, 2010). many definitions of social innovation (SI) can be found
in the literature. For example, Benneworth and Cunha
Social entrepreneurship is a multidimensional
(forthcoming) and Cunha and Benneworth (2013) present
construct that involves the expression of virtuous
a thorough review of those definitions. The existence of
behavior and the ability to recognize social value
several definitons of SI has led to an intense debate about
creating opportunities with key decision-making
the true meaning of SI, and what can be classified as (or
characteristics of innovativeness, proactiveness,
76
considered to be) a SI (Elliott, 2013, Howaldt and networks (Westley and Antadze, 2010). Thirdly, SI is
Schwarz, 2010 and Iizuka, 2013). context-dependent, since basic needs are, to a certain
From the review of Benneworth and Cunha extent, context and community-bound and SI at the local
(forthcoming) and Cunha and Benneworth (2013), they level means innovation in relations between agents and
argue that two distinct groups of characteristics underlie organizations existing at various spatial scales (Moulaert
those SI definitions. and Nussbaumer, 2005). A similar argument is developed
The first group is concerned with the issue of social by Westley and Antadze (2010: 12): SI do not
justice, and the following characteristics are highlighted. necessarily generate the sorts of products or services that
Firstly, the fact that SI primarily addresses social and are always of interest to the market; they are born in a
human needs, which should be understood in a broader certain context, under certain circumstances, and in
sense than merely jobs and incomes for a large majority response to certain needs or problems. Whether or not the
of people in the territorial community (Moulaert and innovation has a broader social impact, however, is
Nussbaumer, 2005). Secondly, the focus on social value dependent on the interplay of political, social, economic,
creation and community development (Sharra and and cultural factors. Finally, SI is characterized by being
Nyssens, 2010; Moulaert and Nussbaumer, 2005) and not cross-sectoral, cross-disciplinary, and cross-geographical
on commercial gain (Dawson and Daniel, 2010). (Bacon et al., 2008; Brackertz, 2011; and Dawson and
Therefore, with SI there is a collective dynamic Daniel, 2010).
interplay across the technical, social, economic and Based on this SIs characteristics, Benneworth and
political dimensions in the group pursuit and Cunha (forthcoming) and Cunha and Benneworth (2013)
development of social objectives and outcomes proposed the following working definition for the
(Dawson and Daniel, 2010: 15). Thirdly, the importance concept of SI:
of collaborative action and the role of networks, since the
A true social innovation is systems-changing by
spread of networks and global infrastructures for
developing novel solutions in border spanning
information and social networking emerge as a
learning communities to create social value and
fundamental enabler of new social practices which
promote community development, challenging
engender social innovations (Brackertz, 2011). The
existing social institutions through collaborative
collaborative nature of SI is, also, highlighted by Caulier-
action developing wider networks.
Grice et al. (2012: 21): SI are developed with and by
users and not delivered to and for them. They can be This definition has a clearly delineated scope, it is
identified by the type of relationships they create with conceptually objective and does not refer to other fuzzy
and between their beneficiaries. Finally, empowerment concepts (such as, for example, social entrepreneurship,
of people and capacity to act are central features for SI social enterprise, social business, social finance). At the
success (Moulaert et al., 2005; BEPA, 2010), since they same time, it encompasses the idea of novelty and change
enhance societal resilience and increases beneficiaries for a socially progressive purpose and, simultaneously,
socio-political capabilities and access to resources and address the critique of Neumeier (2012) and Cloutier
develops assets and capabilities through participatory (2003) demanding a more elaborated definition of SI with
approach enabling beneficiaries to meet needs over the a more rigorous treatment of social justice.
longer term (Caulier-Grice et al., 2012).
The second group of characteristics is concerned with SOCIAL INNOVATION VS. SOCIAL
social innovation practices, and four issues are ENTREPRENEURSHIP
emphasised. Firstly, the fact that novel solutions are
After presenting a brief overview of the concepts of SI
proposed to satisfy the identified social needs. Although
innovation is, generally, linked to the application of new and social entrepreneurship, a comparison between this
ideas to devise better solutions to our needs, SI can, also, two concepts is made in this section.
According to Phills et al. (2008), a major difference
be achieved simply by the reapplication of old ideas in
between SI and social entrepreneurship and social
new ways (Andrew and Klein, 2010; Leadbeater, 2007).
enterprise is that SI transcends sectors, levels of analysis,
Secondly, SI is system-changing in nature. For example,
and methods in order to understand the processes that
Westley and Antadze (2010) stress that SI will challenge
the social system and social institutions that govern produce lasting impact to solve social/societal problems.
peoples conduct by affecting the fundamental As they write, SI may indeed involve finding and
training more social entrepreneurs and to support the
distribution of power and resources, and may change the
organizations and enterprises they create. But it will
basic beliefs that define the system or the laws and
certainly require understanding and fostering the
routines which govern it (Westley and Antadze, 2010:
3). Another way to look at SI is as being disruptive and conditions that produce solutions to social problems.
catalytic (Christensen et al., 2006). In this regard, SI must The same idea is expressed by Mulgan (2007a: 45):
whilst social innovation certainly occurs through social
cross multiple social boundaries to reach more people
enterprise and social entrepreneurship it also happens in
and different people, more organizations and different
many other contexts. Conversely, although social
organizations, organizations nested across scales (from
entrepreneurship often involves innovation, only a small
local to regional to national to global) and linked in social
minority of social entrepreneurs create new models that
77
can then be scaled up, and that process of scaling up often organisational and system levels (Brackertz, 2011). As
involves governments and larger businesses. Therefore, Chalmers (2012: 19) synthetized: While social
one might say that the concept of SI is wider than the entrepreneurship research has tended to focus on the
concepts of social entrepreneurship and social enterprise. individual driving social change, and social enterprise on
For Westley and Antadze (2010), a social enterprise the new forms of organizational structure that blend
although addressing social needs, is a privately owned, commercial and social purpose, social innovation
profit-oriented venture which markets its own products literature has concentrated on the processes and
and services, blending business interests with social ends. outcomes that lead to system-changing. The crux of this
In this sense, a social enterprise is an organisational form socially innovative behaviour is that skills and expertise
trading in the market to achieve social aims (Brackertz, used to develop successful commercial innovations can
2011). However, the primary objective of social be used to solve a wide range of societal problems.
enterprises is mission-related impact rather than Furthermore, Dacin et al. (2011) argue that it is likely to
profitability per se (MacLean et al., 2013). They are led exist a hierarchical ordering of social and economic
by a sense of social purpose and aim to show that value creation and that the social value creation
businesses and markets can deliver social benefits and mission does not necessarily negate nor diminish a focus
tackle intractable social problems and, therefore, to on economic value. They contend that economic value
overcome the limitations of public service provision is crucial for the sustainability of social entrepreneurial
(Sharra and Nyssens, 2010). Therefore, their goal should ventures and the creation of social value, since it is
be focused on creating the value to the community and to difficult to ignore that the creation of social value is
achieve their sustainabilty by innovation (Mulyaningsih, often closely related to economic outcomes that in turn
Yudoko & Rudito, 2014). produce financial resources that the social entrepreneur
Although social enterprises often meet social needs, it can use to achieve his or her primary mission.
does not mean that we are faced necessarily with a social In summary, and following European Union/Young
innovation (Brackertz, 2011). In fact, the rationale of the Foundation (2010: 15-6), the three concepts, although
social enterprise is not necessarily to be innovative but overlapping, are distinct. The concept of social
simply to make money in order to subsidize an entrepreneurship is used to describe the behaviours and
independent non-profit activity (Sharra and Nyssens, attitudes of individuals involved in creating new ventures
2010). for social purposes, including the willingness to take
Following again Westley and Antadze (2010), a social risks and find creative ways of using underused assets,
entrepreneurship is a human-centred concept whereas the term social enterprise refers to businesses
highlighting the personal qualities of a person who starts with primarily social objectives whose surpluses are
a new organization. In this sense, a social entrepreneur principally reinvested for that purpose in the business or
uses entrepreneurial skills to achieve a social purpose community. They are not driven by the need to maximise
(not necessarily involving social enterprise) and operates profit for shareholders and owners. Therefore, SI is a
at the level of the individual (Brackertz, 2011). This can much broader concept than either social entrepreneurship
be seen as a response to the increase demand for a more or social enterprise although it will often include one or
ethical and socially inclusive capitalism (Dacin et al., both of these.
2011). Therefore, four elements can be underlined in the
definition of social entrepreneurship (Dacin et al., 2011): EXAMPLES OF SOCIAL INNOVATIONS
the characteristics of individual social entrepreneurs,
The concept and meaning of SI has been used in different
their sphere of operation, the processes and resources
contexts and/or in a broad range of disciplines. This is
they use, and its mission. MacLean et al. (2013) identify
justified by the fact that there are different discourses on
three common characteristic between SI and social
the social innovation concept, which are rooted in
entrepreneurship. Firstly, innovation is the basis for both.
different disciplines' audiences (Ruede and Lurtz, 2012:
In fact, social entrepreneurship is about channelling
29). In this section, we present a brief description of areas
entrepreneurial activity towards solving social problems.
where the concept of SI has been particularly
Secondly, there is some consensus that the creation of
emphasised: improvement of societys conditions (social
social value is central to both concepts. Finally, as for the
inclusion); territorial development; and employment,
case of SI, the rise of social entrepreneurship is due to the
work organisation and lifelong learning.
increasing inability of the state to satisfy growing social
welfare needs. Improvement of societys conditions
Westley and Antadze (2010) also stated that the concepts
In this area fall those ideas or projects that aim at,
of social enterprise and social entrepreneurship and the
concept of SI are closely related to each other since a directly, improve the conditions of people. Or, as
social entrepreneur can be a part of a social enterprise suggested by Pol and Ville (2009), that contribute to a
better human life. That is why SIs have empowered
and, at the same time, can contribute to the promotion of
people and organisations to develop participative
social innovations. From this perspective, both social
solutions to pressing societal issues (BEPA, 2010: 16).
entrepreneurship and social enterprise are encompassed
One of the assumptions underlying SI in this field is that
by social innovation, which operates at the inter-
innovations can be used to address challenges in society,
78
to benefit groups that are struggling in society, and to organise partnerships between local players who
improve the well-being of individuals (Ruede and Lurtz, share a concern for the social and economic
2012: 29). Therefore, the most common approach to reinsertion of young people faced with exclusion.
social innovation proceeds from the understanding that it One of the first second-chance schools was
is induced by some kind of social need and/or is aimed at created in Marseille in 1997, supported by the
solving a critical social problem (Loogma et al., 2013: local authorities. It has since become a major
285). Actually, most western countries have faced success. Between 1998 and 2007, 66 % of the
important challenges over the last few decades such as, students that passed through the system obtained
for example, globalisation, international migration and jobs and 19 % continued with further training or
developments in information and communication education. The European label given by the initial
technologies, that have a profound impact in the involvement of the European Commission was
communities we live (Norman et al., 2013). In this decisive in involving a wide group of partners. A
context, there is a growing recognition that new and number of second-chance schools have developed
innovative approaches are required to meet the social, according to this model in many areas in France.
economic and environmental challenges with millions Considering the objective of bringing down the
of people [] creating new and better ways of tackling proportions of early school leavers from 15 % to
social challenges (Norman et al., 2013: 4). 10 % by 2020, this type of project and its scaling-
It can be said that the extensive work of Mulgan (2006) up would be highly relevant.
and collaborators (e.g. Caulier-Grice et al., 2012; Murray
The second example addresses the problem of climate
et al., 2010; Bacon et al., 2008; Mulgan, 2007a; Mulgan,
change and shows how citizens can change their
2007b), is focussed on this approach of SI: to respond to
behaviour regarding pollution, and it was taken from
some social need/demand, threat or crisis and [trying] to
European Union/Young Foundation (2010: 65) report:
create new kinds of institutions, products, services,
models, and/or responds to a recognised fear or danger Ecomap is an excellent example of changing
(Loogma et al. 2013: 287). And, as emphasised in BEPA behaviour to achieve policy outcomes. Urban
(2010: 44) [p]ressing social needs concern first and EcoMap provides local communities with
foremost work insertion for vulnerable groups information on their progress toward meeting
(minorities, long-term unemployed migrants, greenhouse gas (GHG) reduction goals, and with
handicapped, offenders), health issues and care access to the most useful, locally available tools
arrangements, education and community help. and resources for reducing their carbon footprint.
Therefore, the dominant social issue in the long run is Urban EcoMap amasses information on a
how to equip individuals with the right skills to give them neighbourhood level, organized by zip codes, in
the best chance in the modern economy as workers, the following two ways: Discover Your Citys
entrepreneurs and consumers (BEPA, 2010: 21). Neighborhoods: Through this visual display,
SIs in this field have been undertaken and developed by residents can see their greenhouse gas
different agents, institutions or movements such as social contributions in the areas of transportation,
entrepreneurs, grassroots organisations, not-for-profit energy, and waste. This information empowers
organisations (or organisations of the Third Sector in neighbourhoods to identify and take specific
general). On the other hand, the processes of change actions to fight climate change using approaches
generated by SIs are seen, also, as a result of the work of such as alternative-fuel vehicle ownership,
heroic individuals (e.g. Muhammad Yunus), broader recycling, and reducing household energy use.
movements of change (e.g. environmentalism), or market Take Climate Actions: Citizens can make
dynamics and organisational incentives (Mulgan 2007a). decisions to help decrease the carbon footprint of
In this perspective of SI several examples can be found their geographic regions, their particular zip code,
in the literature. For illustrative purposes, in the next and their city. They can make these choices by
paragraphs, three of them are described, although much gaining visibility into several key factors,
more examples of SIs developed to improving societys including the effort required to make the change,
conditions can be found in, for example, Norman et al. the associated cost or financial benefit, and the
(2013), BEPA (2010), European Union/Young environmental impact of the action. Citizens can
Foundation (2010), Murray et al. (2010), EC-DGEI then share their climate actions with others via
(2010), Mulgan (2007a,b). social networking.
The first example second-chance schools taken from
The final and often cited example of a systemic SI
BEPA (2010: 45) report addresses the problem of high
drop-out rates from school and: presented in this paper is the case of microcredit as a way
to overcome the problems of those individuals financially
aim to provide new opportunities through excluded, and where the Grameen Bank pioneered by the
education and training directed at young people Nobel Prize winner Mohammed Yunus is a well-known
who lack both the basic knowledge and the example. Microcredit consists in lending money to those
specific skills to benefit fully from training or to segments of the population with lower income and that
find employment. The guiding principle is to would not get access to credit in normal conditions due
79
to problems of asymmetric information in financial Therefore, Drewe (2008) argues that urban regeneration
markets. To overcome this problems banks require a is not only concerned with land use, built environment or
collateral from borrowers. However, poor individuals do social housing but that new ideas are needed since urban
not have the ability to provide this collateral and are revitalization encompasses innovative milieus, local
excluded from the financial market. Microcredit emerged mobilization, empowerment of social actors at the local
as a way to tackle this problem and a tool to fight against level, local development policies and new forms of
poverty and contribute to socio-economic development. governance. [] Social innovation in urban
At the beginning, microcredit consisted on lending small revitalization is multidimensional. It is about integrated
amounts of money to poor people (especially women) to area development (Drewe et al., 2008: 251).
start a new business enterprise as a way to have a source Oosterlynck et al. (2013) survey the literature on
of income and, therefore, to improve their living localized socially innovative policies and actions aimed
conditions, as well as to contribute to economic at overcoming poverty and social exclusion, stressing in
development. particular territorial development and urban regeneration
in the European context. They claim that as a result of
Territorial development and local governance the urban crisis, the neighbourhood became a much more
important unit for urban interventions and a preferred site
The adoption of the concept of SI in territorial
for social innovation research and practice alike
development is particularly linked to the extensive work
(Oosterlynck et al., 2013: 19). These authors argue that
of Moulaert and its colleagues (e.g. Moulaert and
SIs in territorial development do not imply that a well-
Nussbaumer, 2005, Moulaert et al., 2007, Moulaert,
functioning local market economy is not important but
2005) and the critic they make to the Territorial
that should be recognised the strengthen [of] other forms
Innovation Models (TIM). They argue that TIMs do not
of economic and extra-economic agency that are
take into account improving the non-economic
beneficial to equal and qualitative need satisfaction (e.g.
dimensions and non-market-led sections of the economy
production aiming for sustainable provision rather than
in localities, unless these improvements would contribute
profit or the co-use of materials and infrastructure based
to the competitiveness of the territory, especially on a
on sharing).
time where concepts and processes such as culture,
Oosterlynck et al. (2013: 23) also link SI and territorial
networks, communication and organization have become
development to the need of a new mode of governance
increasingly theorized as instruments of economic
corresponding to a shift from authoritarian and top down
progress which itself was considered as the equivalent of
forms of innovation as envisaged and promoted by public
human progress in general.
managers to more open and incremental forms of social
In their understanding of SI, Moulaert and Nussbaumer
innovation that involve users and harnesses the recourses
(2005: 49) highlight the importance of social relations:
and creativity of citizens and communities and non-
[w]ithin a locality, a neighbourhood, a community, a
profit, but also acknowledges their definition of a
city, a region and so on, various types of social relations
problem and needs to be satisfied.
exist, including relationships between, within and among
In this regard should also be emphasised the work of
ethnic groups, professional relationships [], labour
Hambleton and Howard (2012) where they emphasise the
relationships [], market relationships [], governance
need to create new knowledge relating to place-based
relationships []. And this influences what they
leadership, public service innovation and social
designate by community development, which is
inclusion (p. 10) and to that end they contend that it is
focussed on the satisfaction of basic needs and the
urgent to bring together four concepts: place, leadership,
institutional innovation needed to attain this (p. 53). In
innovation and social inclusion. Regarding place,
fact, as highlighted by Klein et al. (2012: 12), SI
Hambleton and Howard (2012) argue that its power is
responds to a context of crisis or to the incapability of
often neglected in public policy-making and, therefore,
the institutional framework to find satisfactory answers
central government departments have come to dominate
to acute problems or to a context provoked by entirely
the way public policy is conceived, developed and
new situations. The innovative factor has transformative
implemented (p. 10). Leadership is define as shaping
effects on entire sections of the social regulation.
emotions and behaviour to achieve common goals (p.
There is also an extensive literature that focus on urban
11), which highlights the importance of making an
regeneration and SI developed within CRISES (e.g.
emotional connection in order to achieve significant
Klein et al., 2012, Klein et al., 2010, Drewe, 2008). In
change (p. 11). As far as public service innovation is
this context, innovation is seen as a social and territorial
concerned it means creating a new approach to public
construction, whose production and effects depend on
service and putting it into practice (p. 11) and where the
local and global socio-economic contexts that are conflict
role of local communities should be stressed, whereas
ridden and hierarchical. From this perspective, the
social inclusion is defined as being able to participate
territory mediates and structures arrangements of
fully in social activities, and/or to engage in political and
production actors, organizations and decision makers,
civic life which implies the need to empower people
thus allowing for the emergence of specific innovation
and work holistically to build capacities for participation
cultures but that are not isolated from nor independent of
in a range of arenas (p. 11).
more global contexts (Fontan et al., 2008: 17).
80
In this context, Hambleton and Howard (2012) claim that economy; for organisations to fully benefit from
civic leaders need to foster a culture of innovation, and technological innovation it should be embedded in SI;
collaboration across boundaries is key (p. 4) which and there is evidence that SI contribute to a large extent
would allow to release the community and business to the overall innovation success within an organization.
energies of a locality (p. 6). In this regard two ideas In a later paper Pot (2011) introduced, also, the concept
emerge: the existence of an innovation zone where of workplace innovation which he defines thus: the
people with different backgrounds and experiences can implementation of new and combined interventions in
come together to engage in creative dialogue and foster the fields of work organisation, human resource
breakthrough practice and the co-creation (by state and management and supportive technologies. Workplace
civil society working together more creatively) of new innovation is considered to be complementary to
solutions to problems of social exclusion and improving technological innovation (p. 404-5). Examples of this
the quality of life in an urban area. workplace innovation are: new work arrangements;
From the BEPA (2010: 51) report an example of a mobile working; short meetings of department staff
participatory mode of governance is presented: standing in a circle; and connecting communities of
employees, partners, customers (Pot, 2011).
Amongst examples developed at local level, the
Also Dawson and Zanko (2009), examining how to
participatory budgeting, in Cologne (Germany), is
improve the well-being at the workplace, argue that the
particularly interesting. This is a system for
concept of SI can be used to address issues of
involving citizens in deciding how public funds
occupational health and safety (OHS). They contend that
should be allocated which can be organised
traditional thinking and reactive policies to [OHS]
geographically (by neighbourhood, local
issues at work have limited the development of
authority or municipality) or thematically (e.g.
innovative solutions (p. 2) and that new models,
school, health or housing budgets). By prioritising
concepts and ideas for understanding OHS [] can lead
the voice of community members in identifying
to potential improvements in the safe working conditions
neighbourhood priorities and in allocating a
and health of employees (p. 6). They focus on the
proportion of local financial resources,
process of SI in OHS within organizations, claiming that
participatory budgeting aims to increase
despite various governments efforts at publicly
accountability, transparency and social inclusion
regulating through assigning primary responsibility for
in municipal affairs, and build trust between
its control to employers and their managers in
communities and local government. Participatory
organizations, the major problems of industrial death,
budgeting began in Porto Alegre, Brazil but has
injury and disease continue unabated (p. 6). Therefore,
swept across the globe as an innovative approach
they have presented a model that tried to accommodate
to urban politics..
context, culture, work organization, individual and group
working, and where SI processes play a major role.
Employment, work organisation and lifelong learning For their turn, Harrisson et al. (2011), examining the role
played by union representatives in the context of labour
In this area the main concern is with employment and the management partnerships in Quebec, argue for a
organization of work. As Pot and Vaas (2008) argue there transformation of the role of those representatives which
is the need to optimise the utilisation of the workforce,
should be understood in the context of a SI process.
besides technological innovation and costs cutting, to
Those authors emphasise that the new role is complex
increase competitiveness through continuous innovation
and calls for transitions not yet fully understood (p.
and productivity growth. In fact, SI at the workplace has
414). Some of the characteristics of this new role on
been one of the seed beds of the social innovation surge. labour-management partnership would be: the sharing of
Especially European social action programmes like common values with management, the desire to establish
EQUAL or the Lifelong Learning Programmes and
co-operative relations based upon personal relations,
numerous work organisation programmes on the national
frequent meetings, and the sharing of information,
level in a considerable number of countries have made
knowledge, know-how and resources between both
major contributions to this rise (Franz et al., 2012: 11).
actors.
In the context of working organization, Pot and Vaas An important example of a SI is the flexicurity model
(2008: 468) argue that SI relates to such things as: initially adopted in the Danish labour market trying to
dynamic management, flexible organisation, working
combine flexibility in labour markets with security of
smarter, development of skills and competences,
employment, as a way to achieve economic growth, high
networking between organisations. Furthermore, those
employment and solid public finances in a socially
authors emphasise the following reasons for the balanced view (Gavurova and Pavlickova, 2012). Given
importance of SI in this context: the need to enhance the success of this model the European Commission
labour productivity due to the increase aging of the
(2007) suggested its adoption as a policy measure in the
population as a way to maintain the level of welfare and
European Union countries and explains flexicurity as
social security; the need to enhance the skills and
follows:
competences of the workforce in order to survive in an
increasing competitive world and knowledge based
81
Flexibility, on the one hand, is about successful Given the growing interest in social entrepreneurship and
moves ("transitions") during ones life course: social innovation, we have argued in this paper that there
from school to work, from one job to another, is the need to make a clear distinction between the two
between unemployment or inactivity and work, concepts since, although sometimes they overlap, they do
and from work to retirement. It is not limited to not have exactly the same meaning. We contend that SI
more freedom for companies to recruit or dismiss, is a much broader concept than either social
and it does not imply that open-ended contracts entrepreneurship and/or social enterprise.
are obsolete. It is about progress of workers into To sustain this argument, we have briefly described
better jobs, "upward mobility" and optimal different examples of social innovations, regarding,
development of talent. Flexibility is also about namely, improvement of societys conditions (and in
flexible work organisations, capable of quickly particular social inclusion processes), territorial
and effectively mastering new productive needs development, and employment, work organisation and
and skills, and about facilitating the combination lifelong learning.
of work and private responsibilities. Security, on Since this paper was focused on a particular aspect of the
the other hand, is more than just the security to theoretical debate about social innovation (ie. its
maintain one's job: it is about equipping people distinction from social entrepreneurship), further
with the skills that enable them to progress in their research is needed to get a more comprehensive
working lives, and helping them find new understanging of social innovation. Not only about the
employment. It is also about adequate outcome of a social innovation but to understand how
unemployment benefits to facilitate transitions. social innovations evolve and can be enhanced. In fact,
Finally, it encompasses training opportunities for the study of the social innovation process highlights the
all workers, especially the low skilled and older fact that this process is driven by a constant interaction
workers(p. 4). among all stakeholders involved in it and taking into
account their needs, expectations and aspirations, which
Therefore, Flexicurity should be implemented taking into
makes social innovations an inclusive phenomenon,
account four policy measures (European Commission,
dependent on the interactions of different social
2007): flexible and reliable contractual arrangements;
components (Bignetti, 2011).
comprehensive lifelong learning strategies; effective
active labour market policies; and modern social security
systems providing adequate income support during
employment transitions.
Regarding lifelong learning, Biggs et al. (2012) address
the issue of adult ageing and how SI might be a way to
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84
ENTREPRENEURIAL INTENTION: A STUDY WITH MIEGI STUDENTS
Leonardo Skinner1, Filipa D. Vieira2,3* and Cristina S. Rodrigues2,4

1
Student of the Program Cooperao Brasil from the Pontifical Catholic University of Rio de Janeiro, Brazil
2
3
4
* Corresponding author: [email protected], University of Minho, Campus de Azurem, 4800-058, Guimaraes, Portugal
KEYWORDS Entrepreneurship fosters the creation of new jobs and is

Entrepreneurial intentions, Theory of Planned Behavior, critical to economic growth in society, helping to reduce
MIEGI students poverty (Amors and Bosma, 2013).
However, entrepreneurship is a concept with many
ABSTRACT peculiarities. It is not an exact science to be implanted,
but a way of thinking to be developed. Therefore,
In the actual complex economic context,
entrepreneurship emphasizes opportunities rather than
entrepreneurship is seen as a hope and an alternative to
threats and obstacles, and its ability to identify
the crisis, reducing poverty and creating new jobs.
opportunities requires first and foremost the study of
Understanding entrepreneurial intentions is the key to
entrepreneurial intentions of individuals (Krueger et al.,
predict, enhance and foster entrepreneurship. However, it
2000). Much of the complexity and considerable breadth
is a hard task to really understand and predict these
in the study of entrepreneurship is exactly in the pursuit
intentions, given the fact that they are related to many
of understanding the motivations that lead a person to
variables as personal traits, family influence, self-
undertake. Furthermore with the constant appearance of
efficacy, social background, and others. Regarding this,
new research and articles on this subject is expanded the
there is a well-known model, the Theory of Planned
number of possibilities in this field. This paper will focus
Behavior (Ajzen, 1991), that enables accurate outcomes
in one of these possibilities, the intention-based models.
predicting the entrepreneurial intentions, and
This paper is organized into 4 sections, besides the
consequently the entrepreneurial behavior. The aim of
introduction. Section 2 resumes the conceptual
this paper is to explain the entrepreneurial intentions
background of the intention-based models and presents
using the Ajzens Theory of Planned Behavior. This was
the Theory of Planned Behavior (TPB), as well as the
done by a survey developed to measure attitude towards
relationship between that model and the entrepreneurial
the behavior, subjective norms, perceived behavioral
intentions. Section 3 presents and discusses the results of
control and self-efficacy in students of industrial
the survey Project Empreende 2014 designed to
engineering and management (MIEGI) from University
understand the entrepreneurial intention and extend the
of Minho.
TPB model to explore the effect of demographic
variables. Finally, Section 4, presents the main
INTRODUCTION conclusions.
Entrepreneurship is a field of study of great importance
and relevance to the development of society and that, THE THEORY OF PLANNED BEHAVIOUR (TPB)
given its large untapped potential, is the subject of many AND THE ENTREPRENEURIAL INTENTIONS
scientific, economic and psychological researches Attitude has being the object of study of various
primarily from the 90s (Obschonka et al., 2010). This
disciplines such as psychology, sociology and marketing.
relevance notes further increase these days because there
According to Ajzen (1991), through the study and
is a steady increase in social and economic challenges
analysis of attitudes, it is possible to determine the
faced by today's societies, and the promotion of
behavior of individuals. In order to understand, describe
entrepreneurship is seen as vital to the success of those and predict human behavior, several models were
companies inserted in that context (Audretsh, 2007). This developed for the measurement of attitudes. One of the
can be explained by the fact that when there are financial
best known is the Theory of Planned Behavior, the theory
crisis, innovations, new solutions and creative
developed in 1985 by Icek Ajzen.
approaches, new ways of operation and also breaking old
The theory developed by Ajzen states that intention is an
paradigms are needed, and this can be achieved by
indication of a person's readiness to perform a given
fostering and developing entrepreneurship.
85
behavior, and it is considered to be the immediate different means of transport, acting as a volunteer,
antecedent of behavior. The intention is based on attitude donating blood or organs, use of condoms, and others
toward the behavior, subjective norm, and perceived (Armitage and Conner, 2001). Several studies identified
behavioral control, with each predictor weighted for its on literature used the theory to explain the
importance in relation to the behavior and population of entrepreneurial intention (see for instance Fayolle and
interest. Lin, 2014; Kttim et al., 2014; Lee et al., 2011; Lin
The attitude towards a certain behavior refers to the et al., 2011; Obschonka et al., 2010; Peterman and
expectations of the results and impacts of the action to be Kennedy, 2003; Souitaris et al., 2007; Zhang et al., 2013,
taken. The subjective norm refers to social pressure, Fretschner, 2014).
perceived by the individual, from the people considered Lin et al. (2011) in their study about the factors
important for him. The perceived behavioral control is affecting the temporal stability of entrepreneurial
related to the feasibility of performing the behavior, intentions concluded that, first, the attitude and
which is associated with the concept of self-efficacy. subjective norms would be formed as a result of
Figure 1 illustrates the main determinants of the model of socialization processes at a younger age. Thus, young
the Theory of Planned Behavior. college graduates do not have these factors affected by
events after they graduate, for example, when they are
looking for a job. Secondly, the perceived behavioral
control would also be influenced by these same processes
of socialization, but with the difference that it also
derives from work experiences, that have happened
before the person graduated. Thirdly, a high level of
entrepreneurial intentions at the end of the period of
graduation would not be necessary for the individual to
become an entrepreneur effectively. The combination of
favorable perceptions developed before graduating,
along with the work experience obtained subsequently
Figure 1: TPB Diagram would enhance entrepreneurial act (Lin et al., 2011).
The importance of prior experience can be found too in
The research by Krueger et al. (2000) makes one more another research made by Carr and Sequeira (2007).
subdivision, the first two factors, attitude toward the They concluded that when individuals have no clear plan
behavior and subjective norm, are related to the of action, they would probably rely on their past
perceived desirability of performing the behavior. The experiences to evaluate their intentions. As
last factor, perceived behavioral control, would be entrepreneurial intentions and behaviors are often
associated with perceptions that the behavior is inserted in this context of ambiguity, consequently they
personally controllable. Still, it is important to emphasize are immersed in an atmosphere that demonstrates the
the great importance of this last factor in this theory, as importance of prior experience on these intentions.
besides being one of the antecedents of intention, it also The family has a remarkable influence on the
has a moderating effect in the effect of intention on development of entrepreneurial intentions of an
behavior. After all, a favorable intention produces the individual as well. Subjective norms relate not only with
behavior only when perceived behavioral control, a family but also with the entire social network that can
concept that is similar to the self-efficacy, is strong. influence the entrepreneur to start a business.
The major principle behind the psychological Theory of Nevertheless, one should not take that as a rule that the
Planned Behavior (Ajzen, 1991) is that planned family will always be crucial determining intentions.
behaviors are intentional and thus are predicted by This is because each individual has his particular way of
intention towards that behavior (Souitaris et al., 2007). evaluating the opinion of others. For example, while for
The Theory of Planned Behavior predicts that the some people neighbors generate social pressure, for
behavior is more likely to be realized if each of its others this source is distinct.
components are either favorable or positive because the In a study that tested the effects of entrepreneurship
greater the likelihood of realization. According to Ajzen education programs on attitudes and entrepreneurial
(1991), the individual forms an intention to have a certain intentions among students in science and engineering,
behavior and that intention is a reflection of motivational performed by Souitaris et al. (2007), important segments
factors that affect behavior. The intentions of behavior were identified. First, there was a significant increase in
provisions remain until, in an appropriate and timely subjective norms after the program. The authors believe
manner, an attempt is made to achieve the intention in that this could be a result of the creation of a new cycle
action. of friends with the entrepreneurial mind. Second, there
The Theory of Planned Behavior have been used to was a negligible effect on the perceived behavior control.
predict a lot of different kinds of intentions to behave in This latter result is difficult to explain and contradicts
a certain way (Kttim et al., 2014) including, for previous studies such as the Peterman and Kennedy
example, dieting, stopping smoking, choosing between (2003). One possible explanation was that the sample
86
used in the study was the "elite-university students and given access through an online platform (mainly students
they generally had already high self-confidence. of the 5th year in a situation of a company internship). A
Therefore there was less space for change attributed to total of 139 usable questionnaires were returned and used
the program. for the data analysis. Of the respondents, 58.7% were
The research conducted by Peterman and Kennedy male, 33.81% has an age less than or equal to 19 years
(2003) examined the effect of the participation of old and 63.31% is an undergraduate student (student
students from a secondary school in an entrepreneurship enrolled in the first study cycle: 1st to 3rd year).
education program. The result was that both desirability Respondents profile is depicted in Table 1.
and feasibility regarding opening a new business
increased. That is, the perceived behavioral control of Table 1: Respondents Prole (n=139)
these students has increased, which already contradicts Response
Response
the aforementioned study. Profile Frequency
Count
Clearly studying and predicting intentions is not an easy (%)
task. Though, with the TPB it is possible to get closer to Gender
a more accurate forecast of intentions and behaviors. As
a result, perceiving this model is the first step to discover Male 81 58.70%
potential entrepreneurs and then to develop a way to Female 57 41.30%
enhance entrepreneurship. Age
Less than or equal to 19
THE PROJECT EMPREENDE 2014 47 33.81%
years old
Considering that and, moreover, the fact that young Aged between 20 and
41 29.50%
people are more likely to have new ideas, to be born- 21 years
digitals and also, possibly, to have received more Aged between 22 and
26 18.71%
education than their parents (Amors and Bosma, 2013), 23 years
it is opportune to examine the entrepreneurial intentions Greater than or equal to
of university students, applying the Theory of Planned 25 17.99%
24 years old
Behavior, particularly at the level of engineering courses Integrated Study Cycle
with no previous experience on entrepreneurship courses.
Undergraduate students 88 63.31%
Hypotheses Master students 51 36.69%
To determine the extent for which external variables
influence students entrepreneurial intentions, the study The survey included a question about the entrepreneurial
used the Theory of Planned Behavior by examining the behavior of students parents: Do you grew up in an
role of three personality determinants: attitudes towards entrepreneurial family? (adapted from Laspita et al.,
entrepreneurship, subjective norms towards 2012). The options presented and the respective results
entrepreneurship and perceived behavioral control in were summarized in Table 2.
relation to be entrepreneur and extend the model to
explore the effect of demographic variables such as Table 2: Entrepreneurial behavior of students parents
gender, study level and self-employed parents. Based on Response
the above variables, the following hypotheses are posit: Response Frequency
H1: the higher the entrepreneurial attitude, the Count (%)
higher the entrepreneurial intention; Yes, business still active 49 35.25%
H2: the higher the perceived subjective norms,
Yes, the business still worked
the higher the entrepreneurial intention; 7 5.04%
at least until 5 years ago
H3: the higher the perceived behavioral control,
Yes, but the business ended
the higher the entrepreneurial intention; 13 9.35%
more than five years ago
H4: the gender has an effect on entrepreneurial
No, my parents were never
intention; 70 50.36%
entrepreneurs
H5: the cycle study has an effect on
entrepreneurial intention;
Measures
H6: the self- employed parents have an effect on Measurement items were developed on the basis of a
entrepreneurial intention. comprehensive review of the literature and modified to
suit the research context. Attitudes and subjective norms
Sample were measured using a 5-point Likert type scale,
Questionnaires were administered to students enrolled in anchored by I strongly disagree and I strongly agree.
the Integrated Master Course on Industrial Engineering Entrepreneurial intention and perceived behavioral
and Management from the University of Minho. The control was measured using a 7-point semantic scale.
survey instrument was given to students during class or
87
Questions were adapted from prior research studies. to incorporating metric and nonmetric variables and
Table 3 summarizes the measures used. nonlinear effects (Hair et al., 2010).
Table 3: Measures First, the entrepreneurial intention is tested using the

Number Theory of Planned Behavior model (see Table 5).
Scale Author
of items
Souitaris et al. Table 5: Theory of Planned Behavior (TPB)
Intention 3
(2007) Wald
Constructs Coefficient Sig
Attitude Lin et al. (2011) 5 statistic
Carr and Sequeira Attitude 1.051 5.409 0.020
Subjective norms 8
(2007) Subjective norms 0.175 0.152 0.697
Perceived behavioral Souitaris et al. Perceived
5
control (2007) behavioral 1.045 11.713 0.001
control
Data analysis method and results Constant -10.038 23.374 0.000
In data examination process, the analysis initiate with
scales reliability and unidimensionality using Cronbachs
Overall Model Fit
alpha, item-to-total correlation and exploratory factor
analysis (before analysis, items that sounded discordant Qui-Square -2 Log Cox & Nagelkerke
with the majority of the statements of the scale were (df) (sig) likelihood Snell R2 R2
reversed coded). Constructs reliability is summarized in 37.477 (3)(0.000) 139.985 0.239 0.330
Table 4.
Discriminating power
Table 4: Constructs reliability
Predicted
Varianc
Observed No intention Intention % Correct
e
Original Final Cronbach's 76 13 85.40%
Construct explain No intention
items items alpha
ed by 1 Intention 21 27 56.30%
factor
Overall Percentage 75.20%
Entrepreneurial
3 2 0.685 76.13%
intention
Results indicated a chi-square test significant and
Attitude 5 5 0.827 59.84% satisfactory two Pseudo R2. With respect to overall
Subjective discriminating power, the results also indicate a
8 8 0.832 47.18%
norms prediction accuracy of 75.20% by the logistic regression
Perceived model. The Wald statistic and the corresponding level of
behavioral 5 5 0.698 47.26% significant test the effect of each of the independent
control variables in the research model. Results indicated that the
factors attitudes and perceived behavioral control were
After reliability analysis, scales were transformed as a significant at the 0.05 level. The factor subjective norms
mean indicator of the items. The exception was the was not significant. Thus, hypotheses H1 and H3 were
entrepreneurial intention that was operationalized as a supported, but not the hypothesis H2.
dichotomous variable, whether the student has After the estimation of the TPB model, the analysis will
entrepreneurial intention or not (0: no entrepreneurial test the inclusion of characterization variables such as
intention; 1: entrepreneurial intention). The classification gender, study cycle and self-employed parents. To
was based on an aggregated index that resulted from the operationalize the test of these variables, the procedure
sum of the answers of the two retained items. If the sum adopted considers the inclusion of only one demographic
was higher than or equal to four, student was considered variable at a time in the TPB model.
as having entrepreneurial intention. Otherwise, student Therefore, and following sample characterization, each
has no entrepreneurial intention. respondent was classified in three new dummies
Since the dependent variable was dichotomous variables based on:
(entrepreneurial intention versus no entrepreneurial Male gender student (1-male, 0-female).
intention), the logistic regression analysis was applied to Student of master cycle studies (1-master, 0-
examine the research model. This approach does not face undergraduate).
discriminant analysis assumptions (is more statistically Student with self-employed parents (yes
robust when these assumptions are not met) and in answers as 1-yes; otherwise 0-no).
practice is similar to multiple regression since has
straightforward statistical testes and similar approaches Table 6, Table 7 and Table 8 present the results obtained
for each variable. Although the model with the male
88
dummy has a reasonable fit and good accuracy, the Predicted

results of male coefficient indicate that it is not Observed No intention Intention % Correct
statistically significant (H4 is not validated) (see Table
6). No Intention 78 11 87.60%
Intention 21 27 56.30%
Table 6: TPB and Male dummy
Wald
Constructs Coefficient statistic Sig Table 8: TPB and Self-employed parents dummy
Attitude 1.061 5.406 0.020 Wald
Subjective Constructs Coefficient statistic Sig
0.144 0.101 0.750
norms Attitude 1.050 5.401 0.020
Perceived
Subjective
behavioral 0.984 9.991 0.002 0.178 0.150 0.699
norms
control
Male Dummy 0.379 0.719 0.396 Perceived
behavioral 1.046 11.659 0.001
Constant -9.918 22.651 0.000 control
Parents Dummy -0.013 0.001 0.976
Overall Model Fit
Constant -10.045 23.154 0.000
Qui-Square -2 Log Cox & Nagelkerke
(df) (sig) likelihood Snell R2 R2
Overall Model Fit
37.596 (4) (0.000) 138.999 0.242 0.332 Qui-Square (df) -2 Log Cox & Nagelkerke
(sig) likelihood Snell R2 R2
Discriminating power 37.478 (4) (0.000) 139.984 0.239 0.330
Predicted
Observed No intention Intention % Correct Discriminating power
Predicted
No intention 75 13 85.20% Observed No intention Intention % Correct
No intention 76 13 85.40%
The model with the master dummy has a satisfactory fit Overall Percentage 75.20%
and good accuracy, and the results of coefficient indicate
that master is statistically significant (H5 is validated) Although the model with self-employed parents has a
(see Table 7). reasonable fit and accuracy, the results of coefficient
indicate that variable self-employed parents is not
Table 7: TPB and Master dummy statistically significant (H6 is not validated).
Wald
Constructs Coefficient Sig Table 9 summarizes the validation of the hypotheses.
statistic
Attitude 0.963 4.456 0.035
Table 9: Hypotheses validation
Subjective
0.134 0.087 0.768
norms Not
Perceived Hypotheses Validated Validate
behavioral 1.058 11.730 0.001 d
control H1: the higher the
Master Dummy 0.845 3.892 0.049 entrepreneurial attitude,
H1 validated
the higher the -
Constant -9.959 22.851 0.000 (p<0.05)
entrepreneurial
intention;
Overall Model Fit H2: the higher the
Qui-Square (df) -2 Log Cox & Nagelkerke perceived subjective
(sig) likelihood Snell R2 R2 H2 not
norms, the higher the -
validated
41.400 (4) (0.000) 136.062 0.261 0.359 entrepreneurial
intention;
Discriminating power H3: the higher the H3 validated
-
perceived behavioral (p<0.05)
89
control, the higher the Interesting to note the behavior of demographic variables
entrepreneurial in the model. There was no explanatory power to the
intention; gender of the student or self-employed parents. This
H4: gender has an effect results from the explanatory power of psychographic
H4 not variables of the TPB model. Thus, the entrepreneurial
on entrepreneurial -
validated intention is not a gender issue or having self-employed
intention;
H5: cycle study level has parents, but rather a matter of attitude or perceived
H5 validated behavioral control. Nevertheless, the cycle of studies
an effect on -
(p<0.05) revealed explanatory power, with graduate students
entrepreneurial intention
H6: self-employed parents presenting higher entrepreneurial intention. This may be
H6 not explained by the fact that throughout the course these
have an effect on -
validated students receive more indirect information that makes
entrepreneurial intention
them more sensitive to the subject, either by the
CONCLUSIONS proximity of their future professional life, either by
increasing its maturity.
The objective of this study was to understand The ongoing research is at an early stage but the results
entrepreneurial intention of university students by using obtained are relevant and pertinent to the topic of
the Theory of Planned Behavior and extended it with entrepreneurship, particularly in the study of
contextual factors such as gender, study cycle and self- entrepreneurial intentions of young people. In the future,
employed parents. the team intends to explore further explanatory variables
In general, the results provide support for the research of entrepreneurial intention and extend the study to other
model of the Theory of Planned Behavior. The results students from different courses.
reveal that students with positive attitudes and better
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92
INNOVATION PRACTICES IN A NON-PROFIT PORTUGUESE

ORGANIZATION
Fernando Barbosa1 and Fernando Romero1*
*Corresponding author: [email protected], University of Minho, Campus Azurm, Portugal
KEYWORDS economic and financial crisis, the spread of

Innovation, Strategy, Social Economy, Nonprofit unemployment and poverty, brings to the light the
sector, Alternative Economy, Organizational importance of these organizations, which are
Change ceasing to be residual in economic terms, and are
becoming, alongside the State and the Market, a
ABSTRACT mainstay of the economy.
In this case study we look at the process of
This article is a case study of a Social Economic
organizational change in a non-profit institution.
Organization, where we will examine, in the light
We begin this work with a brief review of concepts
of the literature on strategic management, and
related to social economy and to strategic
innovation, its organizational change, which was
management and innovation, in order to define the
critical to ensure its survival. Through this case
analytic framework used throughout the paper.
study we intend to increase the understanding and
Then we identify the adopted methodology and,
the knowledge on the main motivations, barriers
finally, the case of the Luis Bernardo de Almeida
and facilitating factors leading to the improvement
Foundation will be described and analyzed.
of the quality of the services, and the efficiency of
the management of the Social Economy
CONCEPTUAL FRAMEWORK
Organizations, which contribute to its
competitiveness and sustainability. The case study According to CASES (2010), the term Social
highlights a number of best practices in the design Economy is ambiguous because it accommodates a
of structured innovation processes, which were wide range of concepts, such as the "third sector",
supported by the Portuguese Program Q3- "non-profit sector", "social economy", "alternative
Qualifying the Third Sector, which may help economy", among others. It is very difficult to
similar organizations to improve their innovation establish a single concept and define the frontiers
and organizational processes, which are essential to of Social Economy. For instance, the Portuguese
increase their competitiveness and sustainability. national statistics office (INE) and the non-profit
institution CASES (Antonio Sergio Cooperative for
INTRODUCTION Social Economy) use the definition proposed by
CIRIEC (2012) on the pilot project Satellite
In Europe, the Social Economy is responsible for
Account of Social Economy for Portugal (SASE)-
about 10% of the European business sector, with a
2010:
share of about 6% in total employment (about 11
"Set of private firms, formally organized, with
million people), revealing an industry that will be
autonomy of decision and freedom of membership ,
called to give a greater contribution to the current
created to meet the needs of its members through
problems of unemployment and social cohesion in
the market , producing goods and services ,
Europe due to the ongoing social and economic
ensuring financing , where the process of decision
transformation.
making and benefit or surpluses sharing is not
However, research on the phenomena of the Social
directly linked to capital or contributions of each
Economy still lacks in many respects, concerning,
member, but corresponding to each member one
for example, its role in the development of local,
vote . The Social Economy includes also private
regional and national competitiveness. There is a
entities formally organized, with autonomy of
lack of methodologies, tools and indicators
decision and freedom of membership that produce
appropriate to the social economy. This could be
non-market services for households and whose
caused by the complexity and diversity of the
surpluses, if any, may not be appropriated by the
organizations, on one hand, which is a barrier to
economic agents that create, control or finance
their comparability, and on the other hand, to its
them."
late and recent recognition on the production of
In Europe, Social Economy activities contribute to
public services. Changes on public policies, the
about 10 % of the output of the European business
93
sector, with a share of about 6 % in total qualification of individuals and organizations,

employment (about 11 million people) , revealing integrating actions of training and consultancy.
an industry that will be called to give a greater To Rumelt, Schendel & Teece (1994) strategic
contribution to the current problems of management (also called policy or strategy) is
unemployment and social cohesion due to the related to the course of an organization, including
social and economic transformation under way. the issues that are at the heart of top management
In Portugal, this sector, according to INE and Cases preoccupations and those who are associated with
(2013), comprises Cooperatives (2,260 units); the the reasons why a business succeeds or fails. Hitt,
Mutual Societies (119 units); a network of charities Ireland & Hoskinsson (2011) states that the
known as Santa Casa da Misericrdia (Holy House strategic management process is the full set of
of Mercy) (381 units); Foundations (537 units) and commitments, decisions, and actions required for a
Associations and other organizations in the Social firm to achieve strategic competitiveness and earn
Economy (52,086 units), involving 55.383 above-average returns, or in other words, it is the
organizations, with a share of 5.5% of the total paid successful formulation and implementation of a
employment, representing a proportion of 2.8% of strategy that creates value.
the gross value added. The basic elements constituting the cycle of
According to Soares et al (2012) two thirds of the strategic management are the analysis of the
expenses of these organizations are related with the environment, the formulation and implementation
cost of goods sold and materials consumed of strategy, assessment and monitoring. The
(including the cost of food), staff costs, services analysis of the environment includes analysis of:
and utilities costs. On the other hand, they indicate the general environment, the industry/sector,
on their budget a great proportion of State competition, organizational structure,
contribution. The Social Economy Sector is facing organizational culture and the resources that the
a huge set of challenges and weaknesses, which organization has at its disposal. The process of
include, among others, the following: (1) the high formulation of strategy is closely linked to the
dependence on financial support from the state; (2) progress of long-term plans in order that an
the requirement to fulfill a set of criteria and rules organization deals effectively with the
imposed by the State, in order to maintain public opportunities and threats that it faces in its
support, particularly in terms of professionalism, environment, in light of its strengths and
quality and accreditation; (3) sustainability in a weaknesses. Strategy formulation is then made by
context of economic crisis, with a probable the mission, objectives, strategies, (comprehensive
reduction in support and growth of social problems; description of how the organization will achieve its
(4) the need to reinvent their business models in mission and objectives) and policies (which are
order to avoid chronic shortages; (5) lines of action that will support decision making).
professionalization of top management; (6) Strategy Implementation is related to the
economies of scale; (7) the qualifications of execution/implementation of strategies through the
employees; (8) leadership; (9) equipment and explanation of programs (activities necessary for
facilities; (10) ICT integration; (11) demographic the completion of a plan), budgets (programs in
change; (12) asymmetries in population financial terms) and procedures (sequential steps
distribution. that describe in detail how to perform a specific
To face these challenges and weaknesses it is task or function). Assessment and control are
imperative to improve the quality of the services processes that allow the tracking of activities and
and the effectiveness of management, thus results of the organization in order to be able to
contributing to competitiveness and sustainability. compare the actual to the desired performance,
The following areas are particularly important: (1) allowing the introduction of measures to mitigate
forms of organization and management; (2 value the observed deviations.
chain of services; (3) integration of ICT; (4) Hrebiniak (2006) argued that managers know little
improvement of procedures for quality of strategy implementation and they are not trained
certification; (5) development of internal skills: to implement strategy, only to plan. Another
training and development for leaders and training problem is related to the general conviction that
for employees; (6) models of inter-institutional strategy implementation plays a minor role in terms
cooperation. of the hierarchy of strategic actions, being more
The Social Economy organizations need to rethink adequate for lower levels of management,
their operating logic, without, however, neglecting forgetting that management commitment is
the purposes for which they were established, so it essential to a successful implementation. The
seems particularly relevant the establishment of author also argues that the top six obstacles that
structured practices on strategic management and managers face are: (1) inability to manage change;
innovation. These weaknesses can be addressed (2) poor or vague strategy; (3) not having
through a program to support the development and guidelines or a model to guide implementation
efforts; (4) poor or inadequate information sharing;
94
(5) unclear responsibility and accountability; (6) We use the case study methodology as a valid way
working against the organizational power structure. of exploring existing theory and as a exploratory
The case study addressed in this article shows the way to provide an integral vision and a general
importance of such items. understanding of a phenomena (Yin, 2009). In this
Strategy and innovation are distinct concepts both research, we analyze the organizational change
in terms of definition and function, being operated on a Social Portuguese Organization.
innovation a source of competitive advantage. The Following a literature review, eleven in-depth
continued growth of the importance of innovation interviews were conducted with managers in Luiz
is also related with is capacity to make changes in Bernardo de Almeida Foundation. It was possible
the competitive position of organizations. Thus, to relate the empirical data with several ideas
innovation and strategy are complementary and advanced by the literature.
feed on each other (Dobni, 2010). According to the The methodology is not prone to generalizing the
Oslo Manual (2005), which establishes the results, due to the specificity of the context, but it
guidelines for the collection and interpretation of highlights a set of good examples concerning the
data on innovation, developed by the OECD: "An key factors for the establishment of an effective
innovation is the implementation of a new or innovation and sustainability strategy for social
significantly improved product (good or service), economy organizations.
or process, a new marketing method, or a new
organizational method in business practices, ORGANIZATION PROFILE
workplace organization or external relations. The
The Luiz Bernardo de Almeida Foundation (from
Social Economy Organizations develops essentially
now on, LBAF) is located in the county of Vale de
services, which have a set of characteristics that
Cambra and was established in 1957 in order to
distinguish them from the goods: (1) Intangibility;
fulfil the testamentary disposition of Commander
(2) Heterogeneity; (3) Simultaneity; (4)
Luis Bernardo de Almeida. Its heritage consists on
Perishability. According to Dantas & Moreira
the assets of its founder and the other values
(2011), and Booz , Allen and Hamilton, cited by
acquired throughout its existence.
Edvarsson et al (2000) innovation in services can
The institution started functioning with a nursing
be classified into categories that range from
home in 1972, and in 1985 implemented a Home
"Worldwide new services" to "Cost reductions".
Support Service, directed at the elderly. This
Organizational change is the process of converting
service was one of the first to be created at the
an organization from its current state to a desired
District level. The institution also has manages a
future state (Sullivan, 2009). All innovation results
Day Centre, where the beneficiaries are also elderly
in change, but not all change is innovation. The
people that are independent in terms of mobility. In
core techniques for managing organizational
1999 an Office of Family and Community Support
change include: (a) Strategic planning: The
was created. In October 2004, a nursery school was
changing areas are called objectives or strategies
built. The Family Support Service is directed at
and are intended to guide the teams in the
kindergarten level children.
development of ideas or projects to achieve
objectives; (b) Performance Evaluation: Assign
THE PROCESS OF ORGANIZATIONAL
measures or indicators to critical aspects of
CHANGE
organizational performance; (c) Management of
Creativity: Generating ideas or problem solving; The process of organizational change begins when
(d) Project Management: Need to effectively the board of LBAF took certain decisions that
manage multiple tasks and initiatives; (e) proved to be crucial for the survival of the
Knowledge management: How to effectively institution. These decisions were followed by an
manage change for managing the information application to the so-called Q3 Program
associated with the change; (Qualifying the 3rd Sector), a national program that
Furthermore, to define and implement a structured aims at developing skills and organizations of the
process of strategic management and innovation, it 3rd sector, improving the quality of their services,
is important that the organization defines how it the effectiveness of management and contributing
creates, delivers and gets value (business model). to their competitiveness and sustainability through
The business model is like a plan for a strategy to participated and sustained processes of consultancy
be implemented through organizational processes and training. The aim of the board was to ensure
and systems structures. The application of this the sustainability of LBAF, and the improvement of
concept is new in the area of Social Economy. the quality of services. There was a strong belief
Some of these conclusions are applicable to the that the organization had a poor organizational
present case study, as shown below. performance, which was translated into weak
economic and financial results and on poor service
RESEARCH METHOD provision, so it would be extremely important to
95
know the causes of this poor performance in order in all stages of the process: (1) Meetings with Top
to mitigate or even eliminate them. Management; (2) Meetings/contacts with an
The Q3 Program had other advantages, besides internal facilitator; (3) General Sessions held for
cost, which include an integrated, impartial and the entire organization. On the analysis of the tree
experienced vision by an external and recognized problem, a key tool of the diagnosis, it was found
entity, that would identify the main problems that that the general problem of LBAF was a poor
the institution was facing and provide a framework organizational performance. Seven intermediate
to manage the actions to mitigate or extinguish problems were identified as causes of this general
those problematic situations, through actions of problem: poor organizational structure; poor
training and consulting made to fit the organization planning of activities; poor management practices
profile, its size, the problems identified and the in human resources; scarcity of financial resources;
defined objectives. The Q3 Program involves a poor implementation of quality and a lack of
strong partnership between some important employee skills, having been detected 85 terminal
organizations in Portugal: AEP (Chamber of problems as causes of these intermediate problems.
Commerce and Industry), Fenacerci (National To analyze the organizational structure, five basic
Association of Social Solidarity Cooperatives), components of it were considered (Mintzberg,
Minha Terra Federation (Portuguese Federation of 1999), where some terminals problems of LBAF
Local Development Associations), CPCCRD were fit:
(Portuguese Confederation of Culture, Recreation
and Sport communities), UTAD (University of Strategic level: the strategic level
Trs-os-Montes and Alto Douro), among others. comprises the organizational decision
The intervention follows a model, which involves makers, here materialized in the board
several phases: recruitment and selection, function. The problems identified
conducting a diagnosis, preparation of a relating to this component were, among
development plan, implementation measures, others: poor strategic management and
review plan and recommendations. All activities reduced operational presence of the
are evaluated externally and internally validated, board.
and all actors (consultants and trainers) have The Technostructure: comprising the rules
certified skills in order to act in accordance with and procedures for managing the
the procedures to ensure the quality and behaviors of employees. In this
effectiveness of the intervention. The intervention component were identified, among
on the organization had a duration of about one others, issues of horizontal and vertical
year and followed the steps described below. differentiation, which were manifested
in a poor communication between
ORGANIZATIONAL DIAGNOSIS hierarchical levels and lack of team
spirit; problems of formalization as a
This phase began with the signing of the
poor definition of roles and tasks and
Development Contract - the document which
also problems located at the level of
defines the commitments between the organization
centralization, such as an excessive
and the organization that manages the intervention
number of tasks and responsibilities
in order to promote the desired organizational
centralized in the Technical Director.
development of the beneficiary of the intervention.
The Support Staff: includes employees
The organizational diagnosis is essential because at
that are not directly involved in
this stage all the problems are identified and the
producing goods or services. However,
goals that are the target of the intervention are
they have the responsibility to support
defined. It is, therefore, necessary to resort to the
the primary activities, such as, for
holders of the knowledge of the organizational
example, cleaning and feeding. In this
reality, elements that experience the daily life of
field, several problems were detected,
the organization and make the exploration of
including deficient HACCP and cleaning
problematic situations. The idea is to maximize the
practices.
participation of the whole organization in gathering
Intermediate Level: includes managers
problems, where the consultant only assumes the
who make the connection between the
role of a listener/agent/moderator.
strategic level and the operational level.
In the realization of the organizational diagnosis,
We can include the services and
the main reference activities that sustain it are: (1)
technical direction, as well as the sector
Listening to people; (2) Documentation review, (3)
supervisors. In this component,
Sectoral framework and context; (4) Problem tree;
problems such as poor management of
(5) Current Situation/Desired Situation; (6)
teams (inadequate control range), lack of
Objectives Tree.
sectoral meetings, lack of performance
In addition to listening to people, there are also, at
this stage, activities that promote their participation
96
evaluation and a poor distribution of structure were established: (1) Strategic

tasks were identified. Management Practices; (2) Quality
Operational Level: includes all employees Management System; (3) Cooking
of the institution running the production Techniques; (4) Geriatrics; (5) Team
of goods or services. Here problems management and (6) Human Resources
were also detected, among others, Management .
difficulties in interpersonal relationship,
resistance to change and lack of a Thematic workshops.
training plan.
The development plan was pre validated by the
Although the weaknesses of each component of the management and was discussed with everyone in
structure were identified above, the weak points in the organization before the final version,
this structure, in general terms, were due to a slow benefiting, therefore, of the participation of all in
level of organizational response compared to the definition/specification of the actions to
environmental changes, to inter-departmental implement. The presented development plan solely
communication difficulties, to a restricted vision of corresponded to the set of eligible actions under the
the organizational objectives, to a lack of unity of Q3 Program, although the board itself drawn up a
command, to a difficulty in determining the extent set of own actions in order to simultaneously
of the authority and competence of managers and to eliminate or mitigate problem situations not eligible
inadequate control range. by the Q3 Program.
THE PROCESS OF IMPLEMENTATION Implementation schedule

A timeline was stipulated for the implementation of
The Development Plan
training activities leading to the resolution of
In this section the development plan established to
identified problems, which had a duration of five
bring change to the organizational structure is
months. The entire project had a one year duration,
presented, showing the main results of the actions
and it was composed with about one hundred hours
made. A summary of the evaluation of these
of consultancy and two hundred and forty hours of
actions is made in the next section.
training activities.
The Development Plan establishes the training
actions which allows the transition from the current
Implementation of the Development Plan
situation to the desired situation. The plan is based
In the initial diagnosis eighty five terminal
on the following tools: (1) Actions tableau; (2)
problems were detected that resulted in eighty-five
Actions tableau by activities; (3) Project Planning
goals. Thirty of these were not achievable by
by Objectives Matrix; (4) Implementation
conducting training activities, so the eligible
Schedule. In the development plan we look for
objectives supported by Q3 funds were fifty five.
appropriate and feasible solutions to solve the
These resulted in twenty-three results to be
problems of the current situation and achieve the
achieved. In addition to the actions recommended
goals of the desired situation. Resort was made to
in the Q3 Program, eight actions were established
the technical expertise of the consulting team and
in conjunction with the board of the organization,
the elements of the organization, seeking to expand
in order to achieve the objectives not covered by
the use of the knowledge hold by these elements,
the Q3 Program. An activity tableau of ten
and using creativity to find the most appropriate,
actions/activities was prepared, but it was possible
diversified and financially encompassed solutions.
to perform one more action in addition to the initial
Under the Q3, all the predicted actions are of a
proposal (Management Control).
training nature, and may fit into the following
types:
RESULTS OF THE ACTIONS
Employees Qualification: within this Results Achieved
typology the following training activities All twenty-three expected results were achieved. In
directly related with the problems of addition to these, the intervention allowed for
organizational structure identified above several changes, which affected several areas of
were established: (1) Operations management and operation of the organization,
Management; (2) Interpersonal and particularly with regard to its organizational
conflict management; (3) Quality structure. From the results achieved, it is
Management - Food Area and (4) particularly important to stress those that are most
Customer Service. directly related to the organizational structure. A
Implementation of improvement projects: new organizational structure was defined, whose
within this typology, the following main goal was to move from a mechanistic
training activities aimed at solving bureaucratic structure to a horizontal structure. The
problems related to organizational main motives which governed the development of
97
this type of structure were related to greater

customer proximity based on speed, efficiency and Implementation of Quality Management
quality of services, a greater flattening of the System in Social Responses
organizational structure, the search for competitive Implementation of HACCP System
advantage in a turbulent external environment, the Strategic objectives definition
creation of real teams and the facilitation of Organizational Structure Restructuring
collaboration, a greater emphasis on operational materialized in the design of a new
processes as a creator of value, a delegation of organizational chart, with a consequent
work to the lowest level. redefinition of roles, tasks and
In order that the implementation of the new responsibilities.
organizational chart was successful, the chart was
redesigned, adding activities and services actually CONCLUSIONS
rendered by the organization and which were not
In this section, we present the perspective of the
reflected in the older chart, having as a direct result
Board of LBAF about the strengths and weaknesses
the ability to clearly define the roles, tasks and
of the Q3 model intervention, and the results of the
responsibilities of each member in the organization
external evaluation, conducted by UTAD
It was also implemented a methodology for
(University of Trs-os-Montes), of the
evaluating the individual and team performance
implementation of the programme.
and development, identifying the training needs of
The board recognized that the positive aspects or
each element in order to maximize their
strengths far outweigh some of the negative aspects
performance at the individual level or at the level
or existing weaknesses. The managers interviewed
of working groups. In order to simplify procedures
even had some difficulty in identifying negative
and minimize the resistance of employees in its
aspects or weaknesses of the intervention. The
implementation, two training actions were
concentration of the implementation of the various
undertaken in quality management systems, and the
steps/activities within a relatively short period of
organization decided to move forward in the
time, five to six months, was the weak point
implementation of the ISO 9001: 2008 standard in
mentioned by the interviewees. This resulted, for
its five dimensions.
example, in the reduction of the availability of time
A final observation is due related to the conduction
by managers and employees in the implementation
of training activities directed to all managers, in
of the actions, which in some periods was very
order to develop skills in implementing effective
demanding. In general, the strengths of the
leadership, and two training activities designed to
intervention were highly valued by the leaders of
improve the skills of employees in teamwork and
the organization.
conflict resolution.
The Q3 project increased motivation and the degree
of participation of the people in the organization; it
Summary of Actions Assessment
identified in a clear way the existing needs; it
In order to know if the problems were solved and
improved internal operations (e.g., by redefining
what improvements the organization experienced,
organizational structure, new processes and
the opinion of the organization leaders and the
services); it forced members of the organization to
facilitator were sought considering the Actions or
look inward and to look for solutions; it allowed
Activities implemented and the most important
new learning through training focused on very
results, either in the immediate or short term. There
specific needs; it allowed to have an enlarged, both
was a strong commitment in the implementation of
external and internal, vision. Essentially, the
the Actions and in achieving the expected results,
projects strong point was the creation of
which led to a successful result. All the
favourable conditions for change in the
implemented measures were considered very
organization which, as mentioned above, involved
important by the leaders and the facilitator. The
large parts and several dimensions of the
measures that were believed to have a greater
organization.
impact in the organization, and that fitted the
The methodology of participatory action training,
problems related to the Organizational Structure of
implemented by external elements with facilitation
LBAF identified above, were the following:
skills and processes in the field of management, as
well as sensitivity and experience in the context of
Quality Management System
non-profit organizations, is an efficient and
Quality Management-Food Area
effective tool for organizational change, adaptable
Strategic Management Practices
to various circumstances. However, their success
Human Resources Management
depends largely on its appropriation by the
organizations, through the commitment and
Regarding the results achieved which had the
participation of managers, technicians and
greater impact, they are those derived inherently
employees. In addition, the state of necessity and
from the above actions:
awareness of the urgency of change in
98
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99
100
MANAGEMENT PROCESS OF CORPORATIVE TRAVEL

EXPENSES: A CONCEPTUAL MODEL
Ana Lusa Vaz,1* Manuel L. Nunes1

1
Portugal
* Corresponding author: [email protected], University of Minho, 4800-058, Portugal
costs is very complex as it involves several

different types, payments, employees profiles
KEYWORDS and realities, which vary from zone to zone
Management Control Systems, Cost Modelling, within one country and that have a greater impact
Business Process Modelling when we consider a worldwide scenario. Along
the years, the management of these expenses has
ABSTRACT assumed more relevance, and the growing
management and control has allowed the
The need to travel, such as visits to clients or identification of opportunities for improvements,
suppliers, has always been a necessity of reduction of these costs, identification of
corporations. In nowadays worldwide business preferential suppliers, synergies and
context, travel costs represent the second larger identification and reduction of unethical
category of corporative expenses for the majority behaviours, such as employees spending more
of companies and because of its complexity its than is needed while travelling (Meyer, 2005).
found hard to manage. The existing management process of the
This case study is about the reengineering project companys travel expenses was divided in
of a multinational companys business travel several almost independent sub-processes. There
expenses. The automation of the paper based was a lack on the control and communication
process through the creation of a software was between all the participants in the process. The
intended to allow a better control on these centralization and automation of the activities
expenses and consequently to represent reduction was the solution found to solve all the problems
of these costs. Therefore, the main objective of and to cut the unnecessary costs (consequence of
this paper is to discuss the development of a all flaws). The creation of software to manage
management control system for the travel these expenses was projects final goal. The
expenses process based on the business process underlying research question is: What are the
reengineering approach. This business process critical success factors to undertake the project
reengineering demanded the application of of reengineering the business process of
business process modelling to better represent As corporative travel expenses management?
is and To be processes, according to IDEF0 and The concept of BPR has been applied, since the
BPMN models, respectively. This modelling 90s to several different realities (Grover &
allowed deep analysis of the process. Results can Malhotra, 1997). Even though this concept has
be used to identify some key success factors in been applied to many projects, it has been
the management control of a business travel realized that there is no single formula that can
process. be successfully applied to every reality. Each
application of the models results in a unique
INTRODUCTION instantiation of the method. The choice of the
most suitable model depends on the purpose of
The object of this paper is to obtain empirical
the analysis and the level of knowledge on the
data on the application of Business Process
techniques and tools of modelling processes
Reengineering (BPR) to an existing process of
(Aguilar-Savn, 2004).
corporative travel expenses management.
The second section intends to familiarize the
The need to travel, such as visits to clients or
readers with the key concepts inherent to BPR
suppliers, has always been a necessity of
activity. In order to select the appropriated
corporations. In nowadays worldwide business,
models to this problem, there was the need to
travel costs represent the second larger category
analyse the existing scientific literature on the
of corporative expenses for the majority of
relevant topics. The selected models Integrated
companies, only preceded by employees wage
DEFinition 0 (IDEF0), Business Process
(Anderson, 2002). The management of these
Modelling Notation (BPMN) are explained, as
101
well as the reasons for its selection. This section enablers: Business Process Modelling and
intends to provide the basic knowledge, in order Business Process Analysis.
to understand the methodology applied to the Business process is generally defined as a regular
research project. process that turns inputs such as data into the
The third section describes the projects desired outputs. To better understand this
development methodology, i.e., how the previous concept it is useful to know that the need for BPR
explained methodologies and selected models began with the advent of offices automation.
were applied to the respective stages of the This new reality and new way of processing
project. The methodology selected was CAP office tasks brought the request for efficiency and
methodology: Capture; Analyse; Present. For cost reduction (already a reality in the shop floor)
capturing and first analysis of As is process to offices. Even though the shop floor principles
IDEF0 was used. BPMN was used to represent were brought to offices it was noticed that this
the first proposal of To be model to all members different tasks couldnt be analysed in the same
of project team and was the tool used to express way. There is a principle that separates office
the proposed changes to this model. The resulting process from production process on the
To be diagram, in BPMN, that expressed the hypothesis that the way that activities are
specification of softwares expected general performed is the core of production workflow
functions was presented to the software while office systems focus on the goal and people
developers. The final model was presented using just do whatever is necessary to attain it
the BPMN. (Lindsay, Downs, & Lunn, 2003).
The forth section explains how the techniques Business process analysis cant only be executed
and tools were applied in the case study. Finally, by direct analysis of what process models
some conclusions are presented and it is demonstrate. This activity needs an extra level of
suggested further research on specific areas. rigor, so it is necessary to complement the
process diagram analysis with other techniques:
LITERATURE REVIEW Expert judgment and heuristics:
Inspection of diagrams is the main task
Accordingly to Champy & Hammer (1993) of analysis. It involves the use of expert
reengineering is the fundamental rethinking and judgment perhaps aided by the
radical redesign of business processes to achieve application of a number of heuristics.
dramatic improvements in critical, contemporary There are a large variety of methods that
measures of performance such as cost, quality, can be applied;
service and speed. Even though this is a popular Measurement: heuristics can be
definition accepted by the scientific community, quantified in order to produce measures
the concept is frequently mistaken with some that aid the analysis of static process
other improving initiatives. models.
The main characteristics that distinguish BPR
Formality: the formality of the
from other improving initiatives are: (i) it focuses
modelling models that depends on the
on processes (since the beginning till the end), as
semantics and notation used reduces the
it works with an holistic view of the processes
probability of ambiguity interpretation
taking into consideration all the functions,
and leads to more accurate analysis.
activities and departments that are responsible
Accordingly to Mohapatra, 2013 business
for the process , and with multi-departmental
process modelling is an activity to represent the
project teams; (ii) it is not an iterative process,
process in its current state so it can be analysed
because its main objective is to cause the
and steps can be taken for further improvement.
maximum impact in the enterprise, the results
The form that business process models assume
should be dramatic; (iii) it intends to achieve
can also be very divergent, always depending on
considerable goals or dramatic performance
the purpose of the modelling. The correct
improvements; and (iv) it is a critical enabler of
modelling of a process will enable its successful
this change (Grover & Malhotra, 1997).
analysis. The choice of the most suitable model
There are two different approaches on the way
depends on the purpose of the analysis and the
that reengineering is performed. One approach
level of knowledge on the techniques and tools of
tells us to analyse As is process, while the other
modelling processes (Aguilar-Savn, 2004).
one holds that this analysis can cut the creativity
There are different characteristics that should be
that can be greater when starting from the zero,
taken into consideration when choosing the
i.e. start designing the To be process directly
model: (i) formality the clearer used semantics
(Hammer and Champy, 1993).
are, the more modelling can be accurate and
Independent on the approach that is chosen, in
unambiguous (Phalp, 1998). However, the
order to perform a BPR initiative it is mandatory
growing formality increases difficulty of models
to perform two activities, which are BPRs
validation; (ii) representations channel models
102
can be drawn in many different ways, such as execution of the activity) and mechanisms
paper or modelling software; (iii) level of (systems, people, equipment used to perform the
abstraction the level of detail of the activity).
representation depends on the purpose of the
undertaken project.
All of these characteristics are correlated. As the
desired detail level increases there is the need to
adopt more formal notations as well as more
sophisticated representation channels (so that the
possibility of different interpretations is
reduced). The main objective is to select the
model which best represents the process and that
reduces the understanding difficulty, making it as
intuitive as possible (Phalp, 1998).
BPMN is a Business Process Diagram (BPD), Figure 1: IDEF0 basic element
based on a flowchart technique, which intends to
represent business process operations (Ko, Lee, IDEF0 is characterized for having an
& Lee, 2009). input/output flow approach. It focuses on passive
There are four categories of elements: participants which have to go through a certain
Flow objects: event (circle); Activity (rectangle); order of activities (Bider, 2007).
Gateway (diamond). The creation of one As is model using IDEF0 is
Connecting objects: sequence flow (solid line considered a good practice to understand the
with solid arrowhead) - connection within one changing system. It allows the study of the
pool; message flow (dashed line with open activities and the impact that changing one will
arrowhead) connection between different have on the others and also how it will affect the
pools; association (dotted line with line performance of the overall system (Ang, Luo,
arrowhead) of data, text and other artifacts with Khoo, & Gay, 1997).
flow objects.
Swimlanes: pool (the biggest rectangle) CASE STUDY
represents a participant in a process; lane (sub-
Research Method
partition within a pool) to organize different
activities. This study is trying to figure out how to
Artifacts: data object (sheet) - shows how data is development a management controls system for
required or produced by activities; group the travel expenses process based on the business
(rounded corner rectangle drawn with a dashed process reengineering approach. While a
line) enphasize one group of activities; quantitative research is primarily aimed at
annotation (square brackets) additional providing statistical knowledge, enabling
information (White & Corporation, n.d.) predictions, a qualitative research emphasizes a
broader range of perspectives on complex
Integrated Definition for Function Modelling interrelationships within a more limited number
(IDEF) is a family of methods that supports a of empirical entities (Yin, 1994). Therefore, this
paradigm capable of addressing the modelling study draws on a qualitative research.
needs of an enterprise and its business areas Considering the one single company of this
(IDEF, 2003). study, it is pertinent to speak of a case study. Case
IDEF0 is the most adequate of the IDEF family study is an approach that helps in exploring a
for modelling business process as it provides the contemporary phenomenon in its real life context
concepts to develop structural graphical (Yin, 1994). Multi-case studies facilitate a deeper
representations of complex processes. It begins understanding of soft variables and key
with the representation of the high-level relationships and are believed to be particularly
activities of one process and it can be further valid for uncovering business-marketing
decomposed to lower-level activities. In these practices (Eisenhardt, 1989). However, multi-
models there are three types of information: case studies are often facing a problem of dealing
graphical diagrams, text and glossary. The three with the huge sum of the data, and decrease the
complement each other and together they provide possibility of having a deeper insight into the
the maximum understanding of the activities that company (Yin, 1994). Connected with the topic,
constitute de process. Each activity is specified one case is a proper method to proceed since the
with no more than 6 functions and all the limited time and the difficulty of collecting data.
functions have inputs (data that triggers the More importantly, one single case can strengthen
activity), outputs (results of performing the the depth of the study and meet the objective of
activity), controls (guide or regulate the this paper. Data for this paper were obtained
103
through two sources: primary and secondary A CONCEPTUAL FRAMEWORK FOR

data. Semi-structured interview, which offers the THE MANAGEMENT PROCESS OF
interviewee freedom and flexibility in answering CORPORATIVE TRAVEL EXPENSES
question, was chosen to collect primary data
The underlying methodology used in the research
(Bryman and Bell, 2007). According to Yin
work is CAP Capture; Analyse; Present. These
(1994), interviews will be the primary way, and
three stages represent the stages that the
it is one of the most important sources for a case
reengineer needs to undertake while
study. Therefore, authors developed an interview
reengineering a process. In each stage there are
guide based on the theoretical framework. The
different needs that demand different modelling
data was mainly obtained from the interviewees
and analysis methods. These methods depend on
with the Human Resources department, Finance
the goals, context and audience of each stage.
department and other managers. After the
In the Capture stage, while the required
interviews, authors listen to the record several
information is being gathered, there is the need to
times and transcribe all the data onto thirteen
represent it in a way that will turn analysis as
pages, then authors break down the data,
intuitive as possible. Diagrammatic
examine, compare, evaluate, conceptualize and
representations are the most indicated notations,
categorize data, and discussed with each other,
such as data flow diagrams, IDEF or derivatives
and then the data is compiled into four pages of
of petri-nets.
text. Accordingly, authors analyze the empirical
The Analysis phase usually involves the
data combined with the literature.
diagrams created in the previous stage, but as it
It is necessary to establish and assess the quality
needs more rigour, it is better to complement the
of research. Reliability and validity are the
diagrammatic analysis with the use of expert
appropriate criteria for qualitative research
judgment and heuristics, measurement,
(Bryman and Bell, 2007). To ensure high
formality.
reliability and validity, the interview guide was
Finally, the Presentation stage involves the
simplified so that the interviewee can understand
creation of models that are used to present the To
easily. Meanwhile, the interview guide was
be process. The modellers will present the model
formulated according to the theoretical review
to other intervenient in the process so it must
and conceptual framework, and it is
have an intuitive reading. It must be easy to
corresponding with the research question.
understand the changes that were implemented
Moreover, the company was willing to do the
and its benefits.
research with authors, which ensures the data that
In the point of view of modelling this project
authors get can be highly reliable. In order to
needed three different modelling techniques:
accomplish the desired goal there was the need to
flowcharts in the 1st phase, which consists in
gather a project team whose task was to
collecting information from all the different
reengineer the current process of business travel
departments (i.e., rough design of small process
expenses. In addition, the paper was returned to
workflows resulting of the meeting with the
the company for examination. Consequently, the
different departments, to understand how the
reliability and validity in this study can be
process was currently working); IDEF0 in the
considered as acceptable.
2nd phase, which consists on organizing the
collected information, design and analysing of
Company Description the As is process, identification of opportunities
This case study is about one company that for improvements and identification of
operates worldwide in field of the opportunities for automation (i.e., the research
electromechanical solutions. This company was centred on models that are used on
realized that there was a lack on the control of reengineering processes); and, finally, the BPMN
business travel expenses take represented a in the 3rd phase, which consists on designing of
considerable cost. In order to identify the To be process (i.e., the objective is always to
opportunities for improvement there was the simplify).
need to undertake a project to reengineer the The reengineering method that was selected took
current process of management of business travel into consideration the As is reality. The first part
expenses. The existing process was mainly paper of the project consisted on capturing important
based and the final goal of the project was to data about the process in order to fully
automate the process, using a software that understand it: departments involved; core
would be customized to the companys reality. functions; particularities; restrictions. This
knowledge would be vital when defining To be
process.
IDEF0 methodology was used to capture and
analyse As is process. Node A0 of the model,
104
designated General represents the process in an Employee; Employees approver

abstract point of view. (supervisor/chief); Human Resources (HR);
According to IDEF0 its possible to identify in Financial area (FA). The controls inherent to the
this node the core functions of the process, as process are: invoices, coupons and approvers
well as its inputs, outputs, controls and signature. These are the core functions, inputs,
mechanisms. outputs and mechanisms. The functions will
The core processs functions are: travel have To be the same in the To be process. The
planning, request advance on expenses, carry way that these functions are executed is what is
out expenses, submit expenses, approve going to change, i.e., the activities inherent as
expenses and settle expenses. All functions are well as its mechanisms; controls, inputs and
paper based, more precisely, form-based. The outputs can be changed.
mechanisms involved in the process are:
Figure 2 General As is
After one travel, the collaborator has to report his these functions is again paper forms that arrive to
expenses in Expenses account form, which he the department by internal mail. In order to settle
has to present complemented with the reported employees current account there is the need for
expenses invoices. Besides this form, depending FA to communicate with HR. This
on the payment types used (cash; credit card; communication is again paper based and has
subsistence allowance), the collaborator may be problems like inherent lead time, lost papers, and
obliged to fulfil other forms. Each one of these forms fulfilling errors. FA has to archive
forms contains general information about the expenses invoices because of legal norms.
travel (employees identification; travel dates;
location; purpose). This information is repeated
as many times as the number of forms that the
collaborator had to fulfil. All of these forms have
To be approved by the correspondent approver.
In order to settle the expenses in employees
current account and attribute legal allowances
HR has to validate the forms (papers) that arrive
by internal main.
There is the need to manually calculate the

amount of allowances as it has many constraints
(employees income; travels location; etc.). As
there is the possibility to pay expenses by cash
(that was advanced by the company), credit card,
there is the need for FAs functions. The input for
105
Figure 3: Expense account form approval To be models definition was presented to project
Financial Area team and all the necessary intervenient in the
project BPMN. This notation allowed the
intuitive understanding of the intended process
and promoted necessary discussion that
conduced to changes to the designed process as
well as supporting changes (example, creation of
interfaces, intradepartmental changes). The
figure 5 describes the existence of form that
could include different kinds of expenses and
payment types. In the diagram its possible to
identify categories of expenses that were not
considered in the As is: travel allowance;
kilometres in his own vehicle. In As is reality
these expenses were only managed by HR.
Considering the dates indicated in forms header
Figure 4: Expenses account form settlement as well as the referent locations, the system is
able to automatically calculate the number of
Financial Area
nights that the employee spent outside his home
and the corresponding travel allowance.
A deep analysis of As is process allowed the
identification of some situations that could
represent opportunities for improvement: paper-
based process, manual tasks, functions
repeatability, lack of centralization and lack of
communication. The development and
implementation of the software will improved
these issues
It was created the concept of one virtual form that
can include all kind of expenses and payment
types. The approvers approval function is made
within the software, which eliminates the need
for signature validations by HR and FA. The
software is connected with HR databases that
together with forms information about the travel
allow the automated calculation of allowances.
To solve the problem of functions repeatability it
was created the concept of form header, which
the collaborator only has to fulfil once by each
travel reports. This reduces to one the frequency
that the collaborator has to write the same
information. Consequently, approvals function
repeatability is also reduced.
Once all the information about one employee is
centralized in the same software the
communication between all the intervenient
improves as the information is now shared. This
communication stops being by internal mail. This Figure 5: To be Forms header
contributes significantly to improve the lack of
communication. CONCLUSIONS AND FURTHER
The shared and virtual information also allowed RESEARCH
the automation of many activities, eliminating
some manual functions. For example, in order to The critical success factors to undertake the
make it possible for HR to settle collaborators project of reengineering the business process of
corporative travel expenses management,
expenses there was the need to manually verify
identified by the research were process based
the existence of unsettled advances. Once
approach, multidepartment project teams,
advances are associated with collaborators
profile, every time he reports expenses the iterative business process modelling, project
system automatically balances his unsettled manager, As is Business process modelling and
To be process modelling.
advances.
106
1. Process based approach: it is mandatory that travel expenses management process must search
the reengineer regards the problem as a global for the identification of: core functions; core
process. The regular functional approach is not data; functions repeatability; lack of control;
indicated. Only regarding all the sub processes as deficient communication; process restrictions;
one is possible to create an efficient and coherent paper based functions; lack of databases; manual
process. tasks; manual data flow. IDEF0 model allows
2. Multidepartment project teams: the process visual and intuitive analysis of the referred and
was managed by two departments: HR and FA. other situations.
These two departments were mandatory in the 7. To be process modelling: considering the
project team. Information Technologys (IT) knowledge gathered during As is analysis it is
department was also implied in the process possible to identify opportunities for
because of the needed databases and interfaces improvement and create the new improved
between the multiple software tools. Two other process. The main goals must be increase control,
departments took part in the project team because reduction of functions repeatability, manual
of organizational knowledge and experience in functions that can be automated, reduction of
the development of corporative management lead-time and errors, increase cohesion level.
applications: Organizational; Strategic This, usually, is a more time consuming and
Management of Purchasing and Costs. It was iterative activity than the other ones.
necessary to nominate a project leader. A number of managerial implications arise from
3. Business process modelling: process the findings, namely: (i) Multidepartment
representation in the form of diagrams its meetings presentation of 1st version of To be
important not only to analyse the As is reality as diagram (and next ones) will promote discussion
well as the intended To be. related to general process and interfaces between
4. Business process modelling must be an the involved departments. These meetings should
iterative activity: this activity fosters have the support of the To be diagram. The main
communication and teamwork between all purpose is to define the overall workflow of the
projects members as well as with other process, which will involve different
employees that can add value to the project. This departments. Usually, more detailed problems
is a constant attempted to create a process that are identified and meetings between some project
better describes (As is) and better fits the needs members or other employees are scheduled in
of the business travel expenses management (To order To better define the intended process;
be). (ii)To be diagram-based meetings these
5. Project manager: There must be a project meetings have the goal to define the process
manager who gathers information referent to workflow within involved departments. The
different departments (sub processes); designs workflow should take into consideration all
processes; collects validation or more departmental restrictions but doesnt need to
information from the departments. represent it (so that the model doesnt become
6. As is Business process modelling: denser and more difficult to analyse). For this
- Formal models: add rigor to the representation reason, the model should have a less detailed
and allow clear thinking because it demands a level, which allows an easy understanding of
greater structured way of representing the general process as well as the necessary
process; interfaces between; (iii) Intradepartmental
- High level of decomposition/ Low level of changes are not considered in the process
abstraction: the process of managing corporative deeper changes within departments that dont
travel expenses is very complex and involves interfere directly with the general workflow
different departments. There are many (between the intervenient) should be considered
corporative, legal and operational rules that need within each department.
to be taken into consideration. Therefore, there is The growing control on travel expenses has been
the need to a low level of abstraction, because, increasing along with the automation of this
although the objective is not to change business process. Although it can be considered
departmental operations, these operations as a recurrent theme nowadays, the scientific
influence the way in which the general process of community hasnt yet identified the best methods
reporting and managing expenses is executed. and tools that can lead to a successful
(For example, the software needs to be created in implementation of this software. In order to fulfil
a way that it is possible to access employees this gap, further research should be done in order
incoming, job grade, so that it can calculate to develop deep knowledge on these costs, the
travelling allowances). After As is diagram is way they are best managed and on identification
designed, there is the need for its deep analysis. of more adequate models to modelling this kind
The chosen model must turn this activity as of business processes. These models should
intuitive as possible. Reengineering a business allow the most intuitive identification of core
107
functions (i.e., functions likely to be automated, Phalp, K. T. (1998). The CAP framework for business
the ones that are replicated and non-value adding process modelling , 40, 731744.
functions). The identification of heuristics that White, S. A., & Corporation, I. B. M. (n.d.).
could complement these models analysis would Introduction to BPMN, 111.
also fulfil a scientific gap. Scott, A. (2002). T&E goes wireless. Cover story.
Future researchers might enlarge the research Institute of Management Accounts. Strategic
range of the critical success factors to undertake Finance.(Oct).
Yin, R.K., 1994. Case Study Research Design and
the project of reengineering the business process
Methods. 2nd ed., Sage Publications.
of corporative travel expenses management.
They could do the research on comparison of
these factors in different firms. Each firm may
have different approaches of management
process of corporative travel expenses. Are there
some common approaches of companies from
one country, do they have similar process on the
management of corporative travel expenses.
Therefore, one direction for future research could
be conducted under a multi-industry or multi-
culture background.
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108
THE APPLICATION OF THE LEAN INNOVATION APROACH

IN THE STAGE-GATE MODEL
Levi Guimares,1* Fernando Romero1 , Hyggor Medeiros1

1
Department of Production and Systems Engineering, University of Minho, Portugal
* Corresponding author: [email protected], University of Minho, Azurm, Guimares
KEYWORDS factor to boost the economy (Talbot 2009), and also for
Lean innovation, Stage-gate, New product development implementation, institutionalization and marketing of
new and creative ideas (Ven, 1986; Smeds, 1994). But in
ABSTRACT the days of globalization, price pressure and a infinity of
similar product ranges has an impact on various sectors.
Innovation has become over the last decades an essential In addition to shortening product life cycles, customers
factor for survival of the organizations. Its scope and its are subdivided into markets with increasing number of
its importance includes not only technological aspects minor segments. Costs in research and development
but also the administrative area, with the clear objective (R&D) have increased, and the return on investment for
of increasing competitiveness, thereby making the products decreased, even with growth in the number of
mission to innovate not only the responsibility of a single products sold (Betz, 2003).
area, but the responsibility of all employees in all areas. With accelerated competitiveness companies tend to
Accelerated competition has pushed companies to use utilize innovation management models, to increase the
innovation management tools in research and new efficacy of the research and development process.
product development. Although several models exist in Innovation management is a set of routines that describes
the literature of innovation management, with regard to and differentiates the answers to questions of
new product development, there is room for organizations and management structure. The primary
improvement in the management of innovation, from objective of innovation management is to find more
idea generation until product launch. solutions appropriate for the problems related to these
This paper seeks to identify an alternative for improving routines as well as manage constantly this process of
innovation management, buiding on the stage-gate creative ideas, making it more suitable for the specific
model, and using the concept of lean innovation, which circumstances in which organizations are inserted.
is a new approach toward the management of the Altogether, most companies work on a portfolio of
innovation process, based on the concepts of the Toyota innovations, which represent developments and
Production System. With the use of the lean innovation incremental improvements in processes and/or existing
aproach during some stages of the stage-gate model, it is products, while others focus on more radical changes.
possible to achieve results in time and cost reduction in One of the key capabilities in effective innovation
new product development. management is the balancing of the composition of this
portfolio, while combining it with the skills and
INTRODUCTION capabilities of the company in technology and markets.
The general approach to innovation management
The word Innovation derives from the Latin innovatus,
processes can be divided into five generations described
where "in" means movement from inside and "novus"
below.
means new, and thus, innovation is a movement to new
The first generation, assumes that innovation is a linear
search (Grizendi, 2011). Since the beginning of the last
process and a belief that intensive investment in
century, much has been discussed about innovation, its
scientific activity results ultimately in innovations that
nature, characteristics, classification and sources, with
have considerable economic impact (Bush, 1945). This
the objective of understanding is role in economic
perspective is also referred to as the technology push
development, stressing the fundamental contribution of
model of innovation.
Joseph Schumpeter (1949) that, in the first half of the
The second generation is the so-called demand pull
century, focused on the importance of innovation in the
model of linear innovation, where market demands
performance of the enterprises and the economy
become the main vector in relation to the direction and
(Marques, 2004). Several literature has supported the role
speed of technical change, indicating the direction in
of innovation for business success (Ven 1986; Betz 2003;
which the investment would be more appropriate, given
Chen 2009), as well as pointing it as the most important
109
the technological progress (Kline and Rosenberg, 1986). Response models: is a behaviourist approach to analyse
This period corresponds to the 1st R&D generation, change. In particular, these models focus on the
characterized by the absence of a strategy at the corporate individuals or organisations response to a new project
level. The 1st R&D generation is an isolated entity, proposal or new idea (Becker and Whistler, 1967).
responsible for decisions on how to allocate resources for Network Model: is the process of accumulation of
future technologies developments and the evaluation of knowledge from a variety of different inputs, such as
results (Roussel at al, 1991). marketing, R&D and manufacturing. This knowledge is
The third generation, which is the model that integrates built up gradually over time as the project progresses
the previous two, denominated coupling model from initial idea (technical breakthrough or market
innovation, is focused on an interactive process, although opportunity) through development (Takeuchi and
the stages in the process are seen as separate. In other Nonaka, 1986; Nonaka, 1991; Hagedoorn, 1990; Trott,
words, this is a sequential model, but containing feedback 1993; Nonaka and Takeuchi, 1995).
loops, ie combinations of pressure research and demand The stage-gate model has become a popular system for
pull, with more balance between R&D and marketing and driving new products to market, and the benefits of using
emphasis on integration between these areas such a robust idea-to-launch system have been
(Rothwell,1992). documented (Cooper, 2008). It is characterized by
In the fourth generation, the chain-linked model or dividing the innovation process at various stages of
collaborative process reflects the growing understanding development tasks, interspersed by moments for
of the innovation process, so that this process involves decision-making. It is noted to be quite useful for the
more than broad-based inputs of science and the market, definition of the process to be used for receiving,
but includes close relationships with customers and processing and developing ideas, and for the definition of
suppliers (Graves, 1987). the project portfolio. The stage-gate is nothing more than
The fifth generation process (Rothwell, 1994), includes a a structured process by means of which the project is
growing strategic and technological integration among developed. This process consists of stages separated by
different organizations. The model horizontalized the periods of evaluation and decision (Gates). Each stage is
relations between different organizations that operate a set of development activities with well-defined
according to business processes. deliverables. A model of stage-gate typically begins with
simple stages with a strong character of planning, and
THE STAGE GATE PRODUCT INNOVATION then evolves into stages with greater commitments and
PROCESS with an executive character (Cooper, 1994). Although
various authors have proposed different models of stage-
The organisational activities undertaken by the company
gate, a model which is commonly used, composed of six
as it embarks on the actual process of new product
stages and five gates, is represented in Figure 1.
development have been represented by numerous
different models. These have attempted to capture the
key activities involved in the process, from idea to
commercialisation of the product (Trott, 2008). It is
possible to classify the models into seven distinct
categories (Saren, 1984):
Departmental-stage models: these can be shown to be
based around the linear model of innovation, where each
department is responsible for certain tasks.
Activity-stage models and concurrent engineering: these
are similar to departmental-stage models but because Figure 1: Stage-gate model (Cooper, 1994)
they emphasise conducted activities they provide a better
representation of reality. Stage Idea: pre-work designed to discover and uncover
Cross-functional models (teams): the cross-functional business opportunities and generate new ideas.
teams (CFT) approach removes problems that occur Stage 1: quick, inexpensive preliminary investigation
within the product development process centered around and scoping of the project largely desk research.
communications between different departments, by Stage 2: detailed investigation involving primary
having a dedicated project team representing people from research (both market and technical) leading to a
a variety of functions. Business Case, including product and project definition,
Stage-gate models: or decision-stage models represent project justification, and the proposed plan for
the new product development process as a series of development.
decisions that need to be taken in order to progress the Stage 3: the actual detailed design and development of
project (Cooper and Kleinschmidt,1993; Kotler, 1997). the new product and the design of the operations or
Conversion-process models: as the name suggests, production process required for eventual full scale
conversion-process models view new product production.
development as numerous inputs into a black box where
they are converted into an output (Schon,1967).
110
Stage 4: tests or trials in the marketplace, laboratory, and system define structures and prioritize "values" for a
plant to verify and validate the proposed new product, specific innovation project (Schuh et al, 2008). The
brand/marketing plan and production/operations. values are defined by all stakeholders in the process of
Stage 5: launch and commercialization beginning of innovation and development process, as for example,
full-scale operations or production, marketing, and external clients and interns, taking into consideration the
selling. strategy and enterprise culture. In lean innovation there
The gates are meetings, or moments, where the design are ten principles and three specific steps (Figure 2). The
team presents the deliverables, developed over the last first step, structure early, sets the innovation team,
stage, for a commission to judge. This commission builds the hierarchy of value in the system, and defines
discusses, based on a set of previously defined criteria, if the architecture of the product. The second step,
the project should proceed to the next stage (Cooper, synchronize easily, is where it applies the value stream
1994). mapping and capacity planning for identifying the most
The stage-gate can present some difficulties in its effective and efficient ways of innovating. The third step,
application, when organizations misunderstand the adapt securely, sets in a permanent manner the process
concept of stage-gate and deploy it without any of continuous innovation of product design to satisfy the
flexibility, as a tool to control development of projects. values and clients requirements (Schuh et al, 2008).
When this happens, the organization experiences
significant harmful effects. Such negative experiences
gave rise to several reviews in the literature concerning
the practice of stage-gate (Connor, 1994):
Waste of time of managers in gates that need not
be carried out.
Delays in project execution due to unnecessary
activities or waiting for gates postponed due to
the lack of agenda of members of the evaluation
commission.
Projects being conducted outside the system of
stage-gate. Figure 2: Lean innovation (Schuh et al, 2008)
Elimination of the innovative nature of the
project portfolio of the company. APPLYING THE LEAN INNOVATION
Resistance to implementation of new APPROACH IN THE STAGE-GATE MODEL
development practices.
Most companies development portfolios that use stage- To stay competitive in R&D, you must deal with
gate model suffer from: too many projects for the limited increased dynamics and complexity of products project
resources available; ineffective project prioritization; systems. Both the effectiveness and efficiency of R&D
Go/Kill decisions made in the absence of solid have to be improved for complex products and design
information; and too many minor projects in the programs. The differentiation of the product has to be
portfolio. The end result is poor performance: low-impact reached with limited resources and with economies of
projects; too long to get to market; and higher-than- scale and smart set. Therefore, the intention of the lean
acceptable failure rates (Cooper et al, 2000). innovation concept is the transfer of lean thinking to the
management of R&D and innovation.
THE LEAN INNOVATION APPROACH To ilustrate the potential of the application of the lean
innovation approach in the stage gate approach to
To avoid these potential traps, and in order to achieve an innovation management, an example is provided below,
innovation process with reduced resources and waste, it concerning the idea generation phase. In the stage gate
is suggested the use of the lean innovation approach model the generation of ideas is not a stage of
created by (Schuh et al, 2008) that represents the development in itself, but it collects ideas from multiple
systematic interpretation of the principles of lean sources to feed the innovation process. It is considered a
mentality in relation to the process of product or process step with waste in the phase of product development, but
innovation. The lean principles initiated by Taiichi Ohno after the use of the lean innovation approach it can be
at Toyota Motor Corporation, the techniques of considered as a value-added step in terms of generating
eliminating waste and excess from the product flows potential products. The example includes the application
were first introduced to automotive engine of the three stages of the lean innovation concept in the
manufacturing, then to the automobile assembling, and idea generation phase of the stage gate model.
later applied to the entire Toyota supply chain (Ohno, Imagine a company that develops office chairs, and that
1988). the idea generation process is divided into 4 stages: idea
A central element of lean innovation is the value system, generation, ideas selection, assessment and approval.
which is the basis for value stream design or value stream Applying the Step 1 of lean innovation structure early:
design innovation and development projects. The value set a highly motivated team, with the requirements and a
111
structure of a well-defined value system adapted to meet Applying the Step 3 of lean innovation adapt securely:
the needs in the form of specific goals would result in sets in a permament manner the process would result in
the pre-establishment of targets about what type of ideas the definition of the sustainability of the process of
are expected in the generation of ideas, thus avoiding generation of ideas, in order to become robust and
ideas that are outside the main focus. For example, the respond swiftly to changes and market requirements.
following idea pre-requisites could be established: a chair After creating a current state value stream map and
for specific uses in cleanrooms; product can be identifying the supporting processes needing
introduced within one year; market potential of at least improvement, the value stream mapping will be ready to
$1 million; market has a growth rate of at least 5%; build the ideal future state, which can also be described
product will give at least 30% return on sales; product as a map with the end in view for the development of the
will give at least 40% return on investment; product will organization. The future state is just thatalways in the
achieve technical or market leadership. future. The current state is just another step toward the
Applying the Step 2 of lean innovation synchronize ideal of a perfectly functioning system. To implement
easily: set the current state value stream mapping (VSM) this strategy, the company must change its organizational
and planning capacity for the ideas generation would thinking. Rather than just identify, eliminate waste and
result in the definition of the sequence of activities standardize the culture system, it now should promote the
required to produce (adding value or not) and provide a need for constant change. The new system of value can
specific idea, as well as the definition of the information, then be used to provide a more transparent overview of
materials, and work flows that accompanies it, thus needs and values of all customers (internal and external).
define the balancing capacity at this stage (Figure 3). The lean innovation approach can also be applied in other
stages of the stage gate (preliminary investigation,
detailed investigation, development, test&validation and
launch).
CONCLUSIONS
The paper carried out for this study was based on a
literature review addressing the main aspects of
innovation management and we propose an articulation
of the concept of lean innovation with the stage gate
model of innovation management.
The lean innovation approach was applied in the idea
generation phase of stage gate, where the steps structure
Figure 3: Generation ideas VSM early, synchronize easily and adapt securely, were
applied with the objective of setting the values, identify
There are four standard time measures (Schipper and opportunities for improvement through the VSM and
Swets, 2012): implement these improvements. The steps of lean
Process Time (P/T): The time spent doing value-added innovation must be made continuously in order to obtain
work (headsdown time, time spent on the work on the increased perfection in the new product development
desktop, or touch time). In this example (see Figure 3) process. The lean innovation approach can be applied
the P/T for ideas selection is 6h, so P/T(h)= 6h. both to large companies that have R&D, and for small
Cycle Time through a Process (C/T): The elapsed time businesses that do not have it, generating product
for a unit of work to move through a process box, differentiation with reduced resources and waste.
including the process time. It is measured from the time Most companies still do not have well established reliable
the unit of work enters the process to the time it leaves and systematic processes to convert ideas into business.
the process complete, including all value-added and non- A well-defined management model extends the
value added time. The C/T in ideas selection is 4 days, so capabilities and possibilities of creation, and it can be
C/T(D)=4 days. adopted and improved, bringing favorable results and
Wait Time (W/T): The time that work sits in a queue or more competitive power. This approach is not well
inbox before it enters the process. In this example, the known and not yet widely used by companies, but some
wait time between idea generation and idea selection is companies that have identified customer value in the new
zero, W/T(D)=0, because between idea generation and product development have experienced beneficial results
ideas selection there is no waiting. in improving the process of innovation management in
Total Cycle Time: Cycle time + wait time = Total C/T. their organizations.
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113
114
RISK ANALYSIS IN NEW PRODUCT DEVELOPMENT

Cludio Santos1*, Madalena Arajo1 and Nuno Correia2
1
2
Institute of Mechanical Engineering and Industrial Management (INEGI), University of Porto, Portugal
* Corresponding author: [email protected], University of Minho, Azurem Campus, 4800-058, Portugal
KEYWORDS possibility that a technical or performance requirement or

New product development, risk, economic output of a project is not achieved.
attractiveness Proposed methods for the calculation of schedule and
cost risk are irrespective of the type of project under
ABSTRACT consideration as any project has an estimated duration
and cost. However, in performance risk, the same
New product development is a key determinant of the situation is not observed: while in research and
competitiveness of product innovation oriented technology development, project objectives are more
organizations. Notwithstanding this, the development of related to achieving technical goals, the justification of
new products is exposed to numerous risks and NPD projects is fundamentally linked with market and
uncertainties that could compromise their success. The economic objectives, that is, (linked) with market share,
new product development process is intrinsically linked demand units, sales revenues, profitability and other
with market and economic goals. While innumerous economic indicators. As such, it is highly desirable, for
qualitative risk analysis methods have been developed, performance measures of NPD projects, to be linked to
they still lack the rigor and managerial capabilities of these sorts of indicators.
quantitative methods. As such, reviewed methodologies The challenge relies in linking the performance measure
indicate that quantitative methods of risk analysis of NPD to a demand model, capable of estimating
provide none or few procedures that link risk to the products units likely to be purchased. Existing demand
economic attractiveness of the project, which could models are heavily based on statistical methods derived
support an adequate risk-benefit analysis of these from extensive customers surveys, which may be
projects. This paper presents a new method that is based infeasible to be performed in early stages of projects life
on a theoretical demand model. This demand model cycle. In this sense, this paper borrows the ideas from the
evaluates the value and expected demand of a certain Product Value Methodology proposed by Henry Cook
product, on the basis of each products attribute target (Cook, 1997) which aims at estimating units to be sold
specifications. The method is applied in three projects based on the specifications of product attributes.
from the industrial project partner of this study. By making an explicit linkage between risk and demand
models, product managers may be in a better position to
INTRODUCTION not only assess and manage the risk level exposure during
the development of the product as well as to assess the
New product development (NPD) projects contribute in
economic potential of the new product under
several ways to the competitiveness of companies: in
development.
increasing revenues, in entering new markets, in the
The proposed risk analysis method is applied in three
exploitation of synergies with other existing products in
projects of the industrial partner of this study - a mid-
the portfolio of the company, etc... Therefore, the
sized manufacturer of sheet metal processing equipment.
importance of NPD projects recommends a tight risk
management to ensure that profitability and economic
attractiveness targets are achieved. LITERATURE REVIEW
Risks can be of many types: market, financial, technical The literature review section starts by briefly reviewing
and others. In project management, risk management specific characteristics of NPD processes which make it
practices have been focusing in three vectors, known as necessary for organizations to adopt appropriate risk
the project management triangle: schedule, cost and management practices. Next, a number of risk analysis
technical (or performance). Schedule risk is the methods proposed in the literature are reviewed.
possibility that a project will fail to meet scheduled
milestones and duration. Cost risk is the possibility that New Product Development
available budget or funds set for a project will be NPD is formally defined as the transformation of a
exceeded. Technical or performance risk is defined as the market opportunity and a set of assumptions about
115
product technology into a product available for sale of impacts of risk on NPD objectives; support critical
(Krishnan and Ulrich, 2001, p. 1). This definition, which decisions; monitor and review risks and create
is line with related literature, indicates that decisions transparency in the NPD risk management process.
taken in the design and engineering of new products are Risk analysis methods can be broadly divided into two
intrinsically linked to the needs of the markets where they types: qualitative and quantitative methods (PMI, 2013).
will be launched, in order to maximize the economic Qualitative methods of risk analysis are well developed
benefits of the new product for the organizations. In this and their relative ease of use has allowed a high degree
sense, NPD deviates from research and technology of implementation in organizations. Thus, this section
development, whose main objectives are, respectively, focuses on quantitative methods for risk analysis.
the knowledge expansion in a determined area or A probabilistic model for the NPD process in a highly
scientific field and the development of functional regulated industry, namely the pharmaceutical industry,
systems and prototypes of new materials, devices, is proposed by Blau et al. (2000). Subjective success
services and processes, (OECD, 2002). probabilities assigned for different phases of the
Although the importance of NPD is widely development process, capital costs necessary
acknowledged (Ernst, 2002), NPD projects are also cited (considering the resource constraints and scheduling
as complex processes, involving many organizational problems) and mature sales result in a distribution of the
units and engineering fields (Smith and Morrow, 1999) net present value (NPV) for a portfolio of new products.
and frequently lasting longer than expected, going over Browning et al. (2002) work focuses on the measurement
budget and suffering from performance problems (Kim of technical or performance risk probability and impact
and Wilemon, 2003, Steffens et al., 2007). Studies have of not achieving desirable product characteristics and
also mentioned high product fail rate in the marketplace specifications and proposes a method based on utility
(Crawford, 1987, Schlossberg, 1990). curves: for each product attribute, an utility curve
Other relevant characteristics of the NPD process have portraying designers or customers preferences over a
been cited by Hong-Bae and Hyo-Won (2008): (1) range of likeable values is defined. Additionally, three
iterative, i.e., dependent on complex design decisions values (worst, most likely and best) for each product
that require constant adaptation to suit multiple systems attribute, which result in a triangular distribution, need to
and technologies; evolutionary; meaning that design be provided. Simulations outcomes outside the target
progresses over time; uncertain; meaning that frequent value (above, if smaller is better, below if larger is better,
changes in design plans are expected as more information or outside the range if nominal is best) contribute to the
is collected during development and cooperative; since it quantification of performance risk.
is dependent on the inputs of several specialists with Bayesian belief networks probabilistic models that take
different disciplinary backgrounds (safety, economic, into account conditional dependencies between events -
aesthetics, engineering and others). are applied by Kayis et al. (2006) and Chin et al. (2009).
The issues mentioned above point to the need for In the first publication, causal diagrams depict the
rigorous risk management in NPD projects. In this sense, relationships between risk item events in different phases
risk analysis methods proposed in the literature are and, through the users elicitation of probabilities and
reviewed next. impacts of each event, risk levels can be quantified. In
the second publication, the elicitation of probabilities is
Risk Analysis Methods in New Product Development performed using a systematic probability generation
Project risk management is defined by the Project approach which reduces the number of times experts are
Management Institutes standard Guide to the Project asked to provide probabilities estimates by making
Management Body of Knowledge as the process of pairwise comparisons between various states.
conducting risk management planning, identification, Concurrency, i.e., use of parallel processing of NPD
analysis, response planning, and controlling risk on a activities to integrate design, manufacturing, marketing
project (PMI, 2013). Its objectives include: increase the and other functions, has been frequently used to reduce
probability and impact of positive events, and decrease new products time to market and associated costs. Choi
the probability and impact of negative events in the and Ahn (2010) proposes a model based on fuzzy theory,
project. The adoption of a risk management process by used to determine the impact of identified risk events, and
organizations has been cited as contributing to project a Markov process, to determine the probability of risk
management capabilities (Cooke-Davies, 2002), risk occurrences. The multiplication of the probabilities and
coping capacity and portfolio success (Teller and Kock, impacts results in the quantification of risk levels in a
2013). It also helps meeting schedule, budget and concurrent NPD. Wu et al. (2010) work also takes into
achieving customer satisfaction (Raz and Michael, 2001). consideration concurrency in NPD, and proposes a risk
In an investigation about the integration of risk early warning that combines graphical evaluation
management practices in NPD projects, Oehmen et al. research technique (GERT) - to overcome limitations in
(2014) concludes that among several categories of risk traditional program evaluation research technique
management practices, the most effective are: (PERT) concerning activity iteration and probabilistic
development of risk management skills and resources; looping - and failure mode and effects analysis (FMEA),
integration of risk management into NPD; quantification to support risk identification, assessment and control.
116
The model is used to compute schedule, cost and quality If value is larger than the price, then there is demand for
risk in NPD activities. the new product.
Park et al. (2011) presents a structured approach, which Using a set of equations, the value and demand for a new
starts by calculating the impact of risk factors using the product can be estimated. Based on the product value
Analytic Hierarchy Process (AHP), followed by the methodology, the proposed method for the calculation of
computation of the risk probability suing a Markov performance risk in NPD projects can be described.
process. Having calculated the two components of risk The product value methodology is based on the S-model
(probability and impact), an integrated risk degree of the used for explaining the diffusion of technologies and new
entire project is calculated, which is the harmonic mean products over their life cycle. Using the S-model based
of all risk factors during each phase of the project. on market equilibrium, the demand of a product is an
Marmier et al.(2013) proposes a model to support project analytical function of N competing products prices and
managers to evaluate associated risks (and risk treatment values (Cook and Wu, 2001):
strategies) in the adoption of technological novelties to
improve product development, in terms of duration and Di = fi (V1 , V1 , , VN; P1 , P2 , , PN ) (1)
cost.
Despite constituting valid proposals, mostly focused in where,
incorporating a multi-dimensional view of risk, the
models reviewed above do not present a model that Di demand for the ith product
results in a benefit (or profitability) risk analysis, which N number of competing products
is more familiar to managers willing to invest in the Vi value of the ith product
development of a new product. As mentioned previously, Pi price of the ith product
the justification of NPD projects is fundamentally linked
with market and economic objectives. This would imply The derivations towards the following equations are
linking the risk evaluation to a demand model to estimate extensive and its description is outside the scope of this
the potential sales of a new product. As such, the paper. The interested reader may consult Harry Cooks
proposed methodology is described in the next section. book Product Management: Value, Quality, Cost, Price,
and Organization for more details of such derivations.
PROPOSED METHODOLOGY The equations applied in the methodology proposed in
this paper are described below.
Existing product demand models are heavily based on
When prices and values of the products change
data from customers surveys. This may be unfeasible in
independently, demand for each product i is provided by
an early stage of NPD project. For example, Discrete
Choice models (Ben-Akiva and Lerman, 1985) have been the equation (2):
applied to quantify potential sales of a new product based
on the values for each product attribute (Wassenaar and 1
Chen, 2003). = { [ ]} (2)

In order to avoid the burden which is gathering a huge
amount of data from customers surveys, the proposed
methodology is based on a theoretical model named The constant K is calculated from the following
product value methodology, which is described in the expression:
following subsection.
K (3)

P
Product Value Methodology where,
The product value methodology proposed by Harry Cook
provides a method for estimating demand in new E price elasticity of demand
products (Cook, 1997). Although the methodology had average demand in the market segment
been developed in the context of the automobile industry, (units/competitor)
it has also been applied in the printing industry (Suh et average price in the market segment (monetary
al., 2010) and in the construction equipment (Bush, 1998, units/unit)
Freeman, 2000, Herington, 2000), demonstrating its
applicability in other industries. The approach described If the demands and prices of competing products in a
below follows Suh et al.s procedure in estimating the market segment are known from historical data, the linear
demand of a product with a new technology infused (Suh set of simultaneous equations represented by equation (2)
et al., 2010). can be solved, resulting in the following expression:
The basic idea behind the methodology is that of a market N[Di + DT ]
in equilibrium, with a number of competing products, Vi = + Pi (4)
K[N + 1]
with known attributes and demand. The market
equilibrium is disturbed with the introduction of a new where,
product, with improved attributes. Value of a product is
proportional to demand and has the same units as price.
117
DT = total demand for the market segment, levels of the baseline product. Thus, introducing the
baseline product value as V0 and the value of each new
The above expression can be understood as top-down products attribute target level (calculated from equation
approach to quantifying value of a product, since it is (6)) into equation (5), then the value of the new product
based mostly on market data. Another equation provides when all its attributes are on their target levels is
a bottom-up approach to quantifying product value, calculated. Knowing the price by which the new product
based on product attributes. Equation (5) provides the will be sold (Pi), and introducing the product target value
formula for the value of the ith product as a function of (Vi) into equation (4), along with the constant K, the
individual product attributes: number of competitors (N) and total demand (DT), results
in the target demand (Di) for the new product.
V(g1 , g 2 , g 3 , , g j ) Yearly projections of the total demand for the products in
(5) the market segment, the number of competitors, the
= V0 v(g1 )v(g 2 )v(g 3 ) v(g j )
average price and price elasticity of demand can be used
where, to forecast the demand of the new product over its
V = value of the product with j attributes, lifetime.
V0 = average product value for the market segment,
v(g) = normalized value for attribute g. Impact function
Risk has two basic components: probability and impact.
Each individual product attribute v(gi) falls within three In the proposed methodology, the probabilistic
categories: larger is better (LIB), smaller is better (SIB) component of risk is calculated using Monte Carlo
and nominal is best (NIB). The normalized value for each simulations on the three estimates for each of the new
product attribute g is given by equation (6): product attribute: the worst case value (WCV), the most
likely value (MLV) and the best case value (BCV), which
results in three additional estimates for the new products
(g C g I )2 (g g I )2
v(g) = [ ] (6) value, from equation (5), and three additional estimates
(g C g I )2 (g 0 g I )2 for the new products demand, from equation (4).
Modelled in a beta distribution, the simulations result in
where, distributions for the new products total demand (from
the product value methodology) along its lifetime.
gC = critical level for the product attribute, if the attribute The reason for choosing the beta distribution instead of
value exceeds, falls below or deviates from this value, other known distributions (Normal, Poisson, etc.), is
depending on attribute type (LIB, SIB or NIB), the value primarily related to the fact that managers are more
of the attribute goes to zero, making the product familiar in providing provide three estimates (optimistic,
undesirable, pessimistic and realistic) than other type of parameters,
gI = ideal level for the product attribute beyond which for example, standard deviations.
there is no additional increment in value; Additionally, and contrary to triangular distributions,
g0 = market segment average level for the product beta distributions put more emphasis on the values
attribute, around the most likely value, characterized by a smooth
= time fraction when the attribute is of importance curve around these values. This suggests that more
during the utilization of the product, also the value that confidence is placed on the most likely estimate instead
controls the slope and shape of the value curve. of the values on the edges, thus constituting a reasonable
assumption. Therefore, the beta distribution is used in
Before proceeding with the estimation a baseline product this study. Davis provides a description of the necessary
needs to be identified. The baseline product is an existing transformations to convert three input parameters into a
product in the market, with which the product to be beta distribution (Davis, 2008).
developed in the project is compared in terms of relevant The impact component requires additional
attributes and their levels. The total demand for products transformation. The methodology proposed in this paper
in the market segment where the new product will uses Browning et al. formula as the basis for computing
compete, the number of competitors in the segment, the risk (Browning et al., 2002). Additionally, an individual
average market price elasticity, the demand, price and utility function is used to characterize customers
attribute levels of the baseline product, all must be preference over different values for each product
known, so that the value of the baseline product can be attribute. The distance between the utility of the target
calculated using equation (4). value and the simulation outcome is computed as impact.
By setting the target, critical, ideal, market segment However, Browning et al. work still recognizes the
average levels and time fraction for each of the new importance of linking risk to market and sales objectives,
products attribute, then the value of each individual and adds a normalization constant to the equation to
product attribute can be calculated using equation (6). facilitate the conversion of utility to more intuitive
The new product target attribute levels are assumed to measures, for example, number of units expected to be
represent incremental improvements from the attribute sold. While recognizing the need to connect the
118
performance of a NPD project to market objectives, demand is greater than the target demand, then the impact
Browning et al. do not propose any model or mechanism is zero. A third column is a multiplication of each random
to support this conversion. sample and respective impact, which is calculated using
To overcome this issue, in the proposed methodology the the respective utility based loss function. The sum of this
impact component of risk is modeled using utility based column provides an approximation for the performance
loss functions (Ben-Asher, 2008). The conversion is risk.
performed in the following manner: for a pre-defined The demand model can also be used to assess the
range of expected unit sales for the new product economic attractiveness of the new product. Revenues
(minimum and maximum), a utility based loss function is are calculated by multiplying the demand forecasted by
built around lost unit sales. The worst possible outcome the price for which the product is expected to be sold in
of lost unit sales for the range, during the projected life each year. Providing estimations for the manufacturing
of the new product, must be provided. cost each year, and the cost of developing the product at
The utility based loss function is constructed by asking year 0 (the NPD cost), then a cash-flow analysis for the
managers series of questions: if you have 50:50 chance new product is developed. Establishing a discount and
of having a loss of [worst possible impact introduced] inflation rate, typical investment appraisal indicators
unit sales from the planned target or no loss, or having, such as the net present value (NPV), internal rate of
with certainty, a specific loss (certain amount) of [a high return (IRR), payback period and the annualized present
value, but lower than the worst possible outcome] units value (ANPV), which is more suitable to compare
sales from the planned target, what would you prefer?. projects with different durations, can be calculated.
There are three available answers: take the chance A sensitivity analysis can also be performed on the new
(lottery), certain amount or indifferent. This question is products attributes, to support the identification and
asked successively, alternatively changing the certain prioritization of product attributes, in terms of value
amount with high and low values, and narrowing the contribution. Sensitivity analysis is used to assess how
range. When managers (or the risk management board) uncertainty impact key parameters from a planned target.
are indifferent between the lottery and the certain Therefore, sensitivity analysis is performed around the
amount, then the certainty equivalent is found. Through target NPV (when all product attributes are on their target
functional approximation (Neufville, 1990), the levels). By building a tornado chart, Figure 1, one can
coefficients of the utility based loss functions are visualize the impact of each product attribute in the target
calculated. NPV: when a product attribute is in its worst case value
With this information, performance risk for product (left-hand side of bar, in red), NPV deviate negatively
development projects can be computed. Monte Carlo from the target value, and when it is in the best case value
simulation based on the three estimates for each of the (right hand side of bar, in blue), NPV deviate positively
new product attribute and the beta distribution is from the target value. For example, among all product
performed, which results in a simulation of the total attributes in Figure 1, product attribute 1 seems to be the
demand for the new product along its lifetime. one to have the highest impact in the overall product
Simulation outcomes below the target value (in LIB NPV. This analysis provides valuable information to
attribute type), above the target value (in SIB attribute designers and engineers.
type) and outside the nominal value (in NIB attribute
type) contribute to the risk measure. NPV
Finally, the continuous formula for performance risk in
product development project is provided by equation (7): Millions
TPM
R PM = f(P0 )[U(TPM PM0 )]dP0 (7) Product attribute 1

where, Product attribute 2
TPM target performance measure (target demand) Product attribute 3

f(PM0) probability density function of demand
outcomes, from Monte Carlo simulation
PM0 demand outcome Figure 1 - Sensitivity analysis on NPV
U(TPM - PM0) utility of lost units sales from target
demand The product value methodology presented in this section
is a theoretical model, only capable of providing rough
The calculation of risk can be performed in a discrete estimates of performance risk and economic
form: a spreadsheet containing the random samples for attractiveness of new products. A number of its
demand and a second column for the impact, which is the underlying key parameters are also dependent on
utility of the difference between the target demand and experience and best guesses of engineers and managers,
the simulated demand. If the simulation outcome for such as the manufacturing costs and product selling price.
119
This information needs inevitably to be updated as the 35 100%

NPD project progresses. Data should be of enough
Cumulative frequency
30
quality to ensure a realistic assessment. 80%
25
Frequency
20 60%
APPLICATION 15 40%
The proposed method for quantitative risk analysis in 10
20%
5
NPD was applied in three NPD projects (A, B and C)
0 0%
from the industrial partner, a medium sized manufacturer 0 50 100 150 200
of sheet metal processing equipment.
Total demand (units)
The application of the methodology was performed with (c)
the support of the Chief Technology Officer (CTO) of the
industrial partner. Software, written in Visual Basic for
Applications (VBA) has been developed to support the Figure 2 - Distributions of total demand for project B
calculations.
Data available from internal reports and funding Table 1 Risk analysis and economic attractiveness
applications concerning markets and competitors were indicators for each project
used as inputs in the demand model. Although some data
could be collected from projects documents, several
Projects Project A Project B Project C
assumptions needed to be made, with support of
engineers and other collaborators involved in the Indicators
projects. As such, the industrial partner was advised to Performance
226.2 191.9 226.2
risk
observe the outputs (expected demands for each product,
revenues generated and indicators such as NPV, IRR and Target NPV 705,451.62 1,913,955.83 841,149.06
Payback period) with extreme caution. As mentioned
before, project performance analysis may be delegated to Target IRR 63% 83% 70%
later stages of projects life cycle, when product Target
specifications are established and more market payback 2.05 1.78 1.75
information is collected. period
In an interview with the CTO, interval ranges for unit
sales expected for each NPD project were provided, as
well as the worst impact value for each range, in terms of Despite having already been launched in the market, the
lost unit sales. In the same interview, the CTO answered NPD projects considered in this application of the
the questions which supported the definition of the methodology have not yet reached their projected
impact function, as described previously. Finally, three lifetime. As such, it was not possible to verify whether
estimates (WCV, MLV and BCV) and target values for the results of the methodology corroborate what the
each product attribute was provided. Running a Monte industrial partner has been experiencing with the
Carlo simulation with the three estimates (see Figure 2 projects. Overall, the feedback from the CTO was
for the total demand distribution for project B) and using positive. The clustering of projects into ranges
respective impact function, performance risk for each contributes to a greater homogenization of risk
NPD project was calculated. management practices and a more rational project
For each NPD project, three product attributes were management inside the company.
chosen as representatives of the products value. With the
assumptions made in the demand model and a products
lifetime of three years, the demand for these years could
be estimated; all these, along with the prices and CONCLUSIONS AND FURTHER RESEARCH
manufacturing costs, served to develop a cash flow The methodology proposed in this paper presents an
analysis. Assuming a 10% discount rate, the NPV, IRR alternative approach to the quantification of performance
and Payback period (in years) were calculated. Table 1 risk in NPD. While methodologies for the calculation of
depicts the target NPV, IRR and Payback period for each schedule and cost risk are more developed, since any
project, which were calculated from the target values for project consists of an estimated duration and cost,
each product attribute. technical or performance risk is closely related to the
objectives and nature of the project. In the case of NPD
projects, a gap was observed with regard to a more
explicit connection between performance risk and the
economic attractiveness or value proposition of a new
product. This was accomplished by incorporating a
demand model into the risk analysis. Performance risk
was then defined as failing to achieve target levels of
120
valuable product attributes and specifications, reflected COOK, H. E. & WU, A. 2001. On the Valuation of Goods and
by losses in expected unit sales. Selection of the Best Design Alternative. Research In
The demand model used in this study may be criticized Engineering Design, 13, 42-54.
for being dependent on large amounts of market data. COOKE-DAVIES, T. 2002. The real success factors on
projects. International Journal of Project
Nevertheless, the model can be used in a first phase of Management, 20, 185-190.
NPD project and fed from inputs from engineers and CRAWFORD, C. M. 1987. New product failure rates : a
designers experience, and continuously updated with reprise.
new information from investments in market research. DAVIS, R. 2008. Teaching Note - Teaching Project Simulation
Thus, the model can help NPD teams to focus on the in Excel Using PERT-Beta Distributions. INFORMS
attributes that contribute the most to the value of the Trans. Ed., 8, 139-148.
product, thus reducing overall performance risk. ERNST, H. 2002. Success Factors of New Product
It is recommended that performance risk values should Development: A Review of the Empirical Literature.
be updated on project reviews or milestones, thus International Journal of Management Reviews, 4, 1.
FREEMAN, J. 2000. S-model assisted product realization.
characterizing a quantitative risk management process. Master, University of Illinois at Urbana Champaign.
This implies that simulations are done periodically. HERINGTON, D. 2000. Incorporating the S-model into the
Variations in performance risk levels are expected if product development process. Master, University of
some key parameters (target values, three estimates and Illinois at Urbana Champaign.
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collected throughout the development of the new product Framework for Product Development Process
Future work should be devoted to the integration with Considering its Characteristics. Engineering
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and cost (schedule and cost risk), and extended to a KAYIS, B., ARNDT, G., ZHOU, M., SAVCI, S., KHOO, Y.
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122
ENERGY INDICATORS: CRUCIAL TOOL TOWARDS SUSTAINABILITY

ASSESSMENT
Ftima Lima,1* Manuel Lopes Nunes,1 Jorge Cunha, 1 Andr F P Lucena2

1
2
PPE/COPPE, Universidade Federal do Rio de Janeiro, Brasil
* Corresponding author: [email protected], University of Minho, Campus de Azurm, 4800-058 Guimares, Portugal
KEYWORDS considering energy and energy planning using a SD

perspective. The need to adopt a more integrative
Sustainable Development, Energy Indicators,
approach to energy planning by incorporating
Renewable Energy Sources
environmental, social and economic aspects into
decision-making process is a tendency that tends to
ABSTRACT replace decision-making exclusively based on economic
premises (Ferreira, 2007). This shift is perfectly attuned
Energy has been considered an intrinsic factor to attain
with the concept of sustainability, emphasizing
Sustainable Development (SD). However, it has not
interaction between society and surrounding natural
always been viewed, projected or recognized within
environment (Environmental Protection Agency (EPA),
sustainabilitys scope. To address this issue, the use of
2012), while meeting current needs without
indicators, namely Energy Indicators for Sustainable
jeopardizing the needs of future generations (Singh;
Development (EISD), allows to convey to policy-makers
Murty; Gupta and Dkshit, 2009; Ferreira, 2007;
multidimensional implications of energy related
Sheinbaum-Pardo; Ruiz-Mendoza; Rodrguez-Padilla,
decision-making. Besides contributing to assess current
2012; and Mainali; Pachauri; Rao, and Silveira, 2014).
energy trends at a national level, this tool,
Notwithstanding, in spite of this acknowledgement,
contextualized within a countrys economic and energy
current energy system reflects unsustainable patterns
mix, allows to establish a comparison between different
(UN as cited in Vera et al., 2005; Ferreira, 2007;
countries. This effectively contributes to identifying
Streimikiene, Ciegis and Grundey, 2007; and EPA,
common concerns and strategies to overcome barriers
2012) with repercussions for achieving sustainable
towards sustainable development. This paper compares
development objectives.
the path to SD in Portugal and Brazil by making use of
Despite early recognition of energys vital role within
the EISD framework.
SD, worldwide energy gap has been continuously
increasing, showing conflicting trends. Along with an
INTRODUCTION
increase in world energy demand (estimated between
27% and 61% by 2050) there is still a significant
Energy has been considered an intrinsic factor to attain
percentage of people without basic energy needs (WEC,
Sustainable Development (SD), being internationally
2013). According to Kaygusuz (2012) and WEC (2013),
recognized as a driving force to reduce worldwide
projections estimate that up to 1.2 billion people will
disparities, contributing to boost economic and social
continue to not have access to electricity services in
aspects, hence improving overall living standards
2030, whereas 2.8 billion will endure lack of access to
(Ferreira, 2007; Vera and Langlois, 2007; Vera,
clean cooking facilities. This paradox is aligned with
Langlois, Rogner, Jalal and Toth, 2005). In this sense,
Bierbaum and Matson (2013) perception of energy as an
countries need to develop new strategic approaches to
essential factor for development while yet being, to a
energy and energy planning, where redirecting and
large extent of the population, still a mere aspiration,
realigning them with SD goals should be a major
consequently turning it into a challenge in terms of
objective (Vera and Langlois, 2007). Yet, energy
sustainability. This challenge is exacerbated by the
development has not always been viewed, projected or
unpredictability of current energy policy trends, where
recognized within the scope of sustainability.
technological improvements can contribute either to
The role of energy within the sustainability concept has
shift energy policies towards fossil fuels or renewable
suffered many changes, and more specifically the
energy sources (RES). Regarding this issue, WEC
perception of energy has evolved over time, becoming
(2013) emphasizes pivotal role played by energy policy
more holistic. This progress becomes quite patent when
123
makers, potentially instigating or preventing access to ENERGY INDICATORS FOR SUSTAINABLE
sustainable energy systems. Therefore a sustainably DEVELOPMENT (EISD)
driven decision requires an understanding of different
The recognition of the relevance of indicators to inform
implications of energy policies on social, economic and
decision-making with regard to SD has been associated
environmental dimensions (Vera et al., 2005; and Vera
to increasing international exposure of energy subject,
and Langlois, 2007).
along with its acknowledgment as a key factor towards
Therefore, as a result of increasing recognition of
deployment of SD objectives (Vera and Langlois, 2007).
pivotal role of energy to achieve SD goals, a series of
Its increasing importance is therefore associated with
international institutions [International Atomic Energy
shifts in perception of the role of energy and power
Agency (IAEA) in cooperation with International
planning. Contrasting with traditional energy planning,
Energy Agency (IEA) and United Nations Department
integrated energy planning incorporates all dimensions
of Economic and Social Affairs (UNDESA), the
of sustainability aligning it with sustainable
Statistical Office of the European Communities
development concept. As this shift takes place, new
(Eurostat) and the European Environment Agency
tools and methodologies are required to integrate supply
(EEA)] joined efforts to develop a set of Energy
and demand options and, in order to promote an
Indicators for Sustainable Development (EISD) with
accurate integration of available alternatives, it is
worldwide applicability (Vera and Langlois, 2007;
necessary to contemplate different aspects of energy use
Abdalla, 2005; Vera et al., 2005 and IEAE, 2005). By
within economic, social and environmental dimensions.
accounting for socio-economic and environmental
Hence, within this context, indicators can be a useful
nexus, EISD framework contributes to integrating the
tool, promoting communication between stakeholders
concept of sustainable development into energy policy
regarding energy issues and sustainable development
(Streimikiene et al., 2007). According to Abdalla (2005)
(Vera and Langlois, 2007 and Vera et al., 2005). By
this initiative filled a gap by developing a globally
providing means to clarify statistical data, energy
standardized energy focused indicators, totalizing 30
indicators elucidate different aspects affecting energy,
EISD, classified into 7 themes and 19 subthemes
environment and socio-economic welfare and their
distributed within social, economic and environmental
intricate connections, allowing to establish causality
dimensions (Vera and Langlois, 2007).
nexus that would be otherwise overlooked (Vera and
This study assesses the potential applicability of EISD
Langlois, 2007 and Vera et al., 2005). Furthermore,
framework to the Portuguese energy sector, verifying its
besides monitoring implementation of sustainable policy
compatibility with national energy indicators. This
strategies (Vera and Langlois, 2007, Vera et al., 2005
analysis took into consideration main international (e.g.
and Abdalla, 2005), it allows establishing a comparison
EU level) and national energy policy concerns, cross-
between different countries, enhancing energy systems
referencing them with SD principles, emphasizing
inherent discrepancies (IEAE, 2005).
common underlying themes throughout sustainability
EISD framework is energy focused, contemplating for
dimensions and contributing to determine focal EISD.
instance, through energy prism, social, environmental
Once, core indicators have been identified in accordance
and economic issues, evidencing that indicators are not
to main policy priorities, reflecting both its objectives as
independent. Although initially considering four main
well as its main concern areas, adequacy of national
dimensions of influence (economic, social,
statistical basis was verified, allowing to determine
environmental and institutional), practical refinement of
existence of potential data barriers towards apllicability.
this tool implied the abandonment of institutional
Besides contributing to assess current energy trends at a
indicators due to their qualitative and hardly quantifiable
national level, this tool, contextualized within the
nature (Vera et al., 2005 and IEAE, 2005).
countrys economic and energetic matrix allowed, as
Notwithstanding, as illustrated in Figure 1, in practice
emphasized by IEAE (2005), to establish a comparison
these four dimensions are still connected, since
between Portugal and Brazil, enhancing energy systems
institutional dimension is no longer viewed as an input
inherent discrepancies.
to the system's assessment but as a response, validating
This paper is organized as follows. Section 2 focuses on
interconnectivity and cause-effect nexus. Environmental
the importance of indicators as tools for assessing
dimensions suffers pressure from both social and
progress towards sustainability goals. Section 3
economic dimensions, which in turn create the
establishes the applicability of EISD framework to
conditions for the evolution of economic and social
Portuguese energy context. Section 4 features relevant
dimensions, triggering a response from institutions
themes for a cross-country application of EISD taking
through the development of corrective policies affecting
into consideration identified energy policy concerns.
all previously mentioned dimensions (Vera et al., 2005
The final section draw the main conclusions of the paper
and IEAE and UNDESA, 2007). Regarding this issue
and presents future lines of research.
IEAE and UNDESA (2007) further state that despite
this shift of framework, determination of cited causality
124
and interrelationships are at the core of this sustainable dependency on imports and strategic fuel stocks for
development assessment tool. security of supply (Vera et al., 2005). These indicaotrs
aim to determine how overall energy and its national
status and trends affect economic development and
potentially redirects it towards sustainability.
Environmental Dimension
Widespread environmental awareness, has resulted in
greater prominence of environmental issues, which were
progressively featured and integrated in national
development policies, such as the case of the energy
sector (Antunes, Santos, Martinho and Lobo, 2003).
This entails in a multiplicity of impacts that can be
Figure 1- Sustainable Dimensions Interaction (Based on: ascribed throughout energy's life cycle, which varies
Vera et al., 2005 and IEAE and UNDESA, 2007). greatly according to technology and ultimately affects
different natural resources on multiple levels.
Vera et al. (2005) and IEAE and UNDESA (2007) Environmental effects resulting from energy production,
identified main issues within each of these dimensions transport and use should not be neglected, potentially
with the purpose of defining universal energy indicators. raising climate change, deforestation and resource
depletion issues (Vera and Langlois, 2007). Therefore,
Social Dimension energy indicators within this dimension (see Annex 1)
Energys connection to social dimension is unequivocal, focus precisely on energy-related impacts on the
since its accessibility in a secure, reliable and affordable atmosphere, water and land (Vera and Langlois, 2007).
manner determines, whether directly or indirectly, The indicators associated with the economic,
overall social welfare. The extent of this environmental and social dimensions are listed in Annex
interconnectivity and multiplicity of its implications was I.
exposed by Vera et al. (2005, p. 276) and Vera and
Langlois (2007, p. 878), allowing to draw a comparison APPLICABILITY OF THE EISD FRAMEWORK
between developed and developing countries on subject TO THE PORTUGUESE ENERGY CONTEXT
matters as diversified as poverty, employment Applicability and implementation of EISD on a national
opportunities, quality of life, education, demographic level is a country-specific process, requiring informaion
transition, indoor pollution, health and gender and age- about the inputs to the energy system and the
related issues. This reflects simultaneously how identification of national energy and sustainability
universal access to modern energy services shapes priorities. This requires an adequate, consistent and
crucial aspects of every day life, that are sometimes available statistical energy database (Vera and Langlois,
taken for granted, and the need to achieve sustainable 2007). Effectively, convergence between main national
development worldwide. Indicators featured within this objectives, political guidelines and the main principles
dimension are divided into equity and health themes, underlying EISD application facilitates the identification
with sub-themes such as accessibility and affordability of a set of indicators more apropriate for a national
to modern energy services (see Annex 1). These are context within each sustainability dimension, as
considered crucial to achieve SD goals by contributing illustrated in Figure 2 (see Annex I). Largely because,
to extinguish poverty while promoting social and for the case of Portugal, main national energy priorities
economic development. (e.g. entailing a reduction of foreign energy dependence,
promoting energy efficiency and CO2 emission
Economic Dimension reduction DGEGa, 2014) are shaped by European
Relevance of modern energy services, and particularly Union (EU)s energy strategy. Consequently, as Vera
electricity, in fostering economic growth while and Langlois (2007) emphasized, there is an alignment
promoting social and environmental improvements, between core energy indicators and policy priorities that
made several authors (Cima 2006, Vera and Langlois, might become useful to promote future monitoring of
2007, Vera et al., 2005 and Abdalla 2005) view energy progress towards sustainability goals.
availability and accessibility as crucial issues that should Taking into consideration the previously mentioned
be taken into consideration in the energy planning complementary nature, national statistical database can
process. Energy indicators within this dimension are serve as basis for an EISD sustainability assessment.
divided into use and production patterns and security of Portuguese energy system is a reflex of the current
supply (see Annex 1). According to these main aspects, socio-economic context. It is characterized by a very
they are sub-divided into the following sub-themes: pronounced dependency on external energy sources, a
overall use and productivity, supply efficiency, high economic energy intensity and an increasing
production, end use, fuel mix and prices and incorporation of RES into the energy matrix. Current
125
concerns regard energy use patterns that are illustrated Other major concern regarding the energy system is
in both Figures 3 and 4, which depicts energy use per foreign energy dependency. This indicator is of extreme
capita (ECO1) and energy use per GDP (ECO2), importance, since external energy dependency is one of
respectively. These indicators reflect the relevance of the major energy challenges that Europe, in general, and
energy, and particularly electricity, for socio-economic Portugal, specifically, have to contend with. It has
welfare. Although, as shown in Figure 3, electricity numerous implications on economic and environmental
consumption has grown substrantially in recent years, dimensions. Therefore, it is measured by an EISD,
that is not driven by increasing population, namely, the Net Import Dependency Indicator (ECO15).
simultaneously implying an improvement of quality of According to IEAE (2005, p.83) it reflects the extent to
life as well as a substantial increase in resource which the country relies on imports to meet its energy
consumption, and adverse environmental effects from requirement.
energy production and use. Resorting to RES
incorporation in energy mix contributes towards SD
goals, improving environmental aspects of energy
consumption and use.
Figure 5- Evolution of Net Import Dependency. (source:

DGEG, 2014)
Figure 3- Energy Use per Capita (source: DGEG, 2014).
National key statistics show a high external energy
The recent socio-economic recession is also patent in dependency, where dependency on oil prevails.
Figure 4, illustrating energy intensity, portraying the However, a decreasing trend in favour of natural gas and
relationship of energy use to economic development. also coal, in 2012. The later was due to an adverse
Both primary and final energy consumption have peaked hydrological period that affected hydropower
in 2005 and have since then declined, contrasting with production. The observed high vulnerability to
electricity consumption, which shows an increasing conventional energy sources, such as oil, and more
consumption trend towards 2012 while GDP and energy recently natural gas, can be limited, however, by
consumption decreased. This reflects the recent adoption of policies that stimulate domestic energy
economic crisis and points towards an unsustainable production, diversify the energy mix and increase energy
electricity consumption trend that may have social and efficiency (IEAE, 2005).
environmental repercussions. Notwithstanding, Despite the main national domestic energy sources being
according to IEAE (2005) there is room for of renewable nature, namely hydropower, national
improvements in energy efficiency and decoupling of energy system is still largely dependent on fossil fuel,
energy consumption and economic development, which namely oil and coal. In order to revert this trend, the
could contribute towards sustainability. Portuguese Environmental Agency (APAa) (2013)
further states that increasing incorporation of RES is
required to simultaneously contribute to diversifying
national energy mix, as portrayed in Figure 6.
Figure 4- Energy use per GDP (source: DGEG, 2014).
126
resources, which contributes to improving economic
competitiveness through reduction of consumption and
costs (ADENE, 2014)., This, in turn, releases resources
for new investments, hence stimulating internal demand.
These concerns have been translated into lines of action
by developing a set of plans and programs, among
which: the Action Plan for Renewable Energy
(PNAER); the Action Plan for Energy Efficiency
(PNAEE); and the Program for Energy Efficiency in
Public Sector (ECO. AP). Meanwhile, PNAER,
Figure 6- Evolution of RES share in energy and establishes main national goals and guidelines regarding
electricity (sources: DGEG, 2014 and REN, 2014). share of renewables incorporated in transportation,
Note: Generation capacity information only available electricity and air conditioning sectors, ensuring
since 2003. accomplishment of both energy and climate change
Although there has been a recent decrease in electricity goals at national and international level. Among which
production from RES (see Figure 6), essentially due to ensuring by 2020 that 31,0% of RES in final energy
climatic reasons, the Portuguese domestic energy consumption, 55,3% in electricity production, 30,6% in
production is essentially renewable based. In spite of air conditioning and 10,0% in transportation (INESC
this decrease, in 2011 Portugal was considered the third Porto and AT Kearny, 2012). In spite of this, above
country within EU-15 with the greatest incorporation of cited authors (INESC Porto and AT Kearny, 2012) also
RES in electricity production (APA, 2013), making an emphasize a complementary set of goals aiming to
important contribution towards sustainability, while reduce external energy dependency by 74% in 2020,
increasing energy security grounded on RES based resorting to RES; reduction of 25% of net imports,
diversification of energy mix and reducing energy entailing a reduction of imports estimated in 60 million
related environmental impacts. barrels of oil; development and consolidation of clusters
promoting RES technologies. These measures promote
SD by ensuring accomplishment of goals regarding
ELECTRICITY SECTOR: RELEVANT THEMES GHG emissions, through the use of RES and energy
UNDER EISD FRAMEWORK efficiency (INESC Porto and AT Kearny, 2012).
Despite the analysed countries Portugal and Brazil - Although set in a different socio-economic context,
being inserted in different geo-political and economic Council of Ministers Resolution, n. 20/2013 advocates
contexts, a comparative analysis of each conutry's a joint revision of both plans in order to ensure
electricity sector is not only possible but desirable. For accomplishment of both socio-economic and
Portugal, similarly to remaining EU countries, the 2020 environmental objectives. Namely by realigning
Strategy answers the current need to adopt an energy reduction of primary energy consumption and
model that promotes a more efficient and sustainable use contribution of the energy sector towards GHG emission
of energy, simultaneously contributing to reduce foreign reduction, further contributing to make options about
energy dependency and mitigate climate change investment in energy efficiency or in RES a clearear
(Sustainable Economy Act, Law 2/2011). Overall it decision.
envisages on a European level, 20% GHG emission Although not within the EU context, Brazilian energy
reduction, considering 1990 level; 20% of energy from system also establishes environmental protection and
RES in final energy consumption, and a reduction of energy conservation as major goals within National
20% of primary energy consumption, from 2007 Energy Policy (Law n 9.478, 6 August 1997), requiring
baseline (Council of Ministers Resolution, n. 20/2013). an energy model that contemplates, among other
Current Government has strived for implementation of objectives, energy security; universal accessibility and
an energy model based on economic rationality and affordability as well as diversification of energy mix
sustainability principles, through adoption of energy (Junior, 2012). Given this policy overview, common
efficiency measures and use of endogenous energy concerns among both OECD and non-OECD countries
sources, as well as a reduction of additional costs that enhanced the need to diversify national energy mix,
increase energy price. constituting a mutual objective between Portugal and
Portuguese Government further states that among its Brazil. Although resulting from different policy
main objectives is the reduction of GHG emissions in a frameworks, these countries have a confluent
sustainable manner, along with reinforcement of perspective for its accomplishment, envisaging
diversification of primary energy mix, hence increasing complementary actions on both supply and demand side,
the countrys security of supply (ADENE, 2014). This namely through investment in RES and promoting end-
strategic approach also envisages measures beyond the use efficiency. Regarding this issue, Cima (2006) further
supply side, focusing on an efficient use of energy underlines an alignment between these two suggestions
and sustainability purposes. RES deployment is
127
considered a crucial contribution to reduce external Figure 7- Electricity Generation by Fuel Share in
energy dependency, while simultaneously promoting Portugal. (Source: World Bank, 2014)
environmental and energy sustainability. Energy
efficiency, in turn, contributes towards a better use of
available resources (see Geller as cited in Cima, 2006).
Notwithstanding, despite overall common targets,
diversification requires a country level approach, given
that different countries possess different endogenous
resources. Regarding this issue, and largely reflecting
electricity generation composition, final energy mix will
never result from a combination of different alternatives
in a unique solution, since there is a multiplicity of
pathways to low carbon economy. The final composition
of a countrys energy mix will, therefore, be determined
by a combination of several factors among which
political choices, market forces, available resources Figure 8- Electricity Generation by Fuel Share in Brazil.
and public acceptance (Ristori, as cited in European (Source: World Bank, 2014)
Comission (EU, 2011b, p.24). Therefore, given these
converging points within different countries energy Despite Portugals commitment towards renewables
strategies, the energy comparison here presented will being considered as a significant contribution towards
focus on main concern areas encompassing energy systems diversification and sustainability (MEID, 2010)
intensity and energy dependence, in view of the and of the significant contribution from hydropower and
abovementioned interconnection to RES deployment wind power, the Portuguese energy mix still presents a
and efficiency. Ultimately, the EISD analysis should significant external dependence in fossil fuel (in Figure
help policy makers to ponder different energy sources 9). Although recently there has been a decrease in both
based on a sustainability perspective encompassing net imports and energy use, most likely associated with
different dimensions. This analysis can, therefore, help current economic recession and despite the increasing
assess the consequences regarding safety, security and incorporation of RES in national energy mix, Portugal
affordability of energy supply. still requires contribution from fossil sources in order to
Overall regarding the share of RES in electricity fulfill its energy requirements. While Portugal has
generation, a trend was identified among the two consistently presented high dependency values as a
countries that is in line with abovementioned context. result of their lack of endogenous fossil fuels, as
For the featured countries it was observed a progressive illustrated by Figure 9, Brazil presents a contrasting
reduction in oil contribution to electricity generation and tendency, with the reduction in the dependency on
a progressive increase of natural gas and non-carbon foreign energy sources, coinciding with an increase in
renewables, including hydropower, as well as other RES endogenous energy sources, resulting from a series of oil
sources namely wind, biomass, and solar. This discoveries.
progression relates to the main aspects regarding energy
within sustainability scope, encompassing
diversification of energy mix through the increase of
non-carbon and renewable alternatives having positive
repercussions at environmental, security and
diversification of supply levels. Both focused countries
(Portugal and Brazil) revealed dominance of
hydropower within RES, as illustrated in Figures 7 and
8.
Figure 9- Comparative Net Imports Evolution (Portugal

and Brazil). (Source: World Bank, 2014)
Investments in hydropower, fossil fuels and biofuels

have increased significantly Brazils capability to reduce
external energy dependency while increasing supply
(MME and EPE, 2007). Therefore, although Portugal
has adopted several policies to decrease risks associated
to import dependency, namely by promoting domestic
128
energy production, resorting to RES, ultimately resulting increasing RES growth rate, fossil fuel consumption has
in a more diversified energy mix comparatively to not decreased either, further requiring implementation of
Brazil, still dependency rates were higher. This previously mentioned policies, favoring progressive
apparent contradiction is explained by two main factors, incorporation of natural gas and RES.
related to the nature of endogenous resources. Portugal's
domestic resources are of a renewable nature, being
considered intermittent energy sources, making energy
systems highly dependent on climatic conditions as well
as energy imports, to ensure security of supply. This
necessarily implies in an increased foreign energy
dependency. Whereas Brazil, despite being less
diversified, presents lower net import dependency also
as a consequence of the nature of their domestic energy
sources, since as previously mentioned, the availability
of petroleum resources and development of production
has led to a sharp decrease in net import dependency
and an increase in energy security. Notwithstanding,
prioritizing investments in alternative energy sources has Figure 11- Evolution of GHG emissions in Brazil.
major repercussions not only on energy mix (Source: Observatrio do Clima, 2014)
diversification and energy security but also on the
environmental dimension, especially regarding the The vital role of energy for socio-economic
reduction of emissions associated with climate change. development has already been established in Vera and
Regarding global warming, antropogenic emissions Langlois (2007). This interconnection is reflected in the
resulting from energy sector constitute one of the energy intensity ratio, which establishes the energy
greatest GHG emission sources, mainly CO2 resulting required to promote development.
from fossil fuel combustion (Lucena, 2006). In spite of
this, progressive reduction is observed in both countries Therefore, as established throughout this comparative
regarding GHG emissions (resulting from CO2, CH4 and analysis, adoption of policies favoring energy efficiency
NO2) as illustrated by Figures 10 and 11. Although, on a should have positive reflections on electricity and
worldwide level, due to larger share of renewables in energy intensity, since its use is associated to
national energy mix, Brazil tends to present lower technological progress, induced by economic growth
emission rates (MME and EPE, 2007), despite being and by modernization of installations in all sectors of the
self-sufficient regarding fossil fuels, since 2006. economy, thereby improving the efficiency of the energy
system (Ferreira, 2007, p.22). Furthermore, APA
(2013) claims that from the 2005 onwards, Portugals
energy intensity has decreased, attempting to reach EUs
level. This decreasing trend from 2005 to 2009, visible
in Figure 12, is associated with an efficiency gain
motivated by technological improvements and rather
modest investments in energy efficiency (Melo et al.,
2013). The most significant drop, from 2010 onwards, is
associated with several factors, from which Melo et al.
(2013) highlight the economic crisis leading to a
reduction in production and shut down of several
activities, allied to increasing energy prices, making
energy conservation and efficient measures appealing.
Figure 10- Evolution of GHG emissions in Portugal.
Effectively there is an overall tendency for a decrease in
(Source: APAb, 2014).
enery intensity which is a positive result, since less
energy is used to generate wealth (GDP), as shown in
According to Joint Research Center (JRC) (2013) recent
Figures 12 and 13. This is the case of Portugal, as shown
decrease in global emission trend points towards a
in Figure 12, where a progressive trend towards a
paradigm shift regarding human related energy-use.
reduction of energy intensity is registered. In spite of a
Overall, a series of measures have been implemented
decreasing trend, further end-use efficiency is
aiming to promote sustainable development while
challenging since it involves behavioral aspects rather
accomplishing legal obligations regarding
than the technical adjustments realized in the previous
environmental protection (Antunes, et al., 2003), among
period.
which reduction of fossil fuels through the use of RES is
emphasized. Regardless, JRC (2013) emphazisis despite
129
CONCLUSIONS AND FURTHER RESEARCH
Energy and particularly electric power have been
rightfully considered at the core of SD. Notwithstanding,
in order to ensure its sustainability it is necessary to
promote an accurate and inclusive assessment,
encompassing three main sustainability dimensions
(social, economic and environmental) while promoting
participatory approach from decision-makers. This
requires an in-depth and multi-dimensional analysis to
encompass multiplicity of linkages that characterize it,
Figure 12- Electricity Intensity and Energy Intensity in making the use of indicators a crucial tool in sustainable
Portugal. (Source: World Bank, 2014) decision-making process. In this context, EISD
framework has been suggested for being an energy
Brazil has, comparatively to Portugal, presented a focused indicator that provides means not only to
fluctuating behaviour (see Figure 13) associated with clarify statistical data, but to help establishing causality
both a better energy use and changes to production nexus allowing to elucidate about different aspects
structure (MME and EPE, 2007). Overall, there has related to energys influence in multiple dimensions
been a slight increase in the level of primary energy (Vera and Langlois, 2007 and Vera et al., 2005).
intensity after the 1990s associated with economic However, the applicability and posterior implementation
development. In terms of electricity, Brazil has of EISD on a national level is a very country-specific
constantly increased its energy intensity, which is a process, entailing how complex and diverging energy
result of socioeconomic develpment and policies for the systems can be. Overall national key statistics database
universalization of access undertook throughout the seems to be consistent with the application of important
period. This result should not, however, be analyzed EISD framework for assessing energy sustainability.
from a purely energy point of view, since, from the This trend is supported by convergence between main
social and economic perspective, it constitutes an national energy objectives and political guidelines and
important improvement in social welfare and quality of main principles underlying EISD application, facilitating
life in lower income segments of the population. identification of a set of indicators more apropriate for
national context within each sustainability dimension.
This enables as well cross-country assessment,
facilitating identification of main common concerns and
strategies to overcome barriers towards sustainable
development. Universal energy sustainability assessment
revealed among both OECD and non-OECD countries
underlies common concerns regarding, for instance,
diversification of energy matrix and resorting to RES
deployment, which are converging strategies to achieve
the mutual goal of sustainable development. Future
adoption of EISD would allow improvements on several
levels, contributing to a better understanding of the
reasoning behind recent evolution of energy trends and
Figure 13- Electricity Intensity and Energy Intensity in its influence on different socio-economic and
Brazil. (Source: World Bank, 2014) environmental segments. Improvements in the analysis
sould be achieved by adopting a decomposition
Overall, the need to integrate energy within sustainable approach to energy intensity indicators. Such an
development framework, has led countries to adopt approach would contribute to reinforce the basis for
different energy models based on international pledges future decision making as a way to reduce energy
and national energy policies in order to improve and systems existing concerns.
achieve established goals, helping them to reduce
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131
ANNEX I
Table 1: EISD listing (Own Elaboration, Adapted from: Vera and Langlois, 2007 and Vera et al., 2005)
Theme/Sub-theme Initials Energy Indicator
Equity
Accessibility SOC1 Share of households (or population) without
electricity or comercial energy, or heavily
dependent on noncommercial energy
Affordability SOC2 Share of household income spent on fuel and
Social
electricity
Disparities SOC3 Household energy use for each income group and
corresponding fuel mix
Health
Safety SOC4 Accident fatalities per energy produced by
fuel chain
Use and Production Patterns

Overall Use (ECO1) Energy use per capita
Overall Productivity (ECO2) Energy use per unit of GDP
Supply Efficiency (ECO3) Efficiency of energy conversion and distribution
Production (ECO4-5) Reserves-toproduction Ratio Resources-to
production ratio
End Use (ECO6-10) Industrial energy intensities Agricultural energy
intensities Service/comercial energy intensities
Economic
Household energy intensities Transport energy

intensities
Diversification (ECO11-13) Fuel shares in energy and electricity

Non-carbon energy share in energy and electricity
Renewable energy share in energy and electricity
Prices (ECO 14) End-use energy prices by fuel and by sector
Security
Imports (ECO15) Net energy import dependency
Strategic Fuel Stocks (ECO16) Stocks of critical fuels per corresponding fuel
consumption
Atmosphere
Climate Change (ENV1) GHG emissions from energy production and use
Environmental
per capita and per unit of GDP

Air Quality (ENV2-3) Ambient concentrations of air pollutants in urban
reas
Air pollutant emissions from energy systems
Water
Water Quality (ENV4) Contaminant discharges in liquid effluents from
energy systems including oil discharges
Land
Soil Quality (ENV5) Soil area where acidification exceeds critical load
Forest (ENV6) Rate of deforestation attributed to energy use
Solid Waste Generation and (ENV 7-10) Ratio of solid waste generation to units of energy
Management produced
Ratio of solid waste properly disposed of to
total generated solid waste
Ratio of solid radioactive waste to units of energy
produced
Ratio of solid radioactive waste awaiting disposal
to total generated solid radioactive waste
Figure 2- Convergence of Main International and National Objectives and Political Guidelines and Main Principles
underlying EISD application. (Own Elaboration. Sources: DGEG, 1012 and Vera and Langlois, 2007)
A PILOT STUDY ON THE PUBLIC PERCEPTION OF RENEWABLE

ENERGY SOURCES IN BRAZIL
Lunardo de Sena1, Paula Ferreira2* and Manoel de Sena3

1
Instituto Federal do Rio Grande do Norte, Brazil
1
Universidade do Minho, Department of Production and Systems, Portugal
3
Universidade Federal de Pernambuco, Departamento de Estatistica, Brazil
* Corresponding author: [email protected], Universidade do Minho, Department of Production and Systems, Campus Azurem,
4800-058, Guimares, Portugal
KEYWORDS relevant issue both from the viewpoint of the central

Renewable Energy, Public perception, Brazil decision-maker and from the private investor (Ribeiro &
Ferreira Arajo, 2011). However, studies in this sense,
ABSTRACT in Rio Grande do Norte (RN) and even in Brazil are still
very much limited.
Renewable energy sources (RES) are often associated RN suffered for years because of drought and lack of
with the production of clean electricity and free of water, caused by "excess" solar incidence and lack of
significant adverse impacts. However, several studies, rain. The region now has the opportunity to benefit from
mostly in Europe and the United States of America the same characteristics. Due to its geographical
(USA), highlight that social impacts and the position and its climate, the RN has very high solar
management of the grid issues should not be energy and wind power potential (Silva, Oliveira &
overlooked. Some of these impacts are positive, as it is Marino, 2008). Although RN regions own several
the case of its potential contribution to local and natural resources such as oil, salt, minerals, among
regional job creation or development. However, issues others, the benefits to the population are still scarce. In
such as noise, changes in the landscape or availability of 2010 the RN was producing sufficient energy to meet
land for agricultural activities are often a matter of their own needs for energy consumption (considering
controversy or rejection by the population. The energy wind, thermal and biomass). With over 1.5 GW of wind
matrix in Brazil is already largely supported on power estimated for 2014, RN can achieve the ability to
hydroelectric plants. However, following the example generate its own electricity consumption only with wind
of other countries, other renewable technologies with power (CERNE, 2014). In addition, the new RES
particular emphasis on wind or solar power have been investments for electricity production are expected to
gaining relevance. This paper addresses the integration bring considerable financial and social benefits for RN.
of renewable energies in the Brazilian energy matrix and The development of a new energy matrix supported on
the evaluation of its external impacts and social renewable energies should acknowledge the
acceptability. For this, a questionnaire is proposed involvement of the local population as a success factor.
aiming to evaluate the knowledge about RES and its For this it is fundamental to assess their knowledge and
social acceptance. The results of its first application in a acceptance of the RES power generation technologies
test group are described drawing conclusions both on from renewable energy sources, identifying relevant
the implementation procedure and the expected criteria and major sources of concerns. Ribeiro &
outcomes. Ferreira Arajo (2014) proposed to address this aspects
using a questionnaire targeting the portuguese
INTRODUCTION population. Following this, this paper aims to analyze
The energy strategy directed to renewable energy the possibility of using a similar approach for RN testing
sources (RES) and the debate about renewable scenarios the questionnaire implementation in a pilot group.
in electricity systems is evident in the case of European
countries (European Commission, 2014), but also in SOCIAL ASPECTS OF ENERGY PROJECTS
countries such as Brazil (Pereira, Costa, Costa, Drake & According to Conrad and Henner (2011), the majority of
La Rovere, 2013), Japan (Nasser & Yuji, 2012) or research studies on renewable energies are focused on
Australia (Byrnes, Brown, Foster & Wagner, 2013). technical and economic aspect, but some concerns with
Recent studies show concern about the inclusion of the social aspects need to be addressed. The social aspects
social dimension in the planning of energy systems, as a of energy decisions are often difficult to evaluate
135
(Ribeiro & Ferreira Arajo, 2011). However, to achieve would avoid some of the problems encountered in some
the success of such energy projects, this aspect needs to countries related to opposition of society.
be taken into consideration ensuring the acceptability of Kaldellis, Kapsali, Kaldelli and Katsanou (2013) report
projects and avoiding potential negative reactions of the that, considering the current situation of the energy
population (Devine - Wright, 2013; Bidwell, 2013). industry, both nationally and internationally, it is evident
Assefa and Frostell (2007) concluded that public and that large-scale integration of renewable energy use is
private sectors involved in the research and development essential in view of the contribution to the sustainable
of environmentally sustainable and economically viable development of society. According to this author,
technologies should consider the social aspects from the experience has shown that public opinion is generally
beginning. Although the undertaking of social studies considered to be highly unstable. In fact, public opinion
can consume financial resources, the cost of performing depends on several factors such as ignorance or
the evaluation becomes quite low compared to the cost misinformation of the benefits of technology employed,
of delaying the introduction of technologies. The the local environmental conditions, national energy
authors also stress the importance of raising public policies or the experience of people with this type of
awareness to the technologies conquer public opinion, projects, among others.
thus reducing the time between the first discussion and Musall and Kuik (2011) refer to the particular case of
implementation. the German goals for the next decade that require a
Investing in a low carbon economy creates substantial increase in installed capacity of renewable
opportunities and risks. According Frankhauser, energy. Although public support for such measures is
Sehlleier and Stern (2008), one of the most important high at an abstract level, the situation in the local
benefits of renewable energy policies is innovation, context is very different. Here, the impact of renewable
which requires technical change adapted to a new energy can cause resistance. The authors refer to the
market structure. Moreover, the search for new possibility of using a model of community property in
technologies and processes increases the demand for order to have a positive effect on the acceptance,
skilled labor. In this line, job creation driven by the rise providing evidence that co-ownership is a means of
of renewable energy has been widely discussed by the reconciling local acceptance with greater use of
academic community (Wei, Patadia & Kammen, 2010; renewable energy.
Sastresa, Usn, & Bribin Scarpellini, 2010; Lehr, & Ribeiro, Ferreira and Arajo Braga (2014), implemented
Lutz Edler 2012). The importance of wind energy in the a public opinion survey on RES technologies for
Brazilian context has already motivated several studies electricity production in Portugal. The survey addressed
that address topics such as the potential for job creation four technologies: hydropower, wind, biomass and solar
(Simas & Pacca, 2014), the regional impacts and energy and was implemented through a questionnaire to
potential opposition of the population (Brown, 2011). the population. The study aimed to draw conclusions
Echegaray (2014) supported that the success of about the public recognition of the technologies, the
renewable energy technologies such as solar phenomenon of NIMBY, the perception towards the
photovoltaic (PV), critically depends on their cost, environmental impact, contribution to local
acceptance by consumers and customers. Even in development and on willingness to pay more to have
favorable contexts, its implementation faces many green energy. The work was conducted in regions where
challenges, including low awareness, perceptions these RES plants are already operating and on regions
mistakes, insufficient communication and eco-labels as where they are not yet present. The results demonstrate a
information tools. In his work Echegaray (2014) positive attitude towards renewable energies in Portugal,
discussed how market research has been instrumental in even in regions where these plants already exist, unlike
developing the first PV project in Brazil, identifying the other studies in other countries, where some negative
beliefs of the public, the level of support for alternative reactions are highlighted. The phenomenon NIMBY is
energies, testing the reactions of an energy ecolabel, still not very sharp, but it was perceived some rejection
proposed as a fundamental communication tool. with the technologies of biomass and hydropower.
The social acceptance of RES projects is not always Particularly interesting are the results for wind energy,
clear and certain. Many communities reject these with respondents living away from wind farms showing
developments in their region, close to their homes. This greater propensity to NIMBY than those living near
phenomenon is often described as Not In My Backyard these units. The acceptance of new projects in the
(NIMBY) syndrome (Devine-Wright, 2011). It is country is largely related to the perception that these
common to "NIMBY syndrome" be raised on RES projects could contribute to lower prices. Policy makers
projects such as biomass, hydro and even wind farms should be aware that the perception of a negative
and photovoltaic plants (Fast, 2013). economic impact can greatly reduce its acceptance.
Del Rio and Unruh (2007) argue that the awareness However, the authors acknowledge that these results
campaigns on the benefits of wind energy may favor may be volatile, changing over time and largely
uptake of wind turbines in the future when their according to issues such as economic conditions, the
presence in the landscape will be widespread. This
136
experience of the population at a given time, or even the

attention of the midia for the subject .
Shamsuzzoha, Grant, and Clarke (2012), addressed the Table 1 - Expansion of wind power in Brazil from 2011
social acceptance of RES in the rural areas of Scotland to 2013
(in the district of Clydesdale) characterized by shortage Power (MW)
of power supply. The authors made use of interviews Region
2011 2012 2013
and questionnaires to the local population. According to Southeast 0 135 0
the results, many people will be motivated to use RES in
South 295 186 246
rural Scotland due to weaknesses of the grid and also the
environmental implications. Northeast 157 1,620 1,802
North 0 0 0
RENEWABLE ENERGIES IN THE BRAZILIAN Total 452 1,941 2,048
ELECTRICITY SYSTEM Source: Ministrio de Minas e Energia and EPE (2013b)
From 2009 to 2010 the growth in electricity
consumption in Brazil was 9.1%. In this same period, Despite the growth of the wind sector, the Brazilian
the population growth was 1.1%. From 2010 to 2011, Wind Energy Association (ABEElica) criticizes the
this growth in consumption was around 3.5%, while the delay in the operation of transmission lines which is
population growth in the same period was 0.8%. From leading also to delays on the grid connection and
2011 to 2012 this increased consumption was slightly consequently on the electricity supply from wind power
higher, 3.6%, while the population had the same rate of produders). This delay has generated huge losses, as
change from the previous period, ie 0.8% (values wind turbines are ready to operate but are not feeding
calculated by the author from data obtained in the grid (http://www.portalabeeolica.org.br , Visited in
Ministrio de Minas e Energia and EPE (2013a). This March 2014).
shows that electricity consumption per capita has been In what concerns solar energy, data from the European
increasing, suggesting the need for additional Database for Daylight and Solar Radiation, show that
investments in the power sector. In 2012, 84.6% of the values of global solar radiation incident on any
electricity offered (498.4 TWh) to the more than 194 region of Brazil are higher than in most European Union
million inhabitants of the country were coming from countries, such as Germany, France and Spain where
renewable sources, with hydropower and biomass projects for harnessing solar resources, some relying on
representing the main contributors. strong government incentives, are widely disseminated
The use of renewable energies and especially the share (European Database for Daylight and Solar Radiation
of hydropower in the electrical system, allowed Brazil to 2005: http://www.satel-light.com/. Visited in March,
emit only 68g of CO2 per kWh produced in 2011, while 2014). However, nowadays solar power is still emerging
the world average for that year was 590 g / kWh interest in Brazil (Tiba, 2000). The prospects and
(calculated by the author based on data from opportunities of harnessing the economic potential
International Energy Agency, 2013). In fact, despite associated with the commercial exploitation of solar
Brazil being the 6th largest producer of emissions of power options depend primarily on two factors: the
greenhouse gases globally, the Brazilian energy system development of competitive technology conversion and
has a relatively low impact. Most of these emissions are storage of such energy; and the stable energy policy of
concentrated in agriculture and related land use the country (Pereira Martins, Abreu & Rther, 2006).
activities with particular concern for the forest and Silva, Rosa Freitas and Pereira (2013) demonstrated the
especially the expansion of agricultural land in the growing trend of renewable energy and wind industry in
Amazon region (International Energy Agency, 2013). Brazil, strongly supported public policies and ensuring
The Ten-Year Energy Expansion Plan 2022 (Ministry of access to financing. However, also in the case of Brazil
Mines and Energy and EPE 2013) envisages measures there are significant barriers and market failures that
to contribute to the reduction of greenhouse gas constrain the transition to sources with wind or solar
emissions. These measures include the increase of systems component. These barriers reside mainly in the
energy efficiency, the increase of the installed hydro and lack of reliable information. The limited infrastructure,
alternative energy sources such as wind, biomass and lack of national experience and human resources and
small hydro, besides the evaluation of areas of unclear regulations on administration, are technical and
sugarcane expansion necessary for increasing the legal issues that complicate the process.
volume of biofuels and the consequent replacement of Martins and Pereira (2011) conducted a national survey
fossil fuels. in an attempt to address the reasons behind the slow
The expansion of wind power in Brazil was marked by transition toward a greater resource development of
the expansion of wind power in the Northeast, where solar and wind power in Brazil. The results indicate the
state RN is located. This expansion is clearly importance of the investment costs and the need to
demonstrated in Table 1 for the 2011-2013 period. increase the capacity enhancement of human resources.
The scientific community also pointed out the need for a
137
better understanding of surface topography and results are fare from being representative of RN and
microclimate impacts on the variability of the solar and even of the IFRN community, they can provide an idea
wind resource. According to the entrepreneur's point of of the major concerns or ideas about RES projects. Also,
view, various incentive programs should be developed at the pilot study allowed to validate the questionnaire
the municipal, state and federal levels to facilitate the writing and implementation procedure.
development of new projects. Two issues were The questionnaire followed a structure proposed and
identified as high priority: the definition of a reference already implemented in Portugal (Ribeiro, Ferreira, &
value for the price of solar and wind energy and tax Arajo Braga, 2014). These questionnaires address the
reductions or exemptions on equipment and companies wind and sun power technologies and aim to draw
operating in the renewable energy sector. conclusions on: (1) level of knowledge of these
According to Brown (2011) the state of Cear has the technologies; (2) perception of economic, environmental
greatest potential for wind energy in Latin America. The and local development impact; (3) acceptance of these
author described a growing movement of public new power plants in the country in RN or municipality
opposition to the wind power industry. There have been (proximity effect). A full description of the
protests against local wind power projects, with questionnaires can be found in Ribeiro, Ferreira, &
opposition movements spreading to cities where wind Arajo Braga (2014).
projects have been proposed. In this study, professional Students were asked to directly fill the questionnaire and
experts and local wind energy developers were asked to also to promote the participation of their families in the
identify positive and negative impacts of the wind power study. From this process, 330 valid questionnaires were
use. Numerous benefits associated with regional obtained for wind power and another 330 questionnaires
environmental quality and the creation of employment, were obtained for solar power. Table describes the main
although in disappointing figures against estimates of characteristics of the responds, including age, academic
government, were detected. Many negative impacts were level, family income and gender.
also pointed out, including blocking access to fishing
areas, damaging homes and local infrastructure, Table 2- Characterization of the respondents*.
intimidation of supporters of wind farms and fleeting or Frequency Percentage
insignificant local benefits. Overall, this study identifies Age (years)
an imbalance on the impacts of wind power in Northeast < 20 134 40.6
Brazil: the benefits are distributed in a regional way, but 20-29 64 19.4
the negative impacts of wind farms are focused on local 30-39 48 14.5
residents. 40-49 46 13.9
When opposition to wind energy emerged in richer 50-59 25 7.6
countries it was usually centered on aesthetic concerns 60 10 3.0
(Brown, 2011). Instead, the study by Brown (2011) for Academic level
Brazil shows that the opposition focuses on issues of No studies 5 1.5
local nature and the lack of recognized contributions to
1st level incomplete 27 8.2
local development. Major concerns are not because of
1st level complete 9 2.7
aesthetics but because of the particular choices made by
2nd level incomplete 83 25.2
project planning companies and external costs that are
2nd level complete 130 39.4
imposed on most humble locals. Brown (2011) shows
that local residents have not been seriously included in University 75 22.7
project planning. Family income
(minimum wage
SOCIAL ACCEPTANCE OF RES IN BRAZIL: A MW)
PILOT STUDY 1 45 13.6
2- 4 151 45.8
Recognizing the need to include public in the RES 5-7 74 22.4
decision making, this papers proposes the 8-11 40 12.1
implementation of a participatory methodology based on 12-16 15 4.5
questionnaires to assess social acceptance and 17 4 1.2
knowledge about RES power projects in Brazil. Taking Gender
into account the importance of the Northeast region for
Female 182 55.2
the RES plans, particular attention should be give this
Male 146 44.2
region. As such, a questionnaire was designed with the
*3 non-responses for age, 1 non-response for academic level, 1
final goal of implementing it in state of RN. This paper, non-response for family income, 2 non-responses for gender,
describes the questionnaire, the pilot study conducted
with students of the National Institute of RN (IFRN) and More than 40% of the respondents are under 20 years
their families and the main results. Although these old, which is easily explained by the high level of
138
participation of students. This is also evident for the

academic level, with most of the respondents having the
2nd level complete, as students of the IFRN.
Analysis of the results

The respondents were to answer if they have ever heard
about electricity produced from the wind/ the sun. The
results demonstrate a high level of recognition for both
wind and sun power technologies as described in Figure 4- Acceptance of new solar power plants in the
Figures 1 and 2. country, in RN and in the city.
The results clearly indicate a high level of acceptance of

these technologies, specially under a National
perspective. The acceptance for RN and for the
respondents own city is also high but the attitudes
become slightly less favorable as the proximity
increases. It is then important, to understand the
motivations behind this attitude. Respondents were then
asked to rate their perception about the impact of wind
and sun power plants on: (1) electricity price; (2)
Figure 1- Recognition of wind power production. environment and (3) local development. Figures 5-7
present the main results of these questions for both wind
and solar power technologies
Figure 2- Recognition of solar power production.

Figure 5- Perception of the impact on electricity prices.
With the final goal of assessing the proximity influence
and even on the possible existence of some NIMBY
effect, respondents were then asked to give their opinion
on the possibility of construction of new wind and sun
power plants in: (1) Brazil; (2) RN and (3) own city.
Figures 3 and 4 describe the results obtained for wind
and solar power technologies respectively.
Figure 6- Perception of the impact on the environment.
Figure 3- Acceptance of new wind farms in the country,

in RN and in the city. Figure 7- Perception of the impact on the local
development.
139
Most of the respondents believe that both wind and solar CERNE- Centro de Estratgias em Recursos Naturais e
power can contribute to reduce the electricity prices, at Energia 2014. Entenda a evoluo das elicas no RN.
least slightly. The perception about the impact on the Disponvel em http://www.cerne.org.br/pt-
BR/noticias/entenda-a-evolucao-das-eolicas-no-rn
environment is much less positive, with more than 50%
Conrad K. & Henner B. 2011. The social complexity of
of the respondents believing that wind farms can damage renewable energy production in the countryside. Electron
the environment and even for solar power this value Green Journal; Vol.1(31), pp. 118.
reaches more than 30%. In fact, only 26%of this Del Ro, P., Unruh, G. 2007. Overcoming the lock-out of
population assigns some environmental benefits to wind renewable energy technologies in Spain: The cases of wind
farms. On the other hand, the vision towards the impact and solar electricity. Renewable and Sustainable Energy
on local development is much more positive: more than Reviews, Vol. 11 (7), pp. 1498-1513.
71% recognizes a positive impact on wind farms and Devine-Wright, P. (2013). Explaining NIMBY objections to
75% recognizes a positive impact on sun power. a power line: the role of personal, place attachment and
project-related factors. Environment and Behavior, Vol. 45,
761-781.
CONCLUSIONS AND FURTHER RESEARCH Echegaray, F. 2014. Understanding stakeholders views and
This paper aimed to demonstrate the possibility of support for solar energy in Brazil. Journal of Cleaner
implementing a questionnaire to evaluate the social Production, vol. 63, pp. 125 - 133
European Commission. 2014. A policy framework for climate
acceptance and perception about wind and solar power
and energy in the period from 2020 to 2030 http://eur-
in the Brazilian state of Rio Grande do Norte. A pilot lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2014:0
study was conducted resourcing to a group of students 015:FIN : EN: PDF
of the IFRN and their relatives. The limitations of the Fast, S. 2013, Social Acceptance of Renewable Energy:
sampling process are recognized and as such, no attempt Trends, Concepts, and Geographies. Geography Compass,
to statistically extrapolate the results is attempt. Vol. 7, pp.853866.
Nevertheless, the pilot implementation allowed already Frankhauser, S., Sehlleier, F. & Stern, N. 2008. Climate
to call attention to some issues that must be further change, innovation and jobs. Climate Policy, Vol. 8, pp.
explored in the large scale survey, namely: 421429.
International Energy Agency. 2013. CO2 emissions from fuel
the high level of recognition of both wind and
combustion. OECD/IEA, 2013. Paris.
solar power technologies; Kaldellis J.K., Kapsali M., Kaldelli E.& Katsanou E. 2013.
the high level of acceptance of these Comparing recent views of public attitude on wind energy,
technologies; photovoltaic and small hydro applications. Renewable
the positive impacts assigned to their Energy,vol.52, pp. 197e208
contribution to reduce electricity prices and to promote Lehr, U., Lutz, C. & Edler, D. 2010. Green jobs? Economic
local development; impacts of renewable energy in Germany. Energy Policy,
the negative perception assigned to their Vol. 47, pp 358364.
environmental impact. Martins, F. R. & Pereira, E. B., 2011. Enhancing information
for solar and wind energy technology deployment in Brazil.
This last aspect is particularly remarkable, and puts in
Energy Policy, Vol. 39, pp. 43784390.
evidence the need to further explore the topic in order to
clear understand which environmental aspects are
creating such a high level of resistance. This is
fundamental aspect that must be properly recognized in
Brazil, taking into consideration the ambitious targets
set for renewable energy in the country for the next
years.
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140
Revisiting short-term electricity planning: a
simplified approach
Sergio Pereira1 , Paula Ferreira1 , and A. I. F. Vaz2
1
2

corresponding author: [email protected], University of Minho, Portugal
KEYWORDS INTRODUCTION
The increase of RES (Renewable Energy Sources) technolo-
Electricity planning, short-term planning, renewable energy
gies characterized by its variable output, and frequently with
sources, thermal power plants.
priority access to the grid, can contribute to the increasing
number of startups and shutdowns of thermal power plants
and also enforcing ramping, due to possible disruptions or low
load conditions operation [Troy et al., 2010, De Jonghe et al.,
ABSTRACT 2012]. Modern electricity power generation systems own a
high level of complexity, usually with a high set of thermal
Combined with the already large dimension of most of all power units combined with RES power plants and giving rise
power systems, the variable electricity output of the RES (Re- to a large number of technical constraints. Shortterm opti-
newable Energy Sources) power plants, such as wind and hy- mization models, usually applied to traditional problems like
dro power technologies, is seen as an important challenge UC (unit commitment) and economic dispatch problem, arise
for the electricity system managers. This study addresses the as essential tools for the planning and operation of power sys-
electricity planning of units allocation based on the available tems. These tools can also be used to support energy decision
resources, considering an increase in wind capacity. A simpli- making, allowing to test the expected outcomes of different
fied short term electricity planning approach is proposed re- electricity scenarios. However, due to the complexity associ-
sulting in a non-linear optimization model, aiming to demon- ated to these problems, the translation of these problems in a
strate that this new model can bring considerable advantages computational language becomes a hard task. The large num-
for energy decision makers. The model is applied for the par- ber of variables and restrictions, necessary for a good repre-
ticular case of the foreseen electricity system in Portugal in sentation of any electricity system turn the code complex and
2020. The results demonstrate that in general the simplified highly computational resource consuming.
version leads to a possible underestimation of costs compar- Short-term electrical power generation scheduling is essen-
atively to extended version but rather similar values for CO2 tial for the planning and operation of power systems. The
emissions. In what concerns to the model running time, a sig- basic goal of these UC problem is to properly schedule the
nificant reduction can be achieved which means that the simon/off states of all the units in the system. Further on, the
plified approach may be used with significant benefits in the optimal UC should meet the predicted load demand, plus the
computational time. The model is also used for the analysis spinning reserve requirement at every time interval minimiz-
of different wind power scenarios, leading to results close to ing the total cost of production [Senjyu et al., 2003, Sima Uyar
the ones obtained with the extended version. et al., 2011]. According to Hobbs [1995], traditional UC and
economic dispatch problems usually requires short-term pe-
riods of time. Time periods ranging from one to ten minutes
or eight hours to one week for economic dispatch and UC
problem respectively are example of time periods addressed
in short term optimization models.
The objective of this work is twofold. Firstly, a simplified tion 6.
approach of the work presented in Pereira et al. [2014] is pre-
sented with the final goal of reducing its complexity, result- XX
ing in less computation time. A comparison of both models [Ct,j + Sut,j + Sdt,j ] +
tT jJ
in terms of the expected of costs, CO2 emissions, thermal X
power units commitment and the total simulation time needed [(CV OMhd phdt ) + (CV OMhr phrt )+
is evaluated. For this an analysis of a case study represen- tT
tative of a electricity system comprising thermal, wind and (Cpp ppumpt ) + (CV OMp ppumpt )+
hydropower units is addressed. The selected case study corre- (pwindt CV OMe )] (1)
sponds to an electricity system close to the foreseen for Portu-
gal in 2020. Secondly, simulations were conducted assuming
five different scenarios, each one representing five levels of Ct,j = Fj + CV OMj + (CO2j EC) ptj (2)
wind capacity going from the base scenario with 4080 MW
until an maximum increase of 50% (10% step per scenario). Sdt,j = CSdj (vt1,j (1 vt,j )) (3)
The seasonality of both hydro and wind power recourses is
considered, as the model is tested under four typical weeks
each one representing a season of the year. Again, the ex- Sut,j = ColdSj (vt,j (1 vt1,j ))
pected impacts in terms of costs, CO2 emissions, thermal Y
power units operation and the total simulation time needed 1 vtn,j (4)
n=1Nj
are evaluated comparing both models.
This paper is organized as follows. First section will
present an overview of the simplified model. All changes in
Sut,j = HotSj (vt,j (1 vt1,j ))
relation to Pereira et al. [2014] will be presented an analyzed.
In the following section a comparison between both model Y
1 1 vtn,j (5)
will be described. For this comparison the simplified model
n=1Nj
will be applied to a specific case study of a thermal, hydro and
wind power electricity system. In particular, wind power sim- where T is the set of the time period (in hours) considered
ulations will be conducted to test the possibility of using the in the model, J is the set of all groups of thermal power plants
model for simulating different scenarios and check its ability included in the system, Ct,j is the total cost of thermal power
to support energy decision making. Finally, conclusions are groups (e), Sut,j is the startup cost of thermal power groups
stated in Section the last section. (e), Sdt,j is the shutdown cost of thermal power groups (e),
CV OMhd is the O&M cost of hydropower plants with reser-
voir (e/MWh), phdt is the power output of hydro power plant
SIMPLIFIED APPROACH with reservoir in hour t (MWh), CV OMhr is the O&M cost
of runofriver power plants (e/MWh), phrt is the power
According to De Jonghe et al. [2012], although linear pro- output of runofriver power plant in hour t (MWh), Cpp is
gramming (LP) models have been successfully used because the cost of pumping (e/MWh), ppumpt is the power output
of their ability to model large problems, mixed integer pro- of pumping power plant in hour t (MWh), CV OMp is the
gramming models must be used when binary variables are as- O&M cost of pumping power plant (e/MWh), pwindt is the
sociated with investment projects or non-convexities, such as power output of wind power plant in hour t (MWh), CV OMe
minimum run levels and minimum up and downtimes. How- is the O&M cost of wind power plants(e/MWh), Fj is the
ever, when dealing with problems of high dimension, the use fuel cost of group j (e/MWh), CV OMj is the O&M cost of
of binary variables can lead to difficulties in terms of compu- thermal power group j (e/MWh), EC is the CO2 emission
tational effort and consequently in obtaining an optimal solu- allowance cost (e/ton), CO2j is the CO2 emission factor of
tion in reasonable time. type j power group (ton/MWh), CSdj is the shutdown cost
In order to reduce these difficulties, some changes to the of thermal power group j, vt,j is the binary variable that is
model proposed in Pereira et al. [2014] were introduced. 1 if thermal power group j is on in hour t or 0 if it is off,
These changes encompasses the remotion of the binary vari- ColdSj is the cost of the cold startup of power group j (e),
ables and the consideration of quadratic curves for fuel and Nj is the time necessary for a cold startup (h), HotSj is the
emissions costs. Thus, and in what concerns to the original cost of the hot startup of power group j (e), G is the set of
objective function described in equation 1, and the original all groups of gas power plants included in the system, C is
constraints described in equations 2, 3, 4 and 5 can be re- the set of all groups of coal power plants included in the sys-
placed by a single new objective function described in equa- tem, CV OM tj is the O&M cost of groups of thermal power
XX ptt,g 2 ptt,g
X X ptt,c ptt,c

2
ag ( ) + bg ( ) + cg F (g) ptt,g + ac ( ) + bc ( ) + cc ptt,c +
tT gG
Pg Pg tT cC
Pc Pc
XX ptt,g 2 ptt,g
X X ptt,c ptt,c

ag ( ) + bg ( ) + cg EC ptt,g + ac ( )2 + bc ( ) + cc EC ptt,c +
tT gG
Pg Pg tT cC
Pc Pc
XX X X
[CV OM tj ptt,j ] + [CV OMhd phdt ] + [CV OMhr phrt ] +
tT jJ tT tT
X X
[(Cpp ppumpt ) + (CV OMp ppumpt )] + [(pwindt CV OMe )] (6)
tT tT
plants(e/MWh) and ag , ac , bg , bc , cg and, cc represent the

Gas Coal
coefficients of gas and coal quadratic curve fuel costs. 3
Usually, the fuel cost, per unit in any given time interval, is
2,5
given as a function of the generator power output or load fac-
tor and is represented by a quadratic function. In this specific 2
ton/mwh
case, the curves presented in equation 6 represent the fuel and 1,5
CO2 emissions costs in function of the generator load factor,
1
Fj (Lj (t)). Both the assumed gas and coal fuel curves can be
seen in figure 1. 0,5
0
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Gas Coal
Load factor
105
90
75 Figure 2: Coal and gas CO2 emissions curves.

/mwh
60
45
and CO2 emissions. Observing both figures 1 and 2, is pos-
30
sible to verify that for lower values of load factor, costs and
15 CO2 emissions tend to be higher. Usually low load factor val-
0 ues are associated to periods where power units are preparing
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1
Load factor
to startup or shutdown or also to periods with high levels of
renewable electricity production, forcing the thermal units to
decrease production with loss on efficiency and consequently
cost and CO2 emissions increase. For the optimization pur-
Figure 1: Coal and gas fuel cost curves. poses, thermal power plant will then tend to operate at high
load factor values increasing is efficiency, reducing costs an
The same assumptions were considered to the CO2 emis- also the number of startups and shutdowns which should re-
sions cost curves that are also represented by a quadratic func- sult in longer operating periods.
tion. Figure 2 shows precisely the behavior of both coal and
gas emissions cost curves as the generator load factor in- X
crease. vt+i,j U Tj (vt,j (1 vt1,j )) (7)
iiU Tj
Aside from changes in the objective function, other as-
sumptions were taken into account to the simplification of the
model. The minimum up and downtime constraints, repre- X
1 vt+i,j DTj (1 vt,j ) (vt1,j ) (8)
sented by equations 7 and 8, where U Tj is the minimum up
iiDTj
time of thermal group j and DTj is the minimum down time
of thermal group j, were not considered in the simplified ap- The last change comparatively to Pereira et al. [2014] is re-
proach. The absence of these two constraints is assumed to be lated to the ramping constraints. Once again these constraints
compensated by the quadratic function for fuel consumption originally resorted to binary variables. Equations 9, 10, and
11 are well representative of the use of these variables. The be used for the analysis of the results, resulting in a nonlin-
solution adopted in here was the assumption of a maximum ear optimization problem (NLP) instead of a mixed integer
variation of production, 30%, between two consecutive peri- nonlinear optimization problem (MINLP). A single-objective
ods of time. These assumptions result in equations 12 and 13 problem assuming a hourly time step and typical data for all
for ramp up and ramp down respectively. four seasons of the year is assumed. The model testing will
be conducted under the base case scenario, described in Ta-
pt,j Pj [vt,j (vt,j (1 vt+1,j ))]+
ble 1, and also considering scenarios representing an increase
(vt,j (1 vt+1,j )) Sdrj (9) of wind power.
All the results for the base case scenario were described in
table 2. Through the analysis of the table is possible to ver-
pt,j ptt1,j + Ruj vt1,j + Surj ify that in general, when the simplified model is applied, the
(vt,j (1 vt1,j )) (10) total costs as well as the marginal costs of the system tend
to decrease. A variation ranging from 4.4% to 14.1% and
4.6% to 14.1% for the total costs and the marginal costs of
the system respectively can be observed in table 3. One of
ptt1,j ptt,j Rdj vt,j + Sdrj the reasons for these differences is the use of the quadratic
(vt1,j (1 vt,j )) (11) curves for gas and coal fuel costs. This will result in an in-
crease of thermal production aiming to higher efficiency of
these plants. This trend can be seen in both figures 3 and 4,
ptt,j ptt1,j 0.30 Pj (12)
allowing to compare the original Pereira et al. [2014] model
and the new simplified approach. The figures demonstrate
ptt1,j ptt,j 0.30 Pj (13) that the average production of thermal power units increases
where pj,t is the maximum power generation of group j in in detriment of hydropower for the simplified model. On the
time t (MWh), Pj is the maximum capacity of thermal group other hand, if an analysis for the summer weeks is conducted
j (MW), Sdrj is the shutdown ramp limit of group j (MWh), as described in figures 5 and figure 6, is possible to verify
Ruj is the ramp up limit of group j (MWh), Surj is startup that costs reduction mainly comes from the reduction of gas
ramp limit of group j (MWh), Pj is the minimum capacity of power plants usage partially replaced by hydropower produc-
thermal power group j (MW) and Rdj is the ramp down limit tion from dams. Also the number of startups is lower in the
of group j (MWh). simplified model, what means that thermal power groups tend
It became clearly during this section that when dealing with to operate at high load factors and so the efficiency is higher
discrete time periods, specifically in problems like UC and and costs tend to decrease.
economic dispatch, the use of integer variables (binary) had a The use of simplified model also denotes impacts in terms
key role as described in Pereira et al. [2014]. In order to be of the amount of CO2 emissions emitted. In fact, simplified
possible to proceed to the simplification described in this sec- model tend to have slightly higher values for CO2 emissions.
tion, a set of assumptions were taken into consideration with This is mainly because the quadratic curve enforce thermal
the major goal of reducing the number of binary variables. units to work with a higher load factor. Thereby, with the pur-
These assumptions were assumed with the objective of model pose of efficiency increase, the period of operation of these
simplification, minimizing as much as possible the impacts plants tend to increase and as such the global amount of emis-
that these assumptions may have in the systems description. sions released increases.
It would be expected that the use of the simplified
model brought changes to the results of the model described
SHORT TERM MODEL VS SIMPLI- in Pereira et al. [2014]. However, the assumptions considered
FIED MODEL in the simplification process allowed to obtain a set of results
that may be considered close to the ones obtained in the orig-
In this section a comparative analysis between both Pereira inal extended model, in what concerns to costs as emissions
et al. [2014] short-term model and the new simplified model released. On the other hand, if a comparative analysis in terms
will be discussed. This analysis will be focused in terms of of simulation process time is done, becomes evident the dif-
costs, CO2 emissions, number of startups and also important, ference between both models. While the original Pereira et al.
the total simulation time needed for both models. The anal- [2014] short term model required in average 72 hours to ob-
ysis is addressed to a case study considering four typically tain a solution, the simplified model was able to give a solu-
weeks of each season of the year as described in Pereira et al. tion in approximately 2 minutes. This significant reduction in
[2014]. Table 1 resumes the power plants considered in the time will allows the users to perform more detailed analysis of
analysis. The simplified model presented in this chapter will the system with the possibility of an increase number of sce-
Table 1: Installed power system (Source: REN website).
Technology Number of Installed Power

power groups per technology (MW)
Coal 8 1820
Thermal Power Gas 15 4033
Total - 31 6998
Run-of-rivers - 2583
Hydropower
Large hydropower units - 5842.8
Total - - 8425.8
Wind Power - - 4080
Pumping - - 1053.3
Table 2: Optimal objective functions solutions.

Pereira et al. [2014] model Simplified model
Cost Marginal Cost CO2 Emissions Startups Cost Marginal Cost CO2 Emissions Startups
(e) (e/MWh) (ton/MWh) (e) (e/MWh) (ton/MWh)
Base Scenario
Week 1 (Winter) 19.486.812,22 14.8 0.175 129 18.162.840,74 13.8 0.178 102
Week 2 (Spring) 23.101.719,29 18.8 0.262 99 22.326.374,66 18.2 0.251 74
Week 3 (Summer) 34.658.326,21 31.6 0.379 52 30.988.761,74 28.2 0.382 37
Week 4 (Autumn) 29.592.443,86 26.9 0.343 60 26.423.717,95 24.1 0.347 111
20% increase
Week 1 (Winter) 15.980.853,11 12.1 0.161 116 15.535.403,86 11,8 0,163 167
Week 2 (Spring) 20.814.419,08 16.9 0.246 95 20.903.357,93 16,9 0,232 138
Week 3 (Summer) 33.154.141,98 30.2 0.369 62 29.441.270,36 26,8 0,369 64
Week 4 (Autumn) 27.712.873,14 25.2 0.327 56 25.370.704,34 23,1 0,333 138
30% increase
Week 1 (Winter) 15.310.537,48 11.6 0.144 118 14.505.888,8 11,0 0,141 136
Week 2 (Spring) 19.617.704,96 15.9 0.235 76 20.097.543,8 16,3 0,219 183
Week 3 (Summer) 32.885.106,64 29.9 0.367 105 28.816.309,4 26,2 0,365 81
Week 4 (Autumn) 27.051.093,74 24.6 0.321 97 24.747.215,3 22,5 0,326 151
40% increase
Week 1 (Winter) 13.578.053,12 10.3 0.133 83 13.087.579,1 9,9 0,138 117
Week 2 (Spring) 19.677.475,79 15.9 0.229 125 18.854.975,3 15,3 0,220 141
Week 3 (Summer) 31.970.882,98 29.1 0.360 105 28.257.540,1 25,7 0,364 40
Week 4 (Autumn) 27.310.160,46 24.9 0.325 109 24.044.903,7 21,9 0,319 97
50% increase
Week 1 (Winter) 12.001.397,79 9.1 0.119 54 12.178.954,37 9,3 0,103 137
Week 2 (Spring) 18.013.913,39 14.6 0.211 107 18.840.503,73 15,3 0,178 107
Week 3 (Summer) 30.980.476,08 28.2 0.350 75 28.181.810,88 25,7 0,341 53
Week 4 (Autumn) 25.023.238,29 22.8 0.304 67 23.507.351,37 21,4 0,299 119
narios consideration. Thus, the simplified approach may be Table 4: Case study scenarios.
used with significant benefits mainly in what concerns to the
computational time effort. This also means that the simplified Wind power (MW)
model is clearly more suitable for supporting timely decision Base scenario 4080
making. +20% 4896
+30% 5304
+40% 5712
WIND POWER SIMULATION
+50% 6120
The simulation was conducted assuming five different scenar-
ios, each one representing five levels of wind capacity going
from the base scenario with 4080 MW until an maximum in-
crease of 50%. Table 4 describe the case study in terms of in an increase of the overall and marginal costs of the sys-
scenarios used. Table 2 and 3 presents the results obtained in tem, for week 1 and 2, in the results using simplified model.
both models considering the increase wind capacity. Figures 7 and 8 are representative of this behavior.
As indicated above, the results shows that in general, the The fact that the simplified model does not consider the
total costs as well as the marginal costs of the system tend to costs associated to the startups and shutdowns can contribute
decrease as wind capacity increases. This behavior repeats in to the obtained lower global costs. This happen even con-
the scenario that considers an increase of 50% on the installed sidering that startup and shutdown costs have only a small
wind power, however in this case, when comparing both mod- influence in the global costs. For example, analyzing table 3
els, the increase of production prevenient of thermal power if considering base scenario and scenario with 40% increase
units, specifically the more expensive gas power units, result in the summer week, the number of startups for the simpli-
Table 3: Short therm model: Objective functions solutions variation.
Cost Marginal Cost CO2 Emissions Startups
Base Scenario
Week 1 (Winter) -7.3% -7.2% 1.7% -26.5%
Week 2 (Spring) -3.5% -3.3% -4.4% -33.8%
Week 3 (Summer) -11.8% -12.1% 0.8% -40.5%
Week 4 (Autumn) -12.0% -11.6% 1.2% 45.9%
20% increase
Week 1 (Winter) -2.9% -2.5% 1.2% 30.5%
Week 2 (Spring) 0.4% 0% -6.0% 31.2%
Week 3 (Summer) -12.6% -12.7% 0% 3.1%
Week 4 (Autumn) -9.2% -9.1% 1.8% 59.4%
30% increase
Week 1 (Winter) -5.5% -5.5% -2.1% 13.2%
Week 2 (Spring) 2.4% 2.5% -7.3% 58.5%
Week 3 (Summer) -14.1% -14.1% -0.5% -29.6%
Week 4 (Autumn) -9.3% -9.3% 1.5% 35.8%
40% increase
Week 1 (Winter) -3.7% -4.0% 3.6% 29.1%
Week 2 (Spring) -4.4% -3.9% -4.1% 11.3%
Week 3 (Summer) -13.1% -13.2% 1.1% -162.5%
Week 4 (Autumn) -13.6% -13.7% -1.9% -12.4%
50% increase
Week 1 (Winter) 1.5% 2.2% -15.5% 60.6%
Week 2 (Spring) 4.4% 4.6% -18.5% 0%
Week 3 (Summer) -9.9% -9.7% -2.6% -41.5%
Week 4 (Autumn) -6.4% -6.5% -1.7% 43.7%
Fuel Dams Gas Coal SRP Wind Run-of-Rivers Dams Gas Coal Srp Wind Run-of-river
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Figure 3: Power production for base scenario Figure 4: Power production for base scenario
in a Winter week (Pereira et al. [2014] model) in a Winter week (Simplified model)
fied model are respectively 40.5% and 162% lower than in the possible to observe a reduction of 44.1%, 18.7%, 11.5% and
original model, but the marginal costs differences are respec- 14.3% on the estimated cost of the system for a typical week
tively 12.1% and 13.2%. In fact, the costs associated with the in winter, spring, summer and autumn respectively. The costs
startups in Pereira et al. [2014] model represented only 0.31% reduction experienced in winter and spring weeks are more
and 0.55% of the global costs for these scenarios. The major significant due to the weather conditions, more favorable to
differences between the two models, seem to come for the wind and to hydropower production, in these seasons. Clearly,
scenario of 50% wind power increase, mainly in what con- the same happens when considering the production cost per
cerns CO2 emissions for week 1 and the number of startups MWh. This reduction can be explained by the increase of
for week 4. This can be explained by the increase production electricity generation provided by wind power, characterized
provided by gas power units. by no fuel costs and lower costs of operation and maintenance
For all scenarios, the number of startups in the summer when comparing with traditional fossil fuel generation units.
week is lower for the simplified model than for the origi- Another consequence of the increase of electricity generation
nal Pereira et al. [2014]. This is mainly because of the lower provided by wind power is the reduction of CO2 emissions.
wind and hydro availability during the summer periods that Analysing figures 7, 8, 9 and, 10 is possible to verify the
results in a reduction of RES electricity production, promptly differences existing in the electricity production when both
compensated by thermal power units. models are used for the scenario with 50% wind power in-
The results obtained are in general in accordance to Pereira crease. In the first two figures comparison of both models for
et al. [2014], indicating that for an increasing level of wind a typical winter week is given. A reduction of the contribution
power generation, both the average cost and average CO2 of coal power units in the electricity production is obtained
emissions tend to decrease. Comparing base scenario with for the simplified model. Coal power units are replaced by
the scenario with an increase of 50% of wind capacity, it is gas and hydropower units that can easily compensate unpre-
Fuel Dams Gas Coal SRP Wind Run-of-River Dams Gas Coal SRP Wind Run-of-river
8000 9000
7000 8000
7000
6000
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5000
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Figure 5: Power production for base scenario Figure 6: Power production for base scenario
in a Summer week (Pereira et al. [2014] model) in a Summer week (Simplified model)
Fuel Dams Gas Coal SRP Wind Run-of-Rivers Dams Gas Coal SRP Wind Run-of-river
10000 10000
9000 9000
8000 8000
7000 7000
6000 6000
MWh
5000 5000
MWh
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3000 3000
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Figure 7: Power production for 50% wind power Figure 8: Power production for 50% wind power
increase in a Winter week(Pereira et al. [2014] model) increase in a Winter week (Simplified model)
dictable disruptions of wind power production. Due to the in- to compensate moments of lower generation due to moments
crease availability of wind power over this season, gas power of ramping experienced by gas power units. Despite the dif-
units will work mainly as peak load units. On the other hand, ferences observed in the system behavior between both mod-
in both figures 9 and 10 representing the summer period, the els, the maximum difference of the obtained cost values was
lower wind availability will enforce thermal power units, spe- 14.1% and in most of the simulations this difference was less
cially gas ones, to compensate the variability of wind power. than 10%. On the other hand the computational time was re-
This is mainly because gas power higher flexibility can more duced significantly.
easily deal with the lower availability of wind in summer sea-
son.
The analysis of the figures 7 to 10 is well representative CONCLUSIONS
of the changes that may occur in the behavior of the elec-
tricity system when both models are used. Contrary Pereira This paper propose a simplified approach for the short term
et al. [2014] model, despite of the nonlinearity introduced by electricity planning. This will result in a deterministic non-
the quadratic curves, their use allowed to decrease the com- linear problem. A short-term electricity power generation
plexity of the model. In general, the result is an increase of scheduling also known as unit commitment problem is ad-
electricity generation provided by thermal power units, spe- dressed and a comparison between both the extended model
cially gas, comparatively to Pereira et al. [2014] model. This presented in literature [Pereira et al., 2014] and the proposed
leads to an increase of CO2 emissions and to an even higher approach is driven. Furthermore, the optimization model pre-
increase of cost due to the emissions allowance costs and to sented will be adapted and applied to the characteristics of
the fuel costs. This happens even being gas power units emis- the system under study aiming to analyze the impact of in-
sions costs lower than coal power units. Also, an increase of creasing wind power scenarios in a systems containing hydro,
dams generation is observed, essentially in summer season, wind and thermal power plants. The expected impact in terms
in moments of peak load. This behavior allows the system of costs, CO2 emissions, thermal power units operation and
Fuel Dams Gas Coal SRP Wind Run-of-River Dams Gas Coal SRP Wind Run-of-river
9000
8000
8000
7000
7000
6000
6000
5000
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MWh
MWh
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Hours Hours
Figure 9: Power production for 50% wind power Figure 10: Power production for 50% wind power
increase in a Summer week (Pereira et al. [2014] model) increase in a Summer week (Simplified model)
the total simulation time needed are evaluated. IEEE Transactions on, 25(2):1088 1097, may 2010.
The obtained results for the comparison between both mod-
els put in evidence that in general, when the simplified model C. De Jonghe, B.F. Hobbs, and R. Belmans. Optimal gener-
is applied, the total costs as well as the marginal costs of the ation mix with short-term demand response and wind pen-
system tend to decrease comparatively to the extended mode. etration. Power Systems, IEEE Transactions on, 27(2):830
Even with a small influence, the fact that the simplified model 839, may 2012.
does not consider the costs associated to the startups and shut- T. Senjyu, K. Shimabukuro, K. Uezato, and T. Funabashi. A
downs contributes to the computation of global costs. These fast technique for unit commitment problem by extended
cost differences may range from 2.9% to 14.1%. Regarding priority list. Power Systems, IEEE Transactions on, 18(2):
the amount of CO2 emissions, the differences between both 882 888, may 2003.
models are also relatively low. In fact, the simplified model
tends to have slightly higher values for CO2 emissions be- A. Sima Uyar, T. Belgin, and Ali Keles. A novel differential
cause the quadratic curve enforce thermal units to work at evolution application to short-term electrical power genera-
higher load factor. This increase may achieve 18.5% for the tion scheduling. International Journal of Electrical Power
scenario that considers 50% of wind capacity increase. &; Energy Systems, 33(6):1236 1242, 2011.
The major advantage of the simplified model, when com-
F. Hobbs. Optimization methods for electric utility resource
pared with the extended model, is with respect to the compu-
planning. European Journal of Operational Research, 83:
tational time needed for state-of-the-art optimization solvers
120, 1995.
to provide an optimal solution. While simplified and extended
model produce similar optimal results, a reduction from 72 Sergio Pereira, Paula Ferreira, and A.I.F. Vaz. Short-
hours, for computing an optimal solution using the extended term electricity planning with increase wind capac-
model, to 2 minutes, for computing an optimal solution using ity. Energy, (0):, 2014. ISSN 0360-5442. doi:
the simplified model, was achieved. The simplified model is http://dx.doi.org/10.1016/j.energy.2014.01.037. URL
then clearly well suitable for supporting timely decision mak- http://www.sciencedirect.com/science/
ing. article/pii/S0360544214000450.
The obtained results for the wind power simulation allowed
to confirm wind power contribution to the reduction of both
cost and emissions for the case study under analysis. The
usefulness of the simplified model for effective simulations
for future RES scenarios is demonstrated. Once more, the
results are close to the original Pereira et al. [2014] allowing
to obtain reliable solutions in shorter computation times.
REFERENCES
N. Troy, E. Denny, and M. OMalley. Base-load cycling on a
system with significant wind penetration. Power Systems,
INTEGRATING BOTTOM-UP AND TOP-DOWN TECHNIQUES WITH

MCDA APPROACH IN ENERGY EFFICIENCY PROJECTS
Carla Oliveira,1,2* Dulce Coelho2,3 and Patrcia Pereira da Silva2,4

1
2
INESC Coimbra, Portugal
3
ISEC, Polytechnic Institute of Coimbra, Portugal
4
Faculty of Economics, University of Coimbra, Portugal
* Corresponding author: [email protected], Polytechnic Institute of Coimbra, Portugal
KEYWORDS issues related to global (for instance, pollution knows no

Economic evaluation, MCDA, energy efficiency border), local (economic and social impacts) and inter-
renovation projects generational (for instance, the development of an energy
efficiency project may have impacts during the next
ABSTRACT forty years) effects for which the MCDA tool
encompasses the methodological instruments to achieve
The purpose of this paper is to provide an integrated balanced decisions due to their ability to combine
methodology which follows different stages and powerful models and methods with subjective judgments
connects top-down and bottom-up approaches, such as and perspectives of reality.
Input-Output (I-O) multipliers, traditional capital The interest in energy efficiency has risen rapidly in the
budgeting assessment tools and Multicriteria Decision last few years. In fact, Government institutions have
Analysis to facilitate the combined evaluation of launched several initiatives for improving housing
different energy efficiency renovation projects. In the energy efficiency through the implementation of
current context of environmental concerns along with retrofitting measures (Genovese et al., 2013). In this
energy efficiency targets, the case study presented context, studies suggest that harvesting the investment
focuses on the global and local impact assessment of opportunities provided by energy efficiency renovations
renovation projects on buildings from the residential, in the existing building stock can stimulate economic
private services and public services sector, built within activity, create jobs and bring benefits to Gross
the range of 1946 to 1990. Domestic Product - GDP (some preliminary results were
provided by Oliveira et al. (2014a,b,c)). These benefits
INTRODUCTION stem from increased economic activity in both the
The increasing awareness of the need to ensure primary affected sectors and through the indirect and
sustainable development has represented a strong impact induced impacts on secondary sectors.
on Multi-Criteria Decision Analysis (MCDA) research This paper is aimed at suggesting a holistic approach
and practice regarding the energy efficiency sector. The which allows assessing the current energy performance
concern of sustainable provision of energy meeting the and possible renovation measures for the existing
present needs without compromising the ability of future building stock. The remainder of this paper is organized
generations to meet their needs is inevitable in the as follows: section 2 describes the methodological
development of decision support models in the energy framework used herein; section 3 presents the
sector. Sustainability is inherently a multi-criteria implementation of the methodology in a Portuguese
concept, which makes MCDA approaches indispensable urban context with some illustrative results, and, finally,
to tackle the complex and challenging problems arising section 4 highlights some conclusions and presents
in the energy sector (Antunes and Oliveira, 2014). The future work developments.
use of energy resources must be confronted with the
pressures of climate change, mitigation of impacts on THE METHODOLOGICAL FRAMEWORK
human health and natural ecosystems, assessment of The development of the methodology proposed involves
social impacts, etc.. Besides renewable energy sources, four different stages: i) A top-down approach by means
technologies that encourage sustainable energy include of I-O multipliers; ii) A bottom-up approach by means
also those designed to improve energy efficiency. of project appraisal indicators; iii) The characterization
Energy decisions, embody complex and controversial
149
of the existing building stock; iv) A methodological Fig. 1 illustrates the overall effects (direct, indirect and
framework based on MCDA to facilitate the integrated induced) of each energy efficiency measure that might
analysis of the different energy efficiency renovation be conducted in each building sector (private, public and
measures. residential) to Gross Value Added (GVA) and Full Time
This paper is focused on buildings from the residential, Employment (FTE), according to the useful floor area
private services and public services sector, considering obtained from the characterization of the existing
buildings constructed within the range of 1946 to 1990. building stock. The energy efficiency renovation options
Four key categories have been considered as important with the highest impacts on both employment and GVA
to be integrated into a renovation project: window frame are obtained with the replacement of single glazed
and single glazed window replacement and roof and windows with or without frame replacement in the
wall insulation. private and public sectors. In the residential sector (with
The methodology starts with the selection of the buildings with 2 and 4 facades) the highest impacts on
different alternatives that are then examined with the these indicators are obtained with the interventions on
purpose of choosing the representative criteria which the opaque facades.
will be used to obtain the performance of each
alternative against each criterion.
Top-down approach
I-O analysis allows computing employment and income
(value added) multipliers, taking into account the
differences in technology between industries and their
linkages. Multipliers measure total change throughout
the economy from a one unit change for a given sector.
In this context, direct effects represent impacts
generated from a change in spending patterns resulting
from an expenditure taken in a renovation project,
indirect effects (Type I multipliers) include impacts
generated in the supply chain and supporting industries
of an industry directly impacted and induced effects
(Type II multipliers) are those originated by the re-
spending of income resulting from both direct and
indirect effects (Oliveira et al. 2004c). Employment and
income Type II multipliers are different. While the first
represent for every employee hired in the energy
renovation activities the additional individuals employed
because of indirect and induced effects. The last
represent for every 1 million of sales in the energy
Figure 1: Economic indicators for the renovation options
renovation activities the additional revenue generated
due to indirect and induced effects. In order to obtain
Bottom-up approach
the multipliers associated with the implementation of
energy efficiency renovation investments in the The economic viability of a proposed energy renovation
buildings sector it was first necessary to use an I-O project is usually assessed by using the following
symmetrical product by product table for total flows financial techniques (Antunes and Oliveira, 2014):
(Silva et al., 2013; Oliveira et al., 2014b). Then, the Net Present Value (NPV) - is the total present value of
total investment costs associated with the a time series of cash flows and it is a well-known
implementation of the renovation investments method for the appraisal of long-term energy projects,
considered were first disaggregated to account for the measuring the excess or shortfall of cash flows, in
economic sectors directly engaged with each renovation present value terms, once financing charges are met.
investment (for further details see Oliveira et al., 2014a, Internal Rate of Return (IRR) is the discount rate that
b). Moreover, we assumed that the impact on makes the net present value of all cash flows from a
employment regarding these interventions is expected to particular project equal to zero.
occur within the country. The sectoral distribution of the Payback period - refers to the period of time required
investment for each of the interventions herein tackled, for the return on an investment to repay the sum of the
which was based on several experts opinions original investment. The energy payback period is the
(academics and practitioners in the field of energy period of time over which the energy savings of a
efficiency) was used in Oliveira et al. (2014 a, b). project equal the amount of energy expended since
project inception.
150
25,00
NPV (i = 15%) AAGR energy price 5%
20,00
NPV (i = 7%) AAGR energy price 5% 15,00
5,00
NPV (i = 15%) 0,00
Roof Wall Double Glazed Double Glazed
NPV (i = 10%)
window window + Frame
NPV (i = 7%)
Payback with current energy prices
-100% -50% 0% 50% 100%
Payback with an AAGR energy price of 3%
Roof Wall Double Glazed window Double Glazed window + Frame Payback with an AAGR energy price of 5%
a) Private Services - Buildings with 4 floors, 2 facades and 2/3 of a) Private Services - Buildings with 4 floors, 2 facades and 2/3 of
glazed area glazed area
30,00
20,00
15,00
10,00
NPV (i = 15%) 0,00
NPV (i = 10%)
NPV (i = 7%)
-100% -50% 0% 50% 100%
b) Public Services - Buildings with 3 floors, 4 facades and 1/2 of b) Public Services - Buildings with 3 floors, 4 facades and 1/2 of
glazed area glazed area
25,00
20,00
5,00
NPV (i = 15%) 0,00
NPV (i = 10%)
NPV (i = 7%)
-40% -20% 0% 20% 40% 60% 80% 100%
c) Residential - Buildings with 2 floors, 2 facades c) Residential - Buildings with 2 floors, 2 facades

NPV (i = 15%)
NPV (i = 10%)
NPV (i = 7%)
-60% -40% -20% 0% 20% 40% 60% 80% 100%
Roof Wall Double Glazed window Double Glazed window + Frame
d) Residential - Buildings with 2 floors, 4 facades d) Residential - Buildings with 2 floors, 4 facades
Figure 2: NPV with different discount rates for each Figure 3: Payback period with different energy prices
renovation investment option
Since the assumptions of discount rates for energy
projects is not worldwide consensual, we perform the
analysis in the 7% to 15% range to reflect issues such as
technological or market risks (see Fig. 2). We have also
151
considered two different annual average growth rates Biomass) of the different building types (see Fig. 4 and
(AAGR) for energy prices, between 3% and 5%, Fig. 5).
respectively (see Fig. 2 and Fig. 3).
After conducting the analysis of the impact of different
MCDA methodological framework
discount rates on the NPV of each alternative, it is
possible to conclude that the most attractive investment MCDA tools are able to deal with complex processes
options are those referring to roof and wall insulation inherently involving multiple issues, multiple and
(with the highest NPV values and the lowest payback conflicting evaluation criteria, offering the opportunity
periods). The investment on the replacement of single to deal with mixed sets of data either quantitative or
glazed windows is only attractive from the investors qualitative. The appropriate use of this kind of methods
stance with the lowest discount rate (assuming low risk) can also contribute to ensure that public values are
and with higher energy prices (with this assumption the reflected in the assessment of the energy efficiency
opportunity cost of the investment becomes lower). measures, incorporating the perspectives of different
stakeholders involved in the problematic situation.
Building stock characterization The MCDA model used considers the nine criteria
presented in Table 1. Criteria are classified into
In Portugal, the first regulation related to energy
economic, technological, environmental and social
performance and thermal comfort of buildings was
groups. Criteria with well-established quantitative scales
endorsed in 1990 and required that new buildings and
are expressed in quantitative units. Qualitative criteria
great renovations of existing buildings implemented
are expressed in a four point scale.
measures to improve building energy performance. In
sequence of the European Directive on the energy
Economic criteria
performance of buildings (Directive 2002/91/EC) that
was addressed to the Member States, a package of new Investment Costs - include all costs regarding the
regulation was enforced in Portugal during 2006. In the renovation options herein considered per building type.
building sector, the Portuguese legislation included IRR is used to assess the attractiveness of undertaking
regulations regarding the energy and indoor air quality the energy efficiency renovation project.
performance in buildings through the National System NPV - is used to assess the feasibility of an energy
of Energy Certification and Indoor Air Quality in project by an investor.
Buildings (SCE) (Decree-law 78/2006), according to the GVA - refers to the capacity of the energy renovation
requirements and statements contained in the Regulation project of promoting local/regional/national economic
of Building Comfort of Energy Systems (RSECE) income.
(Decree-law 79/2006), and according to the Regulation
of the Characteristics of Thermal Behaviour of 60000
Buildings (RCCTE) (Decree-law 80/2006). This new 50000 50961,419

legislation package was stricter than the previous one
40000
and was either applicable to the new or older buildings
kg CO2
needing greater rehabilitation interventions. More 30000
recently with the enforcement of Directive 2010/31/EU 20000

regarding the energy performance of buildings, the 16868,687
13029,544
Portuguese legislation was updated encompassing in a 10000 10233,046
single Decree-Law 118/213 the Energy Certification of 0

Private Sector Public Sector Residential Residential
Buildings (SCE), the Regulation of Energy Performance Sector_2F Sector_4F
of Residential Buildings (REH) and the Regulation of Electricity NG LPG TOTAL
Energy Performance of Non-Residential Buildings
(RECS). Therefore, the major potential for energy Figure 4: CO2 emission reduction considering the energy
efficiency improvements exists in buildings, which have consumption mix
been constructed before 1990, when the first thermal
insulation regulation was enacted. These buildings
represent 71% of the existing building stock and 20% of Technological criteria
this percentage has been constructed before 1945. The Energy savings - refers to the total annual energy
characterization of the building stock for the illustration consumption avoided with the energy efficiency
of this analysis was based on the methodology measures implementation.
developed by Coelho (2013) and (Coelho et al., 2013). Technology maturity - measures the degree of maturity
With this portrayal it was possible to obtain data of the technology and refers to how widespread the
regarding CO2 emission reduction and energy savings technology is at both national and international levels. It
according to the energy consumption mix (Electricity, is a qualitative criterion and can take following values
Natural Gas NG, Liquefied Petroleum Gas LPG and from1 to 4 (Coelho et al., 2013): (1) technologies that
152
are only tested in laboratory; (2) technologies that are qualitative criterion. The following four-point
only performed in pilot phases, where the demonstrative qualitative scale was applied (Coelho et al., 2013): (1)
goal is linked to the experimental one, referring to the the majority of inhabitants are against the installation of
operating and technical conditions; (3) technologies that any energy efficiency renovation project whatsoever
could be still improved; and (4) consolidated regardless of where it is; (2) the opinion of the
technologies, which are close to reaching the theoretical population regarding the project is split; (3) the majority
limits of efficiency. of inhabitants accept the project provided they are
located far from residential areas; (4) the majority of
inhabitants are favourably disposed towards the project.
60000
The Electre Tri method was selected to provide decision
50000
support. Electre Tri is devoted to the sorting (or
40000 classification) problem, which consists in assigning each
alternative ai A={a1,,am}, evaluated according to n
kWh
30000
20000
criteria, g1,,gn, to one of a set of pre-defined ordered
categories (classes of merit) C={C1,,Ch}, where C1,
10000
Ch are the worst and the best category, respectively.
0
Private Sector Public Sector Residential Residential
Each category Cl, l=1,, h, is limited by two reference
Sector_2F Sector_4F profiles (upper bound and lower bound), defined for
Roof Wall Double Glazed window Double Glazed window + Frame each criterion gj, j=1,,n. The assignment of each
action ai A to a category Cl is done by comparing its
Figure 5: Energy savings for each energy efficiency value in each criterion to the performances of the
investment option reference actions. The procedure assigns each action a i
to the highest category such that its lower bound is
outranked by ai. The outranking relation is verified by
Table 1: Criteria identification comparing a credibility index with a cutting level. Also,
a set of indifference (qj), preference (pj) and optional
Criterion
Performance
Score type
Optimization veto (vj) thresholds for each criterion and reference
measure Criterion profile is defined. For further details about The Electre
Investment
Quantitative Minimize Tri method see Mousseau and Dias (2002). In the
Costs
IRR % Quantitative Maximize experiments presented in this chapter the software
NPV Quantitative Maximize package IRIS 2.0 was used (Dias and Mousseau, 2003).
Energy saving kWh/year Quantitative Maximize IRIS implements a methodology based on the Electre
Employment N FTE Quantitative Maximize Tri method, accepting uncertainty in the input
Technology Four-point parameters.
Qualitative Maximize
maturity scale
CO2 reduction Kg/year. Quantitative Maximize
SOME ILLUSTRATIVE RESULTS
GVA Quantitative Maximize
Social Four-point According to the different energy efficiency renovation
Qualitative Maximize
acceptability scale
options herein analysed, 16 actions were considered to
be evaluated. The data elements gathered from the
Environmental criteria characterization of the building stock of a Portuguese
urban set (see the previous section) were used for
CO2 reduction measures the amount of equivalent assessing the performance of the actions according to
emission of CO2 avoided as a result of energy efficient the different criteria, as well as for the reference profiles
actions or as a result of energy production from and associated thresholds.
renewable energy systems and it is measured in kg CO2 Actions should be assigned to five categories of merit:
equivalent per year. (C1) Very Poor; (C2) Poor, (C3) Fair; (C4) Good and (C5)
Very Good, according to the multiple evaluation criteria.
Indifference and preference thresholds were fixed as
Social criteria percentages of the value ranges in each category, 1%
Employment - evaluates the energy efficiency and 10%, respectively. The veto threshold was not
renovation investments by taking into account their applied in this case study.
impacts on direct, indirect and induced employment, Both the data concerning the alternatives to be evaluated
with local and/or national implications. and the technical parameters required by the method
Social acceptability - expresses the index of acceptance (reference profiles, thresholds, and criterion weights)
by the local population regarding the realization of the were supplied to the IRIS software. The cutting level
projects under review or the implementation of energy (), which determines the exigency of the classification,
efficient measures. Social acceptance is expressed as a was constrained to the interval [0.51, 0.67],
153
corresponding to a simple majority and a two-thirds the improvement of the classification of the action
majority requirement, respectively. single glazed window replacement in the residential
Some illustrative results are presented in Fig. 6, using sector,
different shades of grey to indicate the range of possible
assignments for each action, i.e. the categories the action
can be assigned to without violating constraint bounds
and assignment examples. The assignment
recommended by IRIS software based on the inferred
combination of parameter values is represented by the
cell with a darker shade of grey. In some situations,
there are some intermediate categories an action cannot
be assigned to, as for instance the fourth action in Fig.
6a), which is indicated in black. This means there is no
combination of the values of the cutting level and the
criterion weights that allow the classification of this 6.a) kj [0.01;0.49] and [0.51;0.67]
action in categories C2 and C3.
According to Fig. 6 a) when considering kj [0.01;
0.49], ensuring that all criteria are considered and that
the maximum weight of each criteria is always less than
the sum of the weights of the remaining criteria and
[0.51; 0.67], the actions conducted in the public sector
are best classified, due to the performance of these
actions against the following criteria: energy reduction
and GVA. Moreover, the performance against the
NPV criteria classifies only roof insulation in the
public sector in the best category, with seven actions 6.b) Assignment of the investors preferences (NPV and IRR)
being classified in category C3. The actions involving
the replacement of single glazed windows (with or
without frame replacement) in the residential sector are
classified in the worst category along with the action of
wall insulation in the private sector. This classification
is the result of the weak performance of these actions in
the NPV and IRR criteria. Fig. 6 b) presents the
results obtained according to the preferences expressed
by the investor. The explicit consideration of the
investors preferences, by assigning higher weights to
NPV and IRR, imposing them as the most important
6.c) Assignment of the social-economic preferences (Jobs and GVA)
criteria, leads to the classification of the cluster roof
insulation in the best category and the cluster single
glazed window with or without frame replacement in
the worst category. Therefore, the results herein
obtained suggest that from the investors point of view
there are not enough incentives to implement this last
kind of energy efficiency renovation actions.
When assigning the preferences expressed by local
authorities (see Fig. 6 c)), i.e., considering
Employment and GVA as the most important
criteria, half of the energy efficiency renovation actions
are classified in the two worst categories. Opposed to
the previous results the cluster of roof insulation is 6.d) kj [0.01;0.49] and [0.51;0.67] with an average annual
now classified in the two worst categories, while cluster growth rate of energy prices of 5%
of single glazed window with or without frame
Figure 6: Illustrative results
replacement either in the private or public sectors is
now better classified.
This is due to the performance of these actions
considering buildings with four facades is the most
according to the employment performance - jobs. The
significant change observed regarding the results
results depicted in Fig. 6 d) were obtained considering
provided in Fig. 6a). The assessment of the energy
the impact of the increase of energy prices. In this case,
154
efficiency renovation projects could continue by adding REFERENCES

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ACKNOWLEDGMENTS
The authors would like to acknowledge FCT support
under project grant PEst-C/EEI/UI0308/2011 and the
R&D Project EMSURE Energy and Mobility for
Sustainable Regions (CENTRO 07 0224 FEDER
002004).
155
156
HOW TO DESIGN RELIABLE DISCRETE CHOICE SURVEYS: THE USE

OF QUALITATIVE RESEARCH METHODS
Anabela Botelhoa, Lina Loureno-Gomesb, Lgia M. Costa Pintoa, Sara Sousac,d*
a
NIMA, University of Minho, Portugal
b
University of Trs-os-Montes and Alto Douro, Portugal
c
PhD Student in Economics, University of Minho, Portugal
d
*Corresponding author: [email protected], ISCAC, Polytechnic Institute of Coimbra, Quinta Agrcola,

Bencanta, 3040-316 Coimbra, Portugal
KEYWORDS consideration in deciding the energy mix of any given

Discrete Choice Experiments, Qualitative Research country.
Methods, Renewable Energy Sources
Economic valuation of environmental impacts generated
by renewable energy can be undertaken using different
ABSTRACT methodologies. In this study, we propose to use discrete
choice experiments (DCE), a stated preference method.
Discrete choice experiments (DCEs) present individuals According to this method, any good can be defined as a
with choices between scenarios described in terms of set of attributes and, by examining the relative
attributes and associated levels. Despite its significant importance people place on these attributes it is possible
potential in the analysis of individual preferences, the to determine its value (Lancaster, 1966).
application of this method raises some important issues, In DCEs approach, questionnaires are essential
namely whether the elicited preferences behave in instruments, as individuals are presented with different
accordance with the axioms of preference-based choice sets. Faced with this choice task, respondents are
consumer theory. In DCEs, individuals are assumed to expected to behave and express their preferences in a
hold rational preferences, but many empirical studies rational way. Individuals` rationality and rational
report evidence of preferences that violate this choices has been a key subject widely debated in
foundation. This may be the result of several factors, Economics (Sugden, 1991; Smith, 1991; Palma et al.,
including problems in the design and implementation of 1994; McFadden, 1999). The question of whether
the DCEs questionnaires. This paper aims to preferences elicited via an experimental method such as
demonstrate the importance of using qualitative research DCEs behave in accordance with the axioms of
methodologies in the design of complete and accurate preference-based consumer theory is crucial to ensure
DCEs questionnaires in the domain of renewable energy that individuals responses can be interpreted as being
sources (RES). Two specific qualitative techniques are meaningful (San Miguel et al., 2005; Lancsar and
used and explained in detail in this paper: the focus Louviere, 2006).
group and the think aloud technique, which have However, respondents behavior when expressing their
revealed to be fundamental tools in the questionnaires preferences is often not as rational as one would
design process. expect, namely: instead of existing prior to the task,
many preferences are constructed by individuals only at
the time the valuation question is asked (Payne et al.,
INTRODUCTION 1992; 1999); in many situations, individuals make
choices based on a single attribute which they consider
Over the past decades, a major emphasis has been given
to be priority and avoid making tradeoffs between
to RES, with a significant development of different
decreases in certain attributes for increases in other
sources of power supply based on available domestic
(Payne et al., 1993;1999; Gigerenzer et al., 1999; Luce
natural resources: hydropower, wind power,
et al., 1999); and when faced with complex decisions,
photovoltaic energy, and biomass. Although renewables
individuals often rely on a number of simplifying
are considered environmentally friendly ways of
heuristic principles, leading to severe and systematic
producing electricity, they nevertheless present
errors (Tversky and Kahneman, 1974; Cairns et al.,
environmental impacts that must be taken into
2002; Cheraghi-Sohi et al., 2007). These examples of
irrationality in respondents preferences may be due
157
to an improper DCE questionnaire design. For instance, (1982; 1983) and Louviere and Woodworth (1983) have
if task instructions and questions are poorly worded, become historical reference sources, by opening the
ambiguous or even misleading, it is unlikely to obtain discussion of the theory and logic behind this
reliable and valid results (Lancsar and Louviere, 2006). methodology.
In a discrete choice experiment, respondents are asked
The main purpose of this paper is to minimize errors or in a survey to choose among different sets of attributes
misunderstandings due to an improper questionnaire and associated levels. This method is based on the notion
design, by combining a DCE in the domain of the that value is derived from the specific attributes of a
renewables with two qualitative research good or service, which is in accordance with Lancaster
methodologies: the focus group and the think aloud (1966)s characteristics theory of value. However, as
technique. These two qualitative research methods are stressed by Bateman et al. (2002), although it may seem
crucial for understanding ideas, beliefs and behaviors, a simple task, it is not easy to describe any good in terms
providing valuable information to be used in the design of its attributes.
of reliable and complete DCEs questionnaires. In order to obtain valid and accurate DCEs results, there
is a number of key stages that researchers must follow
DISCRETE CHOICE EXPERIMENTS when conducting any choice modelling exercise. These
stages and its descriptions are presented in Table1.
The first studies developing DCEs method date back to
the early eighties. The papers by Louviere and Hensher
Table 1: Stages of a DCE Exercise

Stage Description
Selection of attributes Identification of relevant attributes of the good to be valued. This is done through literature
review, focus group and expert consultations. A monetary cost is typically one of the attributes
to allow the estimation of the willingness to pay (WTP).
Assignment of levels The attribute levels should be feasible, realistic, non-linearly spaced, and span the range of
respondents` preference maps. This is done through literature review, focus groups, pilot
surveys and expert consultations. A baseline status quo level is usually included.
Choice of Statistical design theory is used to combine the levels of the attributes into a number of
experimental design alternative scenarios or profiles to present to respondents. Complete factorial designs estimate
the full effects of the attributes upon choices: it includes the effects of each of the individual
attributes presented (main effects) and the extent to which behaviour is connected with
variations in the combination of different attributes offered (interactions). These designs often
originate an impractically large number of combinations to be evaluated. Fractional factorial
designs can reduce the number of scenario combinations presented with a concomitant loss in
estimating power (some/all interactions will not be detected). These designs are available
through specialized software.
Construction of The profiles identified by the experimental design are then grouped into choice sets to be
choice sets presented to respondents.
Measurement of Choice of a survey procedure to measure individual preferences.
preferences
Estimation procedure Ordinary least squares regression or maximum likelihood estimation procedures.
Source: Adapted from Hanley et al. 2001; Bateman et al., 2002; Pearce et al., 2006.
2. ATTRIBUTES AND LEVELS SELECTION
Literature Reviews and Expert Consultations

In this study, the attributes and associated levels are the presents negative impacts. The use of this energy source
renewables main impacts on the environment and affects: the landscape, which is completely modified by
people`s lives. After an extensive literature review on the existence of the dam and all the special local changes
this subject, we have selected a significant set of implied by its construction; the ecosystems and
attributes and levels for each RES. Regarding wind ecological integrity; and also the archaeological and
power, the literature reports: the visual impacts caused historical places, by causing its complete flooding
by the existence of wind turbines, affecting the (Loomis, 1996; Rosenberg et al., 1997; Awakul and
landscape; the impact on birds and wildlife; and an Ogunlana, 2002). In relation to photovoltaic technology,
annoying noise due to the wind turbines functioning the main disadvantages associated to its development
which affects the neighboring population (Devine- are: the visual impacts caused by the existence of the
Wright, 2005; Wolsink, 2007). Hydropower also photovoltaics panels, changing the landscape; the
158
destruction of the vegetation and consequently affecting qualitative data offers a robust alternative to more
the ecosystems involved; and finally the production of traditional survey methods when absolute numbers of
brightness due to the reflection of direct sunlight respondents are less important than is a rich
(Tsoutsos et al., 2005; Chiabrando et al., 2009). Finally, investigation of content (Dawson et al., 1993; Krueger
biomass is also associated to some adverse and Casey, 2009; Massey, 2011).
environmental impacts such as: landscape change and In this study, we used the focus group method with the
biodiversity loss caused namely by land use changes; purpose of confirming if the attributes and levels
and the production of certain gases responsible for a selected through literature reviews and expert
nontoxic, but unpleasant smell (Abbasi and Abbasi, consultations were the same identified by the focus
2010; Myllyviita et al., 2012; Bridgwater, 2012). All groups participants or even if we should consider more
these renewables negative impacts were confirmed with attributes. We next describe the recruitment, procedures
experts on this area. and results of focus groups discussions conducted in the
Additionally, there is the cost attribute, which allows the context of our study.
estimation of the monetary amount individuals are
willing to pay (WTP) for having electricity generated by Recruitment
a specific renewable energy source. The chosen The participants of the focus groups were recruited
payment vehicle was the electricity bill, a common form through a face-to-face approach. The recruitment took
of payment to all individuals and which does not raise place in a higher education school in Coimbra, Portugal,
any doubt in practical terms. For this attribute, we have where individuals are mainly students and have over 18
initially selected three levels: 6 , 10 and 14 , but after years. The recruitment was made by a teacher of the
a further reflection namely on the current low school. There was no specific eligibility criteria: all
purchasing power of families, we have reduced these individuals were invited to participate in the study,
values to: 4, 8 and 12. regardless of age (but over 18), gender, occupation
(besides studying) or any other specific characteristic. A
Focus Groups total of 25 participants were recruited. These individuals
In this stage of eliciting attributes and levels, the use of had in common certain characteristics: they were all
qualitative research may be extremely useful. aged over 18 and were higher education students,
Qualitative research is the method of choice when the ensuring a certain homogeneity in the group.
research question requires an understanding of
processes, events and relationships in the context of the Procedures
social and cultural situation. Instead of generating On November 21, 2013, 25 participants were recruited
numerical data, qualitative research aims to produce and separated into 3 groups: the first group with 10
factual descriptions based on face-to-face knowledge of elements, the second with 8 elements and the third with
individuals and social groups in their natural settings 7 elements. These groups compositions between 7 and
(Sullivan and Ebrahim, 1995). Qualitative research 10 elements are important to simultaneously ensure a
includes specialized techniques for obtaining in-depth certain diversity of opinions and avoid the tendency for
responses about what people think and how they feel the group to fragment. The procedures were the same for
(Dongre et al., 2010). Focus groups are one of the all the three groups, differing only in the starting time of
qualitative techniques used in this study. each discussion. Each group was sent to a room,
Focus groups have its origins in group interviews considered to be a comfortable and permissive
(Banks, 1956; Goldman, 1962), but were brought into environment, where participants sat around a table in
prominence by market researchers during the late 70s order to maintain visual contact with each other. Then,
and 80s (Bellinger et al., 1976; Calder, 1977; Linda, the interviewer succinctly presented the study, described
1982), particularly in social research (Stycos, 1981; the proposed task, informed participants that the session
Morgan and Spanish, 1984; Basch, 1987). Today, they would be audio-recorded, and that collected information
are used widely by all kinds of social researchers. would be confidential and only used for this study. Next,
According to Krueger and Casey (2009, p.6), five all respondents received and signed an informed consent
characteristics define a focus group: (1) people, who form.
(2) possess certain characteristics, (3) provide Following these procedures, the interviewer presented
qualitative data (4) in a focused discussion (5) to help for discussion the following three questions through a
understand the topic of interest. Each group is typically questioning route:
composed of 5 to 10 homogeneous participants, led by a
skilled interviewer who is not in a position of power Question n 1: You might have already heard of
influence: his role is to ask questions, listen, keep the renewable energy to produce electricity. Do you know
conversation on track and make sure everyone has a any? Which do you know?
chance to share. In a focus group study, researchers Question n 2: What are the impacts or effects on the
carefully plan discussions specifically designed to listen, environment and people's lives of using these
obtain perceptions and better understand how people energies?
feel or think about a certain issue. The resulting
159
Question n 3: Which impacts do you think are the most on fauna or flora, and noise impact. The following
important or most serious? quotations show some of these impacts:
As soon as the first question was made, participants They are not exactly beautiful. [Respondent 2 /Group 1]
voluntarily began giving their opinions and talking to
each other. Then, when the interviewer considered the If I had to listen to that noise all day, maybe bother me.
question was completely discussed, the second question [Respondent 4 /Group 1]
was made and, after its discussion, the interviewer
presented the third and last question, following the I do not know to what extent that is true about migratory
planned questioning route. During the session, the three birds because the winds ... if this is true, it is a negative
questions were only supplemented with additional point. [Respondent 3 /Group 2]
questions when required for clarification or to get more
detail on a particular issue. It is important to emphasize The wind makes a bit of noise. [Respondent 3 /Group 3]
that the role of the interviewer is mainly to be a
moderator, i.e., to ask questions, listen, keep the We get used, but is never comfortable. [Respondent 4
conversation going, ensure that all participate, without /Group 3]
giving his opinion nor exercise any kind of influence on
the participants responses. This task lasted between 21 Hydropower is also well known by respondents and its
and 34 minutes, it was audio-recorded with the consent main impacts were also identified by the majority,
of all respondents and then all speech during the task namely visual impacts, impacts on fauna or flora, and
was transcribed verbatim. heritage impacts. It should also be noted that an
additional impact was identified by one participant: the
Results noise impact, affecting resident population near a dam
With the three focus groups we obtained important (Respondent 5 /Group 2). The following quotations
qualitative results. The participants answers and confirm the respondents ability in identifying these
comments allowed us to conclude that individuals were impacts:
familiar with most of the renewables, specially wind
power, hydropower and photovoltaic energy. Regarding It interferes with ecosystems, creating a barrier for
biomass, however, we observed that the majority of certain ecosystems that did pass by there and can no
respondents did not know any specific biomass plant, longer make this passage. [Respondent 6 /Group 1]
they presented many doubts about the involved
electricity generating process and consequently were not It destroys habitats and landscapes! [Respondent 1
able to talk about the impacts associated to this energy /Group 3]
source. Therefore, we conclude that biomass is the least
known of the four RES in analysis. The following It was build a dam and the village was drowned there
quotations confirm this lack of knowledge and doubts and then the village had to be transplanted to other
about biomass: place. [Respondent 3 /Group 3]
I have already heard of biomass, but I did not know there It was in Alqueva dam homes were underneath. Many
was one in Mortgua. [Respondent 2/Group 2] people were left homeless because of the construction of
that dam. [Respondent 4 /Group 3]
I do not know how to explain it, but I think that biomass
has to do with materials that are degradable and then My grandparents live near the dam of Castelo de Bode
there is a kind of process that can turn the heat into and I do not really like the sound of running water. When
energy I'm not sure how it is. [Respondent 3/Group 3] the floodgates open, the noise bothers me. [Respondent
5 /Group 2]
I do not know if it's good, if not... [Respondent 2 /Group
2] Photovoltaic energy is another RES analysed in this
study. Respondents shown to be quite familiar with this
It maybe causes pollution, no? [Respondent 6 /Group 2] energy source and its impacts: visual impacts, impacts
on fauna or flora, and light reflection. The following
Regarding renewables impacts on environment and quotations exemplify the identification of some of these
people's lives, the results are also very enlightening. impacts:
Most respondents were able to identify the impacts
associated to each RES, with the exception of biomass. If I was in my house and in front was a field of
In the specific case of wind power, all respondents knew photovoltaic, it would not be a very beautiful landscape.
well this energy source and were able to identify at least Besides that should do some interference... should do the
one of its main impacts, namely visual impacts, impacts mirror effect... [Respondent 7 /Group 1]
160
The solar panels make more confusion It is less being aware that RES have disadvantages to the
pleasing to the eye. [Respondent 7 /Group 2] environment and people's lives and they were able to
identify the main impacts involved. In the case of
The light is reflected off. [Respondent 5 /Group 3] hydropower, an additional attribute was identified by
participants: the noise impact, which we decided to
The application of focus group technique allowed us to include in our DCE questionnaires. Due to some doubts
conclude that participants were familiar with the concept presented by some participants, we also decided to
of renewable energy source and knew relatively well complement the questionnaires with images of each
wind power, hydropower and photovoltaic energy. renewable technology. Table 2 presents the resulting
However, the participants showed a serious lack of selection of attributes and levels for each RES.
knowledge about biomass. Participants also revealed
Table 2: Selection of Attributes and Levels

RES Attributes Levels
Wind power i) Significant impact on landscape Yes; No
ii) Significant impact on Fauna/Flora Yes; No
iii) Production of noise affecting population Yes; No
iv) Increase in the monthly electricity bill 4; 8; 12
Hydropower i) Significant impact on landscape Yes; No
iii) Production of noise affecting population Yes; No
iv) Heritage destruction Yes; No
v) Increase in the monthly electricity bill 4; 8; 12
Photovoltaic i) Significant impact on landscape Yes; No
energy ii) Significant impact on Fauna/Flora Yes; No
iii) Reflection of light affecting population Yes; No
Biomass i) Significant impact on landscape Yes; No
iii) Production of odor affecting population Yes; No
QUESTIONNAIRES STRUCTURE
After concluding this initial stage of attributes and levels section of choices in which individuals were presented
selection, we have designed four individual with several choice sets, each consisting of a number of
questionnaires, one for each RES, and three comparison attributes with different levels and asked to choose
questionnaires (hydropower versus wind power; between two distinct forms of electricity production; in
hydropower versus photovoltaic energy; wind power a third section, questions intended to know respondents
versus photovoltaic energy), excluding biomass of this general opinion about renewables; and finally, in a last
comparison analysis, mainly due to the lack of section specific questions were specific made to collect
knowledge that most focus groups participants information about individuals` socio demographic
expressed regarding this energy source. In each characteristics. All of these questions are relevant, but
questionnaire, different questions were presented in the choices section is the most determinant for our
order to gather concrete information from individuals ultimate aim of giving an economic value to RES
answers and choices: in an introductory section, environmental impacts. Next, in Table 3, we present an
questions were made to assess the degree of example of a choice set, chosen arbitrarily from the
respondents` familiarity with renewables; then follows a hydropower DCE questionnaire.
Table 3: Choice Set Example

Consider the choice between form A of electricity production through hydropower and form B of electricity
production also through hydropower. Please tick your preferred option:
Form A Form B
Significant impact on landscape Yes Yes
Significant impact on Fauna/Flora No Yes
161
Noise affecting population No Yes

Destruction of heritage Yes No
Increase in the monthly electricity bill 12 8
Your choice: X
In this case the respondent chose to have in his home electricity produced by hydropower form A which produces
a significant effect on landscape and destroys heritage, but has no impact on the fauna and flora, nor produce
noise affecting population and costs more 12 euros per month. Instead of electricity produced through form B,
which is cheaper, but produces noise affecting population and has significant impact on fauna and flora. With this
answer we conclude that the respondent prefers to pay more 12 euros per month to avoid negative impacts on
fauna and flora and noise affecting the population, accepting installations with significant effects on landscape
and heritage destruction.
As with the focus groups, recruitment took place in a

Think Aloud Technique higher education school in Coimbra, using a face-to-face
Having defined the attributes and levels of the DCE with approach. The recruitment was made by one teacher of
the help of the focus group method, we applied in this the school and there was no specific eligibility criteria:
stage of the questionnaires design another valuable all individuals were invited to participate in the study,
qualitative research technique: the think aloud. This regardless of age, gender, occupation or any other
method has long been used in psychological research in specific characteristic. A total of 16 respondent were
order to study task-based cognitive processes. The recruited, individuals with different ages (but all over
theoretical framework for think aloud experiments is 18), different genders, different occupations (besides
provided mainly by the work of Ericsson and Simon studying) and coming from different regions of
(1984) who base their theory of verbalization on the Portugal. It is important to note that none of the
information-processing approach in cognitive participants of this think aloud session participated in
psychology, i.e., they assume that human cognition is the previous focus groups. Additionally, and with the
information processing. Today, the think aloud intent of achieving greater variability in participants
method is accepted and considered a useful method by a socio demographic characteristics, some recruitment
large part of the scientific community (Someren et al., was done in a church quire in Braga (City in north
1994). Portugal). Only a few participants were recruited. As
The think aloud technique is used to investigate such, and to ensure anonymity we will not discriminate
respondents` choices. With this purpose, cognitive the two types of participants. However, we can say that
interviewing is employed, where participants are asked these participants were older and less educated, thus
to think aloud as they complete DCEs questionnaires, providing us with a point of view closer to the general
verbalizing all thoughts that would normally be silent. population.
Participants are not asked to explain the reasons for their
thoughts, or provide any commentary, but just report the Procedures
information that they are currently thinking about. With The think aloud sessions took place in Coimbra on
this method, we get direct data on the ongoing thinking November 28, 2013 and during January 2014 in Braga.
process of respondents during their activity of answering All participants agreed to be audio-recorded while
our questions (Ericsson and Simon, 1984; Someren et thinking aloud and answering the DCE questionnaires.
al., 1994; Gilhooly and Green, 1996). This is known as Before commencing the think aloud task, each
the concurrent think aloud, but relevant qualitative participant was read the following instructions, adapted
data can also be obtained through the retrospective from a set of best practice instructions for think
think aloud in which respondents are asked to describe aloud studies (Ericson and Simon, 1984; Green and
what they were thinking after the task has been Gilhooly, 1996):
completed (Ericsson and Simon, 1984; Ryan et al.,
2009). In this study, we adopted the combination of We need your collaboration in a research project
these two think aloud techniques, with the main conducted by researchers of the University of Minho. Its
concern of verifying whether the information provided main objective is the valuation of the environmental
was correctly interpreted and understood by impacts associated with each of the various renewable
respondents. We next describe the recruitment, energy sources. The following questionnaire is
procedures and results of think aloud sessions anonymous and confidential. Please respond with the
conducted in the context of our study. greatest possible sincerity. We want to check that people
understand the questions in the way that we meant them.
Recruitment To do this, I am going to ask you to think aloud as you
162
complete the questionnaire. What I mean by think are from some of the respondents who did not know
aloud is that I want you to tell me everything you are biomass:
thinking as you read each question and decide how to
answer it. I would like you to talk aloud constantly. I Biomass ... I do not know what it is. [Respondent 9]
don`t want you to plan out what you say or try to explain
to me what you are saying. Just act as if you are alone I do not quite understand what it is. [Respondent 11]
in the room speaking to yourself. If you are silent for any
long period of time, I will ask you to talk. Please try to In a DCE, it is important that individuals are willing to
speak as clearly as possible, as I shall be recording you trade between attributes, avoiding making choices based
as you speak. Do you understand what I want you to do? on only a single dominant attribute. In this session, a
significant percentage of respondents (56,25%) claimed
Any queries were dealt with at this stage by the main to have made their choices based on all attributes.
researcher and then, individuals received and signed the However, when asked to rank the impacts according to
informed consent form. Once participants began the task their importance in their decisions, respondents
proposed, they were not interrupted, unless they fell considered impacts on fauna and flora, impacts on
silent for about 10 seconds, in which case the main landscape and low prices as the most important,
researcher prompted them to keep talking or tell me followed by reflection of light impacts and impacts on
what you are thinking, in accordance with think heritage. The odor impacts were considered the less
aloud protocol (Ericson and Simon, 1984; Green and significant. The following quotations illustrate some
Gilhooly, 1996; French et al., 2007; Darker and French, comments made by respondents:
2009). In some cases, participants preferred to answer
the questionnaire first, and then replicate the though I always gave more attention to the landscape.
process developed. Retrospective think aloud was [Respondent 2]
applied in this circumstances. Following this task, the
main researcher asked respondents how they found the For me, I think the noise is the most important... and also
choices they were presented with. Each individual took the cost [Respondent 5]
approximately 30 to 40 minutes to complete the task,
their speeches were audio-recorded with the consent of Not destroying plants nor animals is important ... the
all participants and then were transcribed verbatim. houses are also important, but these can be rebuilt ...
animals and plants cannot. [Respondent 11]
Results
By listening to respondents` thoughts as they were Regarding the cost attribute, respondents adopted
answering the DCE questionnaires, we obtained distinct behaviors. In the DCE questionnaires, this
important qualitative results. Our sample is composed attribute was associated to three different levels: 4, 8
by a total of sixteen individuals with the following socio and 12. These values have been carefully chosen,
demographic characteristics: eleven males (68,75%), taking into account the current economic context of the
nine aged between 18 and 29 years (56,25%), eleven Portuguese families. In our sample, the majority of
singles (68,75%), eleven with the secondary school respondents belong to households composed by 3 or 4
completed (68,75%) and eight currently studying in elements (56,25%), earning a monthly income between
higher education school (50%). It is important to 501 and 1000 (50%) and paying a monthly electricity
emphasize that, despite the small sample size, it bill between 0 and 50 (37,5%). The payment vehicle
represents a valuable insight for our study, providing considered was the electricity bill. However,
researchers with important qualitative data. In several respondents were explicitly informed that there was no
studies on qualitative research, the authors minimize or intention to introduce this extra cost on the basis of the
even deny the relevance of generalization (Denzin, answers obtained. It was observed that some individuals
1983; Marshall and Rossman, 1989; Denzin and gave an extremely high importance to this attribute
Lincoln, 1995). What really matters is the richness of the while others minimized its relevance. The following
data obtained and the efficiency of the process of data quotations illustrate these distinct behaviors:
collection, providing the reader with the information
necessary to decide whether the findings might be In all the choices, I looked only to the value ...I always
transferable and relevant in other settings (Payne and chose the lowest, because I'm not rich. [Respondent 3]
Williams, 2005).
As already observed in the focus groups, in this think I really just thought about the price, because in my
aloud session respondents demonstrated knowing opinion it is what counts most. Things are very
relatively well all RES analysis, with the exception of complicated, so I answered it based on the price of
biomass: 16 (100%) respondents said they knew well things. Independently of the others, I always chose the
wind power and photovoltaic power; 14 (87.5%) knew one with the lowest price. [Respondent 7]
well hydropower, but only 7 (43.75%) reported having
some knowledge on biomass. The following quotations
163
To me, the fact of being more expensive does not Considering these last comments, we proceeded with
constitute a problem, because it is a difference of 4 , important changes in the DCE questionnaires: we
but I think it justifies these 4 , because it would be my reduced the number of scenarios combinations; instead
contribution, personal, for the preservation of the of having a questionnaire comparing each pair of
landscape, flora, fauna and heritage and even for the renewables, we adopted a single questionnaire
respect with the population. [Respondent 12] comparing all where the energy source is an attribute
with three levels renewables (biomass was intentionally
It is also important to note that individuals stated they excluded); and choices were changed from labelled to
would buy most of the forms of electricity they have unlabelled. These adjustments significantly simplified
chosen at the associated prices (79,75%), with 50% of participants choice tasks.
the choices made with a high degree of certainty
(between 6 and 8 in a scale of 0 to 10) and 30% with a CONCLUDING COMMENTS
very high degree of certainty (between 9 and 10 in a
In this research study, we have combined a discrete
scale of 0 to 10).
choice experiment with focus group and the think
After completing the proposed task of concurrent
aloud techniques. These two qualitative research
thinking aloud while answering the questionnaires, each
methodologies have revealed to be valuable tools in the
participant was asked to make a retrospective think
design of reliable DCEs questionnaires, an essential
aloud exercise, allowing researchers to access their
condition for collecting valid and accurate data from a
thoughts and listen their opinions about the task they
population survey.
have just completed. In general, we observe that
The present analysis suggested that the selection of
respondents understood the proposed task and, despite
attributes and levels must be made with accuracy and
being unfamiliar with the questionnaires format, the
with the final aim of being correctly understood by
majority of respondents found it reasonably easy to
respondents, avoiding any possibility of ambiguity in its
understand, getting used to it after a few scenarios. This
interpretation. To this end, literature review and expert
is expressed in the following quotations:
consultations are important, but the information
collected can be more complete and consequently more
I had no difficulty in making choices... [Respondent 1]
valuable if complemented with qualitative data provided
by the focus groups whose discussions allowed us to
It was accessible. [Respondent 2]
listen and understand how participants felt or thought
about the topic under study, i.e., the environmental
At first I did not understand these tables here, but then I
impacts of renewable energy sources. With focus
understood well. [Respondent 4]
groups, we were able to identify and consider in our
questionnaires an additional attribute associated to
I think the questions were clear...It did not raise any
hydropower, the noise impact. By listening to focus
difficulty. [Respondent 5]
groups discussions, identifying some doubts and lack of
knowledge, particularly regarding biomass, we have
I knew more or less what the questionnaire was asking.
also decided to complement our DCEs questionnaires
[Respondent 6]
with images of each renewable technology.
Having designed the questionnaires, we applied the
The language used was a coherent language.
think aloud technique which lead us to some further
[Respondent 8]
adjustments. The most significant adjustment was the
choice of unlabelled alternatives instead of labelled.
Nevertheless, some respondents criticised the
This adjustment significantly improved the easiness of
questionnaires for being too long, with many similar
understanding of the choice task by participants. A
scenarios, generating some confusion expressed in the
further test of the questionnaire was then implemented
following quotations:
and only minor word changes were suggested.
In sum, this paper demonstrates how important the use
There were some choices that were a bit similar.
of qualitative methodologies can be in complementing
[Respondent 5]
the use of an extensive literature review and of statistical
design software in designing a good and reliable survey
I think it is a bit confusing on the part of the choices ...
instrument which is of utmost importance for collecting
It has many similar questions and it is a bit confusing.
reliable quantitative data.
The choices are indeed very similar. [Respondent 7]
ACKNOWLEDGEMENTS
I think the questionnaire was a bit long and very
repetitive ... The questions were often repeated. Financial support from PTDC/EGE-ECO/122402/2010
[Respondent 8] is greatly appreciated
164
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166
INTEGRATING PUBLIC POLICY AND PRIVATE STRATEGY

INTERDEPENDENCIES IN PROJECT EVALUATION:
FROM CBA TO COBAYE
Richard LE GOFF1,2 and Satya-Lekh PROAG1,2*

1
2
* Corresponding author: [email protected],

Unit dEconomie Applique, ENSTA ParisTech, 828 Boulevard des Marchaux 91762 Palaiseau, FRANCE
KEYWORDS but also its potential impact on other public policies, as

Cost-Benefit Analysis (CBA), uncertainty, well as the opportunities it could provide for city
interdependencies stakeholders.
Indeed, in a public decision-making perspective, either
ABSTRACT for ex-ante or ex-post studies, the most common way to
perform project evaluation in transportation and
The CoBAYe method is a decision-making tool environment is cost-benefit analysis (Grant-Muller et al.
revisiting standard CBA which uses a typology based on 2001; Odgaard, Kelly, and Laird 2005; Vickerman
the consideration of direct, indirect and induced effects 2007). This method always consists in two stages: first
of the public policy to be evaluated ex-ante. CoBAYe identify, and second, assign a monetary value to the
considers interdependencies between public policies and costs and benefits related to the direct and indirect
private strategies, and therefore operates a real paradigm effects linked to the policy to be evaluated (Eijgenraam
shift in decision theory through two innovations. First, et al. 2000; Ministry of Transport 2004; SACTRA
the time horizon to consider for the evaluation is now 1999).
determined endogenously in the political decision. The objective of the CoBAYe method is actually to
Second, using opportunity benefits in the analysis will supplement the standard method of cost-benefit analysis
enable identifying and evaluating the public and private for identifying and evaluating the effects of a public
interdependencies that are part of the policys spatio- policy.
temporal framework. After a brief presentation of the A state of the art of the CBA, as practiced today, will be
theoretical concepts of Cost-Benefit Analysis, this paper the first part of this paper. In a second part, we present
aims to show both the theoretical foundations of the the theoretical foundations of a new decision-making
CoBAYe model and a practical way on how to use this tool, called CoBAYe: Cost-Benefit Analysis under
tool for decision support, whether public or private- interdependency and uncertainty. In a final part, we
oriented. describe in a practical way how this tool can be used for
decision support, considering the uncertainty facing
INTRODUCTION policy makers, as well as the interdependencies of
The air pollution problem in cities and developed public policies and private strategies. The underlying
metropolitan areas is real and serious. Indeed, after concepts of this tool therefore represent a real paradigm
warnings from the UE, IARC, an agency from the World shift in decision theory through two innovations. First,
Health Organization has now published a report the time horizon beyond which it is no longer
outlining all the carcinogenic risks associated with poor scientifically justified, nor feasible, to continue the ex-
air quality in urban areas (Benbrahim-Tallaa et al. 2012; ante evaluation of a public policy, is now determined
World Health Organization Regional Office for Europe endogenously in the political decision. Second, the use
2013). of opportunity benefits in the analysis will enable
To decide which is the best public policy to improve air identifying and evaluating the interdependencies of
quality in the French capital, the council of Paris wishes policies and private strategies that are part of the spatio-
to receive a decision-making tool, which could identify temporal context of the decision.
and take into account not only the cost, opportunity
costs and benefits of the policy to improve air quality,
167
STATE-OF-THE-ART OF COST-BENEFIT Kaldor-Hicks optimum), meaning that nobody

ANALYSIS: DEFINITION, CURRENT can be made better off by exchange without
APPLICATIONS, AND IDENTIFICATION OF making someone else worse off (Debreu 1972).
SOME LIMITATIONS (g) Finally, Social CBA implies that once the
evaluation perimeter is defined (the society), all
Definition of Cost-Benefit Analysis benefits and costs should be summed
provided double-counting is avoided. In
Historically, Jules Dupuit is considered by his peers as particular, in a virtual society of two
the father of cost-benefit analysis (CBA). Through his stakeholders, if one is beneficiary and the other
seminal paper De la mesure de lutilit des travaux is loser of the exact amount, the monetization
publics (Dupuit 1844), he already outlines the through Social CBA would generate zero.
beginnings of CBA in order to evaluate the usefulness of
public works: one must compare the cost of an
Some limitations
engineering project with its benefits, that is to say, with
In environmental economics, but more generally with
the savings it would get, compared to the situation
regard to the consideration of externalities, the analysis
before the construction of the structure (Etner 1983). It
must often evaluate goods and services for which there
should be noted that Dupuit made no comparison with a
is no market. Among the existing methods used to assign
reference case scenario, but with a status quo one.
a monetary value to the effects identified in the cost-
benefit analysis, none is perfect, and each has limitations
Theoretical Foundations of Cost-Benefit Analysis (Dorfman and Rothkopf 1996). However, this paper will
Conceptually, Cost-Benefit Analysis finds its not deal with these limitations, but rather with two
philosophical foundations in utilitarianism (Van Wee concepts that are unfortunately not included in present
2012) and its economic theoretical foundations in days cost-benefit analysis, as it is shown through
neoclassical welfare economics, and therefore reacts, for examples below: one of them is uncertainty (Knight
instance, according to the following, but not exhaustive, 1921) or radical uncertainty, to distinguish from
assumptions (Robinson and Hammitt 2011): probabilistic uncertainty or risk (OECD 2007; Rizzo
(a) Economic stakeholders behave self- 2009) and the interdependencies of public policies and
interestedly and rationally (as per the private strategies.
expression homo economicus) []. They are
therefore primarily motivated by self-interest
and make decisions that maximize their PROPOSITION OF THEORETICAL CONCEPTS
welfare. TO SUPPLEMENT THE CURRENT METHOD OF
(b) Economic stakeholders act as if their rationality COST-BENEFIT ANALYSIS: THE COBAYE
was unbounded. This assumption means that METHOD
people have unlimited capacity to process
information, and solve problems optimally Contrary to Cost-Benefit Analysis, all assumptions of
(Thaler and Mullainathan 2008). neoclassical welfare economics are not taken into
(c) CBA, through neoclassical economics, relies account in CoBAYe:
on expected utility theory (von Neumann and (a) First, although CoBAYe recognizes expected
Morgenstern 1944), meaning that individuals utility, as it assumes individuals assign utilities
assign utilities to consequences and prefer the to consequences and prefer the choices that
choice that maximize the expected value of this maximize the expected value of this utility,
utility. CoBAYe theory also lies in positive
(d) Economic stakeholders choose what they economics: its main objective is to attempt to
want, i.e. [] their preferences are revealed describe individual behaviors. Rephrasing
through their behavior. Robinson and Hammitt (2011) when they try to
(e) CBA, through neoclassical economics in its link Cost-Benefit Analysis and Behavioral
simplest form, assumes perfect information. Economics, CoBAYe investigates what
(f) More generally, CBA assumes perfect markets, individuals would prefer (given the current
defined by perfect competition, which distribution of income and other baseline
conditions are perfect market information and conditions [and according to the economic and
profit maximization but also no participant with territorial structure of the territory to which the
market power to set prices, no barriers to entry public policy is applied]) and summarizes the
or exit, equal access to factors of production, results [for each stakeholder].
and no externalities. Based on these conditions, (b) Second, the economic stakeholder is not a
part of the general equilibrium theory (Walras homo economicus, but he is rather subject to
1874), CBA therefore finds its equilibrium bounded rationality, or procedural rationality
relying on a Pareto optimum (and afterwards (Simon 1947), i.e. his rationality is limited by
168
the information and time he has to make a scale (Atkinson 2007), or at the French scale
decision, and the cognitive limitations of his (Lantner and Le Goff 2009). Unlike the
mind. Indeed, the decisions made by the indirect effects, which are obtained without
policy-maker as well as the choices made by further action (neither from the government,
each stakeholder involved in the policy which nor from the other stakeholders), the induced
would be implemented are uncertain, in the effects require a deliberate decision, to
sense that they fall within the human nature of abandon another public policy or strategy of an
the stakeholder. Moreover, the uncertainty economic stakeholder (company, household ...)
related to the decision is all the more or adopt another policy or strategy. These
meaningful, as the policy-makers are tinged decisions are then reflected by changes in the
with hidden rationality or irrationality overall economic structure, by analogy to a
which is inherent to their human, or Schumpeterian circuit (Schumpeter 1934).
Hegelian, nature (There is no greatness that Contrary to CBA, these induced effects form an
have been accomplished in this world without integral part of CoBAYe and they will be
passion, would write Hegel). The evaluation presented in the next section.
period of CoBAYe therefore wishes to display (e) Fifth, taking into account these aforementioned
these characteristics. induced effects draws CoBAYe further away
(c) Third, an important assumption of the CoBAYe from Social Cost-Benefit Analysis. Indeed, in a
tool is the consideration of the decision-making approach, rooted in public and
interdependencies of public policies and industrial economics, CoBAYe evaluation of a
private strategies in the public policy public policy displays the changes in the
evaluation itself. Indeed, cost-benefit analysis, territorys economic structure which are the
as currently practiced, is often limited to the consequences of the implementation of the
evaluation of what we call the policys direct public policy: CoBAYe therefore provides a
effects (i.e. the intended effects related to the methodology that enables to clearly identify the
actions that took place, or that have been public and private strategies and activities
implemented without any other public which could be generated or developed because
intervention) and indirect effects (i.e. effects they are induced by the public policy
related to the actions that took place although implementation. Hence, the tool does not wish
unintended, still without any other public to balance benefits and costs which would
intervention). However, we believe that the accrue on different stakeholders but due the
consideration of these effects is not sufficient same operation. Thats why the results are not
to conduct an evaluation. Indeed, if the public presented as net benefits for society as in
policy that is to be evaluated does generate Social CBA but CoBAYes results are rather
effects on other public policies and private net benefits for each economic stakeholder
strategies, and which would not have arisen identified and concerned by the public policy.
without the original policy (i.e. in the reference
case), why not take them into account in the DESCRIPTION OF THE COBAYE DECISION-
assessment? This is one of the aims of MAKING TOOL
CoBAYe.
(d) Fourth, perfect markets are not assumed in We first describe how CoBAYe should be used through
CoBAYe. There is no perfect information, a static analysis (section 3.1), then a dynamic one in
barriers to entry or exit do exist, there is neither order to explain the importance of the identified effects
equal access to nor perfect mobility of on the economic structure (section 3.2). Afterwards,
factors of production or consumption and three parts of the dynamic analysis are developed: the
externalities have to be taken into account, as it definition and identification of the public policys
will be described in the next section. Therefore, effects (section 3.3), the proposition how to take into
CoBAYe doesnt rely on Walras general account the uncertainty in which the effects are nested
equilibrium (Walras 1874), but rather the (section 3.4), and the way to monetize them (section
economy is seen as dynamic, and economic 3.5). Put together, these five steps form the
growth is taken into account. More generally, comprehensive CoBAYe tool.
we believe that public policies may generate
induced effects (e.g. in the Geneva area
Nilles 2012) and especially spill over effects,
which tend to modify economic structures at
the national level, for instance the impact of
policies to support the telecommunications
sector with high and very high speed at the U.S.
169
Static Analysis 4. For each effect are associated benefits and/or

costs, which accrue to the stakeholder
aforementioned. Indeed, in CBA and more
generally from a utilitarian perspective the
value of each benefit for each person counts
equally. But for decision making it may be of
importance who benefits to what extent, and
who loses to what extent (Van Wee 2012).
This step is still part of the description of the
consequences of the public policy and should
be written qualitatively.
5. Step 5 is the numbering part of CoBAYe. In
this step, the evaluator should provide when
possible a monetary value for every benefits
and costs that have just been identified.
Dynamic Analysis
Figure 1: Static Analysis
CoBAYe proposes to evaluate a public policy through

the following steps. The first four steps aim is to gather
information and identify the public policys effects, and
the last one is the tools part closest to giving
recommendations (Figure 1):
1. We believe that the first step is to define both
the geographical study perimeter (in this case:
the administrative borders of the City of Paris)
and this defined territorys basic conditions,
as they are essential for the CoBAYe
evaluation of a public policy. By basic
conditions, we include topology, pollution, Figure 2: Dynamic analysis
infrastructures (transport, energy...), housing
basin, parking areas, delivery areas, work Once the effects at time period Pi (say P0 at the
areas, attraction poles, number, location and beginning) have been identified, we believe these effects
diversity of businesses, number and location of have an incidence on the economic and territorial
schools, number of tourists, population (age, structure of the territory to which is applied the public
characteristics), trip purposes, vehicle policy (e.g. the City of Paris in the case of a charging
possession rate, location of trips for business point network implementation, see Figure 2). Once the
and leisure purposes, governance, legislation, economic structure is changed, all economic
or institutional layers for instance. stakeholders are therefore in another time sequence,
2. As these basic conditions are specific to the called Pi+1, and the new economic structure provides the
territory to which is applied the public policy, conditions for new public policies and private strategies.
they enable the evaluator to determine which It is important to keep in mind that this notion of time
economic stakeholders may choose to react to sequence (which characterizes an economic structures
the public policy (for instance the City of Paris, basic conditions) is different from the usual notion of
the French State, or some private companies). time (which is not directly linked with a change in the
3. Each stakeholder identified can react to the production factors): the former is a tool to identify
public policy by a behavior or an anticipation, effects generated by the public policy, whereas the latter
which can be a private strategy as well as is important for the evaluation duration (notion of time
another public policy. Steps 2 and 3 should horizon) as long as the frontier with radical uncertainty
therefore be carried out simultaneously. Each (Knight 1921) is not crossed.
one of these is identified as a direct (DE), an This notion is essential to the comprehension of
indirect (IE) or an induced effect (UE) CoBAYe, as it is precisely the integration of the
according to the CoBAYe tool, as defined in economic structures changes understood as in the
Figure 3. Schumpeterian concept of circuit that draws
170
CoBAYe away from Social Cost-Benefit Analysis. effects together. This paragraph proposes a definition of
Indeed, we believe that the temporality adopted in the effects to be considered in CoBAYe (Figure 3):
CoBAYe, denoted P0, P1, Pn, has the same
meaning as the concept of circuit of Joseph A. - Direct effects (DE) are related to policy objectives
Schumpeter (1934). In his theoretical work on economic which have been decided and implemented (including
development, Schumpeter introduces the concept of how they have been implemented), without any public
circuit to describe the evolution of an economic intervention, instigation nor public support;
system and hence establishes a fundamental difference
between two states: an economic phase of stability, - Indirect effects (IE) are direct effects consequences,
called circuit, which is opposed to evolution, itself which are due to existing interdependencies between
seen as a spontaneous and discontinuous change in the public and private sectors before the public policy
course of the circuit (translated from Perroux 1965:76). implementation. IE therefore happen in a constant
The Schumpeterian circuit does not coincide with the economic structure and in a time horizon more or less
neoclassical static, although Schumpeter borrows much distant from the direct effects. The concept of indirect
from Walrasian thoughts (Walras 1874), nor does it effects is similar to the one called wider economic
merge with the steady state, according to Solow (1956). effect (Atherley et al. 1976; Bohlin 1998; Eijgenraam
Indeed, in the circuit, the economy hasnt got its heart et al. 2000; Turok 1992; Vickerman and Ulied 2006)
cut out, but evolves over the course of non-economic and used in medicine and infrastructure planning
events, rather of technical, political or social nature, that respectively. Indeed, implementing a transport
make up a concrete societys life framework (translated infrastructure can have distributional effects on other
from Perroux 1965:76). existing markets in a context of already existing
Besides, it is not the lack of change that denotes interdependent relations between public and private
Schumpeters economic phase of stability, but rather the markets: these are called wider economic effects (WEE)
identical replication of given production factors, in transportation economics.
including the case of population growth. In other words,
a growth does exist in the circuit, but it is a change of - Induced effects (UE) are also direct effects
amount and not of nature, as it derives from the same consequences but, contrary to indirect effects, they:
types of companies and the same types of goods, present (1) either contribute to a modification of the concerned
in progressively higher numbers. In the CoBAYe tool, areas economic structure, which means that the
economic growth in a given economic territorial resources allocation is changed;
structure (denoted by Pi) can for instance be seen as (2) or be a result of a modification of the concerned
private strategies carried out by some stakeholders areas economic structure. They happen in a time
which contribute to create value by developing their horizon more or less distant from the direct and indirect
activities in this economic configuration, without effects.
altering the nature and shape of the supply or the
demand. We can identify six types of induced effects, to be
On the contrary, evolution understood as the transition considered in CoBAYe, as detailed in (Le Goff and
from one circuit to another is the result of purely Proag 2014) and Figure 3.
economic events, associated with a new combination of
production factors. Accordingly, evolution in CoBAYe Uncertainty and Bounded Rationality into Practice
is made through direct, indirect or induced effects, If CoBAYe is used as an ex-ante economic evaluation,
which contribute to change the social, technical and the analyst has to keep in mind that, for each effect,
economic structure of the territory, i.e. the transition corresponds a time horizon during which the effect is
from Pi to Pi +1. The parallel should be well kept within predictable but uncertain. In order to have a transparent
its limits however, as Schumpeterian evolution comes analysis, the evaluator should therefore identify, for each
from an endogenous breaking of the circuits routines effect, the appropriate time horizon and analyze its
(the well-known concept of creative destruction), uncertainty. That is to say, for each effect, there comes a
which takes the form of an innovation, whereas time horizon after which its predictability can no longer
evolution corresponds to a modification of the territorial be guaranteed. Consequently, we believe the evaluation
basic conditions in CoBAYe. of this effect should not cross this time threshold, as the
results would be no longer relevant. This time threshold
Definition and Identification of the Public Policys should be carefully defined, and ideally through joint
Effects consultation with both public and private partners and
The effects found at time period P0 are therefore stakeholders.
essential to find those happening at time period P1,
because of the emergence of a trajectory linking all the
171
Figure 3: Typology of CoBAYe effects
Figure 4: Illustration of how CoBAYe proposes to identify the evaluation time horizon and the consequent scenarios necessary for
monetization. Example taken from the evaluation of a charging point network implementation in Paris.
balanced information and viewpoints for, if a well-

Besides, because of this uncertainty and lack of conducted analysis attempts to be as realistic as
information in an ex-ante evaluation, the construction of possible[,] it seems self-evident that analysts should use
scenarios based on analogies, case studies, surveys, whatever information appears likely to improve their
interviews, working groups or on distinct practices is predictions, regardless of whether the behavior appears
necessary, in order to associate quantitative data to the rational or welfare-enhancing (Robinson and Hammitt
effects identified and to carry out sensitivity analysis. 2011).
As a concluding but practical remark, identifying the A representation of the way CoBAYe takes into account
direct, indirect and induced effects in CoBAYe but uncertainty in the effects identified can be found in
also the evaluation time horizon associated with each of Fugure 4. The example taken is one of the effects
these effects cannot easily be done by the evaluator identified in the case of the implementation of a
alone. CoBAYe evaluations would be closest to reality charging point network infrastructure in Paris: the
provided analysts and evaluators organize interviews amount of second-hand unused thermic vehicles sold
and working groups of researchers and both public and because some people in Paris are using electric vehicles.
private practitioners alike or together. Indeed, this
would both enable good-quality problem analysis
(Annema and Mouter 2013) and enrich the evaluation by
172
Monetization: CoBAYe Expected Results CONCLUSIONS

The monetization part of CoBAYe is partly similar to its
If the evaluation on a given territory aims to be holistic,
twin in CBA. First, it consists in finding monetary
the traditional cost-benefit analysis (CBA) (which, to the
values for all effects. Market prices may obviously be
best of the authors knowledge, only takes into account
used for market effects, but non-market effects
direct effects, and only sometimes indirect ones) is
sometimes need more complex identification
relevant as long as:
procedures. The second part differs from CBA and
- firstly CBA is applied to all policies concerning
consists in presenting the results of the monetization part
this territory;
for each stakeholder, first in a matrix (Figure 5) then in
- secondly all these results are aggregated and
figures (Figure 6).
- thirdly the analyst should accept and state that
the induced effects will not be sought.
The CoBAYe method, however, seeks to take into

account in a systemic, scientific and realistic way, all the
direct, indirect and induced effects the public policy
may generate, in an ex-ante evaluation process, which
aims to help decision-making. This method, proposed to
the policy-makers, is based on a paradigm shift in
decision theory and on considering opportunity
benefits.
In order to take into account the radical uncertainty that
especially affects any ex ante evaluation, the paradigm
shift consists in integrating, endogenously, the time
frame during which the effects of a policy may be
assessed to the public decision itself. Indeed, the
CoBAYe method postulates that the evaluation can only
be performed scientifically if the range of possibilities is
Figure 5: Results matrix for each stakeholder
falsifiable a priori, i.e. if and only if this range is
probabilistic. It is through a dialogue between the
policy-maker and the practitioner that the time frame
which satisfies this condition can be defined, and not on
exogenous considerations of the decision which rely on
technical and financial characteristics of the public
policy (for example, operating life of a public
infrastructure). Induced benefits are generally omitted
from CBA on the grounds that they cannot be easily
identified and valued. The CoBAYe method proposes to
take into account the opportunity benefits, so as to
integrate the induced effects scientifically and
realistically through the choice of a time horizon
endogenously determined to the policy decision itself.
On operational grounds, this evaluation according to the
CoBAYe method proceeds in two stages: first, by
addressing the endogenous uncertainty in any public
decision, it consists in identifying for each effect the
time horizon beyond which it is no longer realistic to
carry on the ex-ante evaluation. Then, in a second step,
the evaluation of the public policy, which takes into
account the interdependencies of public policies and
Figure 6: Example of typical graphical results for some private strategies, can be conducted up to that time
stakeholders. Stakeholders can be more precise, as figures horizon.
could be drawn for "City of Paris", "Region Ile-de-France" Finally, the CoBAYe method needs to be tested by
and "French State" instead of "Public Stakeholders" for many sets of policy-makers practitioners groups.
instance The method may be intended to improve the scientific
nature of decision-making, but it is not intended to
remove the nobility of political decision-making, which
precisely lies in the ability of elected officials to
173
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174
COST-BENEFIT MODEL APPLIED TO THE OPTIMIZATION OF

THERMAL SYSTEMS BASED ON A STIRLING ENGINE
Ana Cristina Ferreira,1* Lus B. Martins2, Manuel L. Nunes1 and Senhorinha F. Teixeira1
1
Department of Production and Systems, School of Engineering, University of Minho, Guimares, Portugal
* Corresponding author: [email protected], University of Minho, 4800-058 Guimares, Portugal
KEYWORDS revenues from the electricity sold to the grid in the total
Cost-benefit Analysis, Stirling Engine, Optimization economic balance, the developed thermal-economic
model seems to be very sensitive to the electricity
ABSTRACT tariffs.
This paper presents a cost-benefit analysis applied to the
INTRODUCTION
optimization of a cogeneration thermal plant. This
methodology was applied because it discloses a The increasing incidence of distributed energy resources
measurable way in assessing the system economic raises the possibilities for higher economic efficiency of
viability. The model is based on the definition of an power systems. The concept of residential cogeneration
objective function (i.e. maximization of the annual comprises distributed electricity generation and the
worth of the cogeneration system) with terms including efficient supply of thermal energy demands. In this way,
all costs and revenues from its operation. These terms cogeneration can play a crucial role in supporting key
correspond to the quantification of the investment, policy objectives such as electricity market
operational and maintenance costs, revenues from liberalization, climate change mitigation, increased
selling electricity to the grid, avoided costs from using amount of electricity generated from renewable sources,
renewable energy sources and from not having a full and enhancement of energy savings (Cao, Mohamed,
separate system to produce the heat, and the avoided Hasan, & Sirn, 2014). Households consume final
carbon dioxide emission costs. Concerning the thermal energy mainly in the form of heat and electricity and the
systems case, the cost-benefit analysis should include domestic sector generally accounts for a large share of a
not only the internal financial evaluation, but also the country electricity and Natural Gas (NG) consumption.
evaluation of the external variables (i.e. social and The specific potential for applying distributed
environmental aspects arising from the use of generators at customer sites lies in the use of valuable
cogeneration technology). Therefore, the main objective heat and electricity generated by combined heat and
of this paper is to discuss the development of a thermal- power (CHP) systems. This leads to a more efficient
economic optimization model for a cogeneration system energy conversion and thus, to cost savings and carbon
based on the cost-benefit approach. The system operates emission reductions (Hinnells, 2008). There has been
accordingly to the Stirling engine cycle able to deliver significant progress toward developing kW-scale CHP
1-5 kW of electricity and a larger heat load, i.e., to fulfil applications, so-called micro-CHP systems (COGEN
the main energy needs of a residential building. The EUROPE, 2010; Huangfu et al., 2007). These systems
relevance of heat crediting electrical feed-in-tariffs and can be based on several technologies, which include the
interest rates in combined heat and power plants is also Stirling engine, a promising technology that can help to
discussed along the paper. significantly reduce the primary energy consumption
The present work allowed to conclude that the and gas emissions when compared to the conventional
evaluation of the economic feasibility of the system may separate energy suppliers.
be processed in three main steps: (1) assessment of the Despite the numerous advantages of these decentralized
technical data; (2) definition of the costing power production systems, their investment cost is the
methodology; and (3) evaluation the economic main obstacle for their widespread presence in the
indicators. The costing methodology permits the market (Sundberg and Henning, 2002). The
characterisation of the expenditures, so that the options development of a mathematical model for cogeneration
are validated and compared in an equitable way. systems evaluation can be an effective way to globally
Furthermore, the economic indicators may, or may not, analyse a thermal system from the techno-economical
turn an investment in an appraisal choice. The levelized point of view. The process involves different steps
cost of electricity has become one of the most popular which depend on technical and economic constraints.
methodologies for comparing electricity production The economic evaluation may be done by estimating the
costs from different scenarios. Considering the weight of fixed and variable costs for the system and comparing
175
them to the costs of a reference/ conventional system. Therefore, this paper presents a thermal-economic
Regarding the fixed costs, they can be calculated optimization model for a cogeneration system whose
according to the costs at the component level. The formulation was based on the cost-benefit analysis. The
variable costs are the hardest to identify since they objective function corresponds to the maximization of
depend on system operational conditions and the annual worth from the system operation. The terms
performance (Jackson, 2007). of the objective function correspond to incomes and
Cost-Benefit analysis is a methodology that can be used expenditures from the system operation. The capital cost
to decide about the viability of an investment, of the system was estimated trough the development of
considering that large sums of money are usually purchase cost equations, representative of system
involved in the acquisition of these thermal plants. In the components. The system operates accordingly to the
development of a cost-benefit analysis, all the variables Stirling engine cycle able to deliver 1-5 kW of
that quantify and parameterize the investment, electricity and a larger heat load. The most relevant
operational costs and revenues of the cogeneration components of the system are the cooler (k), the
system must be included in the model (Ferreira et al., regenerator (r), the heater (h) and the engine body (eng),
2011). On this matter, economists distinguish between as presented by Figure 2.
private costs and benefits and social costs and benefits.
Actions that result in society bearing costs or receiving
benefits are called externalities. Figure 1 presents the Heater
costs and benefits from the private and social
perspective based on a cost-benefit analysis.
Most of the costs and benefits from the social analysis
are difficult to measure. The economic incentives given Engine
by the governments are usually included in the energy Body
efficiency programs. Regarding the benefits, the use of
cogeneration systems located at the point of use, reduces
the transport and distribution costs to supply the energy
needs. Also, the CHP plants reduce the energy Regenerator
consumption through increased efficiency. Since CHP
plants requires less fuel to produce the same amount of
energy that the conventional power systems produce, Cooler
they can provide the same output while combusting less Figure 2: Schematics of the cogeneration prime mover,
fuel and producing less gas emissions, such as carbon the Stirling engine.
dioxide and other pollutants (e.g. nitrogen oxide and
sulphur dioxide). From the system owners perspective, Each purchase cost equation includes physical terms
the most important is to evaluate if the system is able to based on the thermodynamic relationships of the engine
supply the energy requirements and how long it takes to cycle.
recover the investment capital cost.
Social THERMAL-ECONOMIC MODEL
Costs Benefits The thermal-economic model includes the definition of

the objective function, the decision variables and the
Governmental Incentives - - Safety of Supply constraints that give significance to the results. In the
- Avoided Electric T&D Costs developed work, a single objective function on an
- Reduction in Gas Emissions
economic basis is presented. The terms of the objective
function represent the balance between costs and
Private revenues from the system operation. The equation term
Costs Benefits that represents the investment cost consists on the sum
Capital - Avoided Costs of Heat of the purchase cost equations of each component of the
Investment Cost - Production system, which will be describe in more detail.
Fuel Cost - - Primary Energy Savings
Operational - - Incomes from Selling
&Maintenance Costs Electricity Definition of Objective Function
The main objective of the present optimization study is
the maximisation of the Annual Worth (AW) of the
cogeneration system subjected to economic and
Figure 1: Private versus social costs and benefits of CHP thermodynamic non-linear constraints. Therefore, the
systems. objective function is defined by the balance between the
incomes and the costs of the system operation, as
described by Equation (1).
176
max AW Revres Cinv (5)

(1)
max Re vsell Cavoided Re vCO2 Re vres Cinv Cm Costs
The revenues are: the income from selling electricity to The annual system investment cost Cinv is calculated
the grid (Revsell), the residual value of the system at its according to the annualised capital cost. Annualising the
lifetime (Revres), the avoided cost of heat generation by a initial investment corresponds to the spreading of the
conventional boiler (Cavoided) and the monetization of the initial cost across the lifetime of a system, while
carbon emission savings (Revco2). The considered costs accounting for the time value of the money. The initial
were: the annual system investment cost (Cinv) and the capital cost is annualised as if it were being paid off a
maintenance costs involved in the production of loan at a particular interest of discount rate over the
electricity and heat using the CHP system (Cm). lifetime of the option. The power production costs are
sensitive to changes in the discount rate (i.e. the interest
Revenues rate used to determine the present value of future cash
flows) (Larsson, Fantazzini, Davidsson, Kullander, &
The annual income from selling electricity power to the
Hk, 2014). The Capital Recovery Factor (CRF) is
grid was calculated from the electrical power delivered
used to determine the equal amounts of n cash
to the grid ( Wel ) considering the yearly number of
transactions for an investment and can be expressed as
system working hours ( t ) which corresponds to 4000 h, in Equation (6).
multiplied by the electricity-selling price (psell), as in ie (1 ie ) n
Equation (2). CRF (6)
Re vsell Wel psell t (2) (1 ie ) n 1
where ie is the effective rate of return. The lifetime of
The electricity-selling price was taken as a guaranteed
the system was defined to be 20 years. According to
and fixed feed-in-tariff of 0.12 /kWh.
berg et al., (2004), the total accumulated operating
The avoided cost represents the cost of Natural Gas
time for the Stirling engines is about 180000 h,
(NG) that would be consumed by a conventional system
(typically a boiler) to produce the same amount of useful corresponding to 20.5 years. In addition, some caution
thermal energy, Q. This avoided cost can be calculated should be introduced when a new technology is applied
as in Equation (3): to an emergent market, and so, the investment risks are
higher than with mature technologies and traditional
Q
Cavoided pfuel (3) markets. For thermal-economic optimisation, the ie can
b be approximated as: nominal rate of return (i.e. interest
where, pfuel, is the NG price per energy unit (pfuel=10 rate) minus inflation rate plus owners risk factor and
/GJ) on a Low Heating Value (LHV) basis and b is the correction for the method of compounding (Larsson et
efficiency of a conventional boiler. This value is usually al., 2014). The ie herein considered was 7% resulted in a
assumed to be 90% (Decision 2011/877/EU, 2011). CRF of 0.0944. Thus, the annual system investment cost
Considering that the system under optimization uses a becomes as in Equation (7).
renewable energy source, the carbon dioxide emission
factor is null. Nevertheless, it was intended to monetize
Cinv Ci CRF i
(7)
of the avoided carbon emission from the CHP unit where Ci is the purchase cost of each component of the
considered. Therefore, the avoided carbon emissions CHP system (Ci Ck; Ch; Cr; Ceng). The purchase cost
were calculated considering as if a conventional boiler equations of each component are presented at Table 1.
running with NG as the fuel, with an efficiency of 90%, The variables included in the purchase cost equations
produced the thermal power and if the power was can be divided in size and quality variables. The
obtained from the grid. The economic benefit from the equations were defined considering that the cost of each
avoided carbon emissions was calculated by Equation component of the system is based on a reference case
(4), assuming a constant price ( pCO2 =24.0 /ton CO2) and includes a cost coefficient (e.g. C11,h , C21,r ), the
per ton (Cozijnsen, 2012) and an equivalent CO2 physical parameter, a factor of size, which scales the
emission factor ( FECO ) in the view of the conventional component, and a temperature quality factor
2
C12,h ( Th 725)
energy production. (e.g. 1e 2 ), if appropriate. The physical
Re vCO2 pCO2 FECO2 t (Wel Q) (4) parameter for the three heat exchangers (i.e. heater,
The residual value of the equipment at the end of its regenerator and cooler) is the heat transfer area ( Awh ,
useful lifetime should be considered as revenue. From
the economic point of view, the residual value of Awr and Awk ) and for the engine body, the cost
equipment is usually estimated as a percentage () of equation depends on the mean pressure ( Pmean ) and the
the initial system investment cost, Cinv, as in Equation
(5). The was assumed to be 5%. engine cylinder capacity ( Veng ).
177
Table 1: Purchase equations of the system components d wire ,Th . The mathematical model able to describe the
Heater Cost complete physical system was based on a software-code
0.5 developed in the MatLab environment. The
Awh 1 eC12,h (Th 725) optimization problem was solved using the PS routine.
Ch C11,h Aref ,wh
A When employing the optimization model, several script
ref , wh 2 files were created to define the equations that describe
Regenerator Cost the physical and purchase cost equations. The main
routine, Optimization Stirling Engine Analysis
0.6
A 1 eC22,r (Tr 600) (OptSEA), where all the algorithm parameters are
Cr C21,r Aref ,wr wr called, integrates all the scripts in order to solve the
A
ref , wr 2 optimization problem.
Cooler Cost RESULTS AND DISCUSSION

0.4
A In this section, the results from the application of the
Ck C31,k Aref , wk wk thermo-economic model are presented. The results are
A
ref , wk referent to simulations performed at 30 bar of mean
pressure and a rotational speed of 1500 rpm.
Engine Body Cost Table 2 presents the optimal annual costs and revenues
from the CHP system operation. This economic output
Veng
0.35
Pmean
0.2
corresponds to a system able to deliver 3 kW el and 10.5
Ceng C41,eng Vref ,eng Pref ,mean
V kWth for which it is obtained an electrical efficiency of
ref ,eng ref ,mean
P
23.5% and a total efficiency of 98.5%. The model
discloses a positive value for the objective function,
once it was obtained an annual profit of 1592 /years.
For Stirling engines, the normal maintenance intervals
are of 5000-8000 h. According to a Swedish study
Table 2: Optimal annual costs and incomes
(berg et al., 2004), the maintenance service can
include the regenerator maintenance and the Annual Costs and Revenues, /year
replacement of some engine components, oil and filters.
Thus, the maintenance costs are evaluated as in Capital Investment Cost, Cinv (1878)
Equation (8):
Maintenance Costs, Cm (180)
Cm pm Wel t (8)
Revenue from equipment residual
where pm is the maintenance price per unit of electricity 94
value, Revres
produced. The maintenance costs are estimated to be
Revenue from selling electricity to
0.015 /kWhel (berg et al., 2004). The electrical power 1440
the grid, Revsell
( Wel ) already includes the efficiency of the electrical
Revenue from CES bonification,
generator, herein assumed to be 93%. 436
Revces
Avoided cost from separate heat
Numerical Solution 1680
generation, Cavoided
Several inequality constraints were formulated in order Annual worth of CHP system, AW 1592
to give physical significance to the mathematical model.
The definition of these constraints aims bounding some
of the variables according to their feasible limits in the The most predominant cost is the investment costs to
system operation. The constraints divide the design acquire the system, whereas, the highest revenue came
space into two domains, the feasible domain where the from the income from the avoided cost of separate heat
constraints are satised and the respective values have generation. Arising from the fact that there is no need to
significance in the optimization problem, and the have a separate system to produce the total heating
infeasible domain where at least one of the constraints is demand, the economic benefit from that avoided cost
violated and the variables results is no longer acceptable was accounted, representing a revenue of 1680 /year .
as optimal solution. For instance, the available electrical Also, the revenues from selling the produced electricity
power produced should be always positive Wel 0. to the grid represent a great economic benefit. Results
shows that for a base case scenario considering an
Nine decision variables were also defined to solve the electricity FIT of 0.12 /kWh, it is possible to achieve
problem: Pmean ,Veng , dinner ,h , nth , ntk , dinner ,k , matrix an annual revenue above 1440 /year if all the
electricity generated is sold to the grid.
178
It is important to mention that the presented model Table 3: Economic indicators for the project evaluation
accounts for the environmental benefit, through the
NPV, [] 6553
bonification of the carbon emission savings. In fact,
accounting for the fact that the system assumes a IRR, [%] 9.7
renewable energy source, for the optimal solution PP 8 years and 9 months
disclosed, it was obtained 33% of carbon emission
savings for the same energy output from the Results disclosed a NPV of the 6553 for an interest
conventional power production. rate of 7% and a 20 years lifetime project.
For the obtained optimal solution, it was obtained a
system with a total purchase cost of 19892 . According
to the results (see Figure 3), the two most expensive Sensitivity Analysis
components are the engine and the heater, representing A sensitivity analysis was carried out in order to study
35% and 30% of the total system cost. the influence of the fuel price and electricity feed-in-
tariff on the objective function. Figure 4 illustrates the
Total Capital Cost 19 892 influence of electricity feed- in-tariff and the natural gas
price on the annual worth, considering the results of the
Engine 7 015 optimal solution for the physical decision variables,
corresponding to an engine working at Pmean = 75.1 bar,
Cooler 2 329
with a cylinder capacity of Veng =131.8 cm3; a heater with
Heater 6 025 nth =79 tubes considering an internal diameter of
dinner ,h = 2.8 mm; a cooler with a bank of ntk 133 tubes
Regenerator 4 522
with dinner ,k =2.8 mm; and a regenerator matrix with a
Figure 3: Capital cost of the system and respective porosity matrix =0.77, and a d wire of 0.3 mm. For this
components. sensitivity analysis, it was considered a range between
6-14 /GJ for the NG price and a range of 1-14
The economic evaluation should consider the initial cent/kWh for the electricity feed-in-tariff.
investment cost spreading across the lifetime of the
system, aiming to account for the time value of the
money. The determination of the project cash flows
should also consider an interest rate that comprises the
risk associated to the investment.
The project cash flow includes the annual payments (e.g.
operational costs) and receipts (e.g. incomes from
selling electricity to the grid, the economic bonification
from CES and the avoided costs from producing heat)
for the project lifetime.
For our subject matter, CHP systems, n is considered to
be 20 years. The term initial Cash Flow (CF0) (i.e.
investment year) includes into the analysis the capital
investment cost to purchase the CHP power plant. In Figure 4: Annual worth considering the influence of the
addition to the capital investment costs of the CHP fuel price and electricity feed-in-tariff.
system, the installation costs of the solar collector (5090
) and the tracking system (4718 ) are also accounted The results show that the annual worth of CHP system is
in the project evaluation analysis. Considering the more sensitive to the feed-in-tariff than to changes in the
obtained economic output for the optimal solution, price of the NG. It is also observed that some
investment criteria like the Net Present Value (NPV), combinations of gas/electricity price yield a negative
Interest Rate of Return (IRR) and the Payback Period return. The threshold line (nil return) is depicted as well
(PP) were calculated, as in Table 3. Results shows that as the optimal AW line.
the investment can be recovered over a period of 8 years A sensitivity analysis was also carried out regarding the
and 9 months, which is less than half of system life influence of the interest rate and the lifetime project on
period considered in the study. The IRR obtained was of the AW (see Figure 5). It was considered a range
9.7%, which suggests that the investment on the micro- between 3.0-10.0% for the interest rate and a period of
CHP system with these performance characteristics is 10 years (between 10 and 20 years of the system
economically attractive, once the interest rate was lifetime). Results show that interest rate is a very
assumed to be 7%. important parameter in the economic analysis of the
CHP system investment. Thus, incomes and costs tend
179
to be site-specific and sensitive to changes in input The conventional energy production costs includes the
parameters. Furthermore, costs change rapidly with time electricity bought from the national grid (electricity bill)
and assumptions on the cost-influencing factors such as and the costs associated to the heat generation which is
discount rates, fuel prices and heat credits fluctuate usually produced by a conventional boiler using natural
considerably and have a significant impact on gas as fuel. The acquisition of a renewable powered
production cost results. CHP system requires a higher investment but due to the
incomes from the system operation it is possible to
recover the initial capital and monetize the system while
the energy needs are supplied.
Moreover, this type of investments became more
attractive if the renewable energies are used as the input
energy. For one hand, the use of renewable energies
allows higher Primary Energy Savings (PES) and the
reduction of Carbon Emission Savings (CES), when
compared with the conventional power production. The
amount of primary energy provided by cogeneration
production (in percentage) is calculated according to
Equation (9):

PES 1 100
Figure 5: Annual worth considering the influence of the 1 (9)
interest rate and the project lifetime duration. th CHP el CHP

th el ref
Environmental and Social-economic Assessment ref
where th is the cogeneration heat efficiency, defined
Considering the final consumer perspective, Figure 6 CHP
compares the relative cash flows of two economic as the annual useful heat output divided by the fuel
scenarios: the conventional energy production scenario energy input. The terms th and el are the efficiency
ref ref
and the acquisition of a CHP system scenario. reference values for the separate production of heat and
No CHP System electricity, respectively. Finally, el is the electrical
Relative Cash Flows ()
CHP
n years efficiency of the cogeneration production defined as

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 annual electricity from cogeneration divided by the fuel
input used to produce the sum of useful heat output and
electricity from the cogeneration system.
The equivalent CO2 avoided emissions can be calculated
Heat Generation Cost in order to estimate the reduction of gas emissions from
Electricity Bill using cogeneration systems to produce a certain amount
a) of energy. Thus, CES allows estimating the carbon
Scenario with CHP System emission savings that are possible to achieve by a
cogeneration unit, considering the combined electric and
thermal efficiencies, when compared with the
Relative Cash Flows ()
conventional energy production process. This index can

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 be calculated as in Equation (10):
n years 1
FECO2 ,CHP
el CHP
Avoided cost from separate heat generation, Cavoided CES 1 .100 (10)
FECO2 ,i
Revenue from CES bonification, Revces
yi FECO2 ,CHP
B
Revenue from equipment residual value, Revres i
Revenue from selling electricity to the grid, Revsell
where el CHP
is the electrical efficiency of the CHP unit,
Maintenance Costs, Cm
Capital Investment Cost, Cinv FECO2 ,CHP is the equivalent carbon dioxide emission
factor from the fuel used by the cogeneration unit, and
b)
FECO ,i is the equivalent carbon dioxide emission factor
Figure 6: Comparison of relative cash flows between 2
two scenarios: a) without a renewable powered CHP from the conventional power production. The
system and; b) acquiring a CHP system. FECO ,i takes into account the specific CO2 factor of the
2
respective type of energy source multiplied by its
180
fraction in energy mix. Correction factors relating to the OE/EME/UI0252/2011 and also the Strategic Project
average climatic situation was considered in the PEst-C/EME/UI4077/2011.
assumption of electric grid efficiency. The ambient
temperature correction is based on the difference REFERENCES
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0.1% point efficiency is subtracted for every degree matching analysis of on-site micro-cogeneration for a
above ISO conditions. Correction factors for avoided single-family house with thermal and electrical tracking
strategies. Energy and Buildings, 68, 351363.
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doi:10.1016/j.enbuild.2013.09.037
efficiency reference values were also accounted.
Both indexes were calculated for the optimal COGEN EUROPE. (2010). Micro CHP: Empowering people
configuration of the system. Results disclosed that it is today for a smarter future tomorrow.
possible to obtain a PES of 26.7% and a CES of 33%.
This results show that cogeneration reduces the amount Cozijnsen, J. (2012). CO2 Prices analysis of the EU CO2
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electricity and heat in application of Directive 2004/8/EC
CONCLUSIONS of the Parliament and of the Council and repealing
Commision Decision 2007/74/EC. Official Journal of the
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cost-benefit analysis. The maximization of the annual Ferreira, A. C. M., Martins, L. A. S. B., Nunes, M. L., &
worth was defined as the objective function based on the Teixeira, S. F. C. F. (2011). Development of a Cost-
balance between the incomes and the costs from the benefit Model for Micro CHP Systems. In ICOPEV
acquisition and the operation of the CHP system. The 2011- 1st International Conference on Project Economic
system analysis disclosed an optimal combination of the Evaluation (pp. 17). Guimares. Retrieved from
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produce 3.0 kW of electricity and 10.5 kW of thermal Hinnells, M. (2008). Combined heat and power in industry
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be 19892 , being the engine bulk and the heater the two doi:10.1016/j.enpol.2008.09.018
most expensive components. For a project lifetime of 20
years, it was obtained an annual profit of 1592 /years, Huangfu, Y., Wu, J. Y., Wang, R. Z., Kong, X. Q., & Wei, B.
which corresponds to a NPV of the 6553 for an H. (2007). Evaluation and analysis of novel micro-scale
interest rate of 7%. The payback period corresponds to 8 combined cooling, heating and power (MCCHP) system.
years and 9 months. Energy Conversion and Management, 48(5), 17031709.
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ACKNOWLEDGMENT
The first author would like to express her gratitude for Sundberg, G., & Henning, D. (2002). Investments in
combined heat and power plants: influence of fuel price on
the support given by the Portuguese Foundation for
cost minimised operation. Energy Conversion and
Science and Technology (FCT) through the PhD grant Management, 43(5), 639650. doi:10.1016/S0196-
SFRH/BD/62287/2009. This work was financed by 8904(01)00065-6
National Funds under Strategic Project and PEst-
181
182
A MULTI-CRITERIA ANALYSIS OF LOW CARBON SCENARIOS IN

PORTUGUESE ELECTRICITY SYSTEMS
Maria Joo Santos,1 Paula Ferreira1* and Madalena Arajo1

1
* Corresponding author: [email protected], University of Minho, Guimares, 4800, Portugal
KEYWORDS social aspects, resulting in a preference for fossil fuel

Electricity scenarios, Renewable Energy Sources (RES), technologies and, thereby overlooking the benefits from
Multi-criteria Decision Analysis (MCDA) renewable energy power plants (Wu & Huang, 2014).
Moreover, the preference for fossil fuels gives rise to
ABSTRACT new problems, such as external fuel dependency and
CO2 emissions allowances. One efficient set of tools to
Renewable technologies are suitable investments to deal with conflicting objectives is multi-criteria
achieve a low carbon electricity production system and decisions analysis (MCDA) (Kaldellis et al., 2013).
to reduce the external energy dependency of Portugal in The aim of this work is to develop different low carbon
a long term period. The aim of this work was to develop scenarios for the electricity system to meet the demand
and evaluate a variety of scenarios to promote these until 2030 and compare them by MCDA.
goals until 2030. A long-term electricity expansion
planning model is used to design these scenarios and The Portuguese electricity system
multi-criteria analysis is applied in the evaluation. The
results demonstrated that imposing a minimum Portugal presents a privileged access to a vast set of
contribution of renewable energy sources (RES) for the RES, such as hydro, wind, biomass and sun, however
electricity system, can be more costly than imposing fossil fuels have to be imported from other countries.
CO2 emissions limitations. Taking into account the This reality can be a justification for the challenge to
technical criteria, scenarios with high coal power share achieve a 100% renewable electricity system in a near
are favoured. However, under a pure social approach, future, aiming at full independency from coal and
the best scenario would be a 100% RES electricity natural gas suppliers for electricity production.
system. When environmental and economic dimensions Simultaneously, under these circumstances, it could be
are more valued, the best options seems to be the ones expected to see a decrease in greenhouse gas (GHG)
with higher investments on natural gas and wind power emissions from thermal power plants and therefore
plants. contributing to promote a healthier environment and
society.
INTRODUCTION In fact, as seen in Figure 1, RES have been
progressively introduced in the national electricity
The search for reliable and less pollutive technologies system, in detriment of fossil fuel sources, especially
for the electricity generation, without compromising the fuel oil, whose contribution to electricity production is
national economic growth, has been in the top of the practically null since 2010.
decision-makers concerns (Martinez et al., 2011). In
this context, renewable energy sources (RES) play an
important role, becoming a suitable investment for a low
carbon future. Additionally, to dependent countries,
such as Portugal, fossil fuels supply is directly affected
by geopolitical limitations and conflicts from their
original countries, making renewables a much more
secure strategy for electricity supply. On the other hand,
some limitations derive from a highly renewable
electricity system namely the need for maturity
technologies, grid integration and backup systems.
Traditionally, energy planning models rely on least-cost
principles, giving lower attention to environmental and
183
Figure 1: Electricity production by each power RES share was progressively increased from
technology in Portugal, from 2008 to 2013 (data 60% to 100%;
obtained from REN (2014), own elaboration). Four CO2 emission scenarios imposing a
METHODOLOGY constraint related to the establishment of caps
for the total CO2 emissions for the 16 years
This work is divided in two sequential stages: firstly, the
planning period, described in equation 2. The
construction of scenarios by application of a long-term
predefined caps were respectively 200, 100, 50
electricity expansion planning model and secondly, a
and 10 million tons of CO2.
multi-criteria analysis of the resulting scenarios, as
outlined in Figure 2.
(1)
where:
t time horizon, t = 1,, 16
m number of months, m = 1,,12
P production of electricity in month m and year t, in
MWh
Figure 2: Scheme of the methodology applied to the
ew and nw existent and new wind power plants,
research study.
respectively
eh and nh existent and new large hydro power plants,
Electricity Expansion Planning respectively
A scenario is described as a projection of a possible es and ns existent and new sun photovoltaic power
future structured on basic assumptions and foreseeable plants, respectively
trends, which provide a wide information about current emh and nmh existent and new mini-hydro power
trajectories and possible options for decision making plants, respectively
(Soontornrangson et al., 2003). For the case under study, eb and nb existent and new biomass power plants,
the main goal is to present the combination of the respectively
different electricity generation options with each one of V annual share of RES in total demand, V = 60%,
these options representing a possible scenario for the 70%, 80%, 90% and 100%
future electricity system. These scenarios will be then Demand (t) total electricity demand in year t, in MWh
fully characterized and are expected to represent
relevant information for supporting future decisions.
Scenarios were constructed using a long term model (2)
developed on the SEPP project (Sustainable Electricity
Power Planning) and described in Pereira et al. (2011). where:
The model was originally developed for a 10 years time CO2i CO2 emission factors from each power plant i, in
period and included a limited set of technologies. For ton CO2/MWh
this research, the model was adapted to a 16 years time C cap for total CO2 emissions until 2030, C = 200
horizon, other RES technologies were included (mini- Mton, 100 Mton, 50 Mton and 10 Mton
hydro, sun photovoltaic and biomass) and additional Several assumptions were needed to modelling the
constraints were defined, namely predefined shares of above mentioned scenarios, mainly:
RES penetration on electricity demand and predefined Demand growth at an annual rate of 1%, as
caps for CO2 emissions. proposed in PDIRT (Plano de
The scenarios to be evaluated were designed departing Desenvolvimento e Investimento da Rede de
from a set of electricity system characteristics previously Transporte de Electricidade 2014-2030) (REN,
defined: 2013);
One base scenario with no predefined RES Investment, FO&M (Fixed Operations and
share or CO2 limit; Management) and VO&M (Variable
Five RES share scenarios imposing a Operations and Management) costs for each
constraint related to the minimum contribution technology were obtained from International
of RES. The constraint was computed as ratio Energy Agency (IEA, 2011);
between RES electricity output and the annual Fuel costs assumed to remain unchanged until
electricity demand, as described in equation 1. 2030;
184
CO2 emissions allowances cost was assumed to Evaluate the pollution effect based only on CO2
remain unchanged at 25/ton CO2; emissions from electricity production, may lead
Discount rate was set at 8%; to inaccurate and reductive decisions in the
A reserve capacity is necessary to cater for any environmental domain, because pollutants such
loss of generating capacity due to faults or as particulate matter (PM) and SO2 gases have
planned electricity production. A 1% of reserve other negative effects on air, land and human
margin for the electric system was assumed, as health (Turconi et al., 2013).
calculated by Pereira et al. (2011).
Some inputs for the model are described in Appendix 1. RESULTS AND DISCUSSION
Annual availability represents the mean value calculated
The outputs from the electricity expansion model are
from monthly availability for each technology. CO2
represented in Table 1 for: base scenario, scenarios with
emission factors were calculated from the ratio between
constraint by predefined RES share and scenarios with
annual emissions release by each thermal power plant
CO2 emissions caps.
and its respective annual electricity production. CO2
Cost, in /MWh, represents the average cost for the
emissions from biomass were considered to be
entire planning period, i.e. the electricity cost resulting
negligible. The assumed potential for RES until 2030
from each scenario, with respect to its technology mix.
were obtained from Roadmap Portugal 2050 (2010).
When these costs are related with the average CO2
emissions for each scenario (t CO2/GWh), a Pareto
MCDA Analysis
curve can be obtained as presented in Figure 3.
The method used to analyze the selected scenarios was It can be seen that the higher the penetration of RES in
an adapted version of the Multi-Criteria Decision Tool supplyin the electricity demand, the higher the costs of
to Support Electricity Power Planning (available on electricity. This is mainly due to the capital costs of
http://sepp.dps.uminho.pt/), described in Ribeiro et al. renewables technologies that are much higher than fossil
(2013). The criteria assumed to be relevant for this fuel power plants. Besides that, coal and combined cycle
work are described in Appendix 2, along with the gas turbine (CCGT) have greater annual availabilities
respective references from which scenario relative than renewables as thermal power plants output does not
impacts were computed. Most of the criteria were depend on the annual seasonal or intradaily pattern of
selected following Ribeiro et al. (2013) proposal but a the resources. On the other hand, CO2 emissions
few other ones were included, namely social acceptance, decrease drastically with the increase of RES share,
backup needs, water depletion and other emissions although never achieving a zero emissions target
(particulate matter and SO2). Criteria weighting was because the reserve margin needed for the electricity
made directly considering 5 approaches: equitable system.
weights, financial, technological, social and For the scenarios with CO2 emissions caps the same
environmental perspectives. trajectory is observed, with increasing costs along with
The criteria added to the original MCDA tool (Ribeiro the decreasing caps for CO2 emissions. Also, the share
et al., 2013) are deemed to be relevant for the analysis of RES for electricity production tends to increase but in
of increasing RES scenarios due to the following the first CO2 cap scenarios, the CCGT plants have an
reasons: important role in the proposed technology mix. The
Social acceptance has been assumed as a results demonstrate, then, that the imposition of a
preponderant factor with respect to new minimum RES can be more effective for a policy
infrastructures implantation, as local targeting objectives of both CO2 and external energy
communities can create barriers to its dependency reduction, although more expensive.
construction or, on the other hand, encourage
its development, according to their knowledge
and information level about renewables
technologies (Akgn et al., 2012).
Backup needs are essential aspect to be
considered when dealing with a high
penetration of intermittent RES, such as wind
and solar energies, as electricity production
from these sources are highly dependent of the
geographic layout, weather, season and hour of
the day (Brouwer et al., 2014).
Water is a valuable source, which consumption
and withdrawal has a strongly negative effect
on its use and applications. (Macknick et al., Figure 3: Pareto curves for scenarios with RES share
2012) constrains and for scenarios with CO2 emissions caps.
185
Table 1: Outputs from electricity expansion model for each scenario.
with RES share with CO2 emissions cap (Mton)

Scenarios Base
60% 70% 80% 90% 100% 200 100 50 10
Cost (/MWh) 13,29 14,56 17,62 23,86 31,82 38,03 13,79 16,60 22,57 32,42
CO2 Emissions
345 231 160 97 30 1 260 130 65 13
(t/GWh)
% of RES 43% 64% 75% 86% 96% 108% 48% 59% 74% 90%
Energy
57,49% 41,00% 32,30% 25,06% 16,55% 11,18% 53,11% 41,71% 27,47% 11,68%
dependency
Critical Excess 2% 8% 9% 12% 12% 17% 1,68% 1,68% 1,68% 2,25%
Backup Needs 0% 3% 5% 6% 13% 15% 0,00% 3,23% 6,99% 15,92%
contributes much more for the total production than
Energy dependency was calculated as the ratio between CCGT, because of its lower fuel costs. However, if the
coal and natural gas production and total production, for prime concern is CO2 emissions reduction, then coal is
the year 2030. Although a full independency is not replaced by CCGT, as gas is a much less pollutant fuel.
achieved, in extreme scenarios (100% RES share and Backup needs are strongly related to the intermittency of
CO2 emission cap of 10 million ton), the external renewables. Wind, sun and hydro power output directly
dependency is related practically only to the depends on weather conditions, season and hour of the
cogeneration plants using fossil fuels. For these day. However, electricity demand need to be met
scenarios, production of electricity from coal or CCGT independently of these factors and, in this context, it is
is very much reduced or even inexistent. Cogeneration necessary to guarantee the security of its supply. As can
of fossil fuels is represented by other srp on Figure 4. be observed, the higher the penetration of renewables in
Critical excess is related with the overproduction. With the electricity system, the higher the needs for the
the increasingly pronounced penetration of renewable backup system.
energies in the electricity system, the production Figure 5 represents the total installed power capacity
surpasses the forecasted demand in some cases. This until 2030 for each scenario. One resemblance among
happens in the winter months when both hydro and win all the constrained scenarios is the addition of 1042 MW
availability reach the highest production potential, as the of biomass power, corresponding to the assumed
system is modeled in a conservative manner targeting potential for this option.
full satisfaction demand even in months with low RES In what concerns scenarios built with RES constraint
availability. Also it can be perceived that the critical assumptions, the full mini-hydro and wind onshore
excess is more evident for the scenarios with RES share potential is reached for scenarios with 70% or more RES
constraints than for the scenarios with CO2 emissions share. The full hydro potential is achieved for 80% or
caps, as these last ones tend to operate CCGT in periods more RES share. However, photovoltaic and wind
of low RES resource availability. offshore power do not achieve all of their full potential
for all large RES share scenarios. Indeed, installed
photovoltaic power reaches the maximum potential
when the electricity is designed to have a 90% RES
share. When the RES share is increased to 100%, part of
photovoltaic power is replaced by wind offshore.
On the other hand, for the scenario designed under
extreme emissions caps, photovoltaic installed power is
much higher and no offshore capacity is added to the
system.
Figure 4: Electricity production in 2030, for each

scenario.
One aspect that deserve some attention is the

discrepancy in electricity production derived from fossil
energies for the scenarios with RES share constrains and
with CO2 emissions caps. In the first ones, whereas the
prime concern is the penetration of RES, coal power
186
(3)
(4)
When dealing with multi objective planning, such as

energy power, where economic, social, environmental,
political and technical aspects must be considered,
MCDA is undoubtedly a powerful tool to support
decisions, but is consensual that it does not provide the
Figure 5: Installed power until 2030, for each scenario. universal best option (Ribeiro et al., 2013). For this
reason, multi-criteria analysis was developed upon
Five scenarios for multi-criteria analysis were selected: different approaches, described afterward. Relative
the base one and the other four ones obtained from CO2 weights of each criteria for each evaluated approach are
emissions caps constrains. These ones, for MCDA presented in Figure 6.
purposes, are designated according with their main Equitable approach: according to Maxim (2014), this
representative technologies, as follows in Table 2. approach produces results nearly as good as optimal
weighting methods, besides its simplicity and time
Table 2: Designation of scenarios to be analyzed by savings, since it implies the distribution of the same
MCDA technique. weights to all criteria.
Scenario designation under Scenario designation Economic approach: financial resources always played
electricity expansion planning under multi-criteria the most important role in investments ever since and is
model analysis usually the most important criteria for private producers.
C < 200 Mton Coal + Biomass Under an economic approach, it was considered that
C < 100 Mton CCGT + Wind costs and investments in grid transmissions are the
C < 50 Mton Wind + Hydro attributes with major impact, followed by national
C < 10 Mton 100% RES industry and energy dependency, which have a direct
impact on national development and, consequently, on
The impact matrix, that relates scenarios to criteria, are national economy. Employment and public health were
presented in Appendix 3. Some indicators are also accounted to this analysis because employment is
represented in specific units (represented in bold an economic indicator of a country and public health can
numbers) and others represented in a scale from 0 (the be associated to State expenditures. Particularly, public
worst option in relation to the respective criteria) to 5 health has been seen as a problematic topic and gaining
(best option in relation to the respective criteria). To increasing attention by governments all over the world
facilitate the matrix reading, in order to compare (Sousa et al., 2014).
different criterion, it was decided to define a color scale Technical approach: with the increasing of renewables
that ranges from green (best option) to red (worst penetration in the electric system some concerns have
option), being the intermediate options corresponding to been raised such as the flexibility of the system to
intermediate colors (salmon, orange and yellow). respond to demand. From a technical perspective it was
The classification of each scenario for each indicator is assumed that transmission network and backup needs
obtained directly from the simulations conducted with are the most relevant criteria, followed by the rate of
SEPP and from information drawn from the literature. In dispatchable power and technology mix, as these last
this last case, the data was obtained for each technology two criteria have a strong impact on security of supply.
and the scenario classification was estimated according Social approach: local communities have witnessing an
to the contribution of each technology. For instances, for increase in the integration of their concerns into
Coal + Biomass scenario, in relation to the national decision-making with respect to energy planning and the
industry criteria, first the weighted average of the site selection and construction type facilities. Criteria
scenario is calculated, as seen in equation 3, where bold such as social acceptance and public health belongs
values represent the installed power of coal and biomass obviously to social scope, along with visual and noise
in this scenario and grey values are the normalized ones impact. The last one is related to the local population
obtained from literature. Then, the resulting weighted who lives near where power plants are constructed. The
average is normalized from 0 to 5 by a simple additive same goes to employment and local income. Finally,
method, as seen in equation 4, where brown value land use is a criterion that assumes some burden in
represents the highest weighted average obtained from social concerns, as power plants may have an adverse
all of the scenarios in respect to the national industry effect by occupying land that otherwise would be
criteria. The obtained normalized values compose the occupied by activities such as agriculture.
impact matrix.
187
Environmental approach: like social concerns,

ecological aspects have been targeted as factors for the Under the economic perspective, the base scenario ranks
success of sustainable development. Electricity last. This can be a somewhat puzzling outcome as this
production activities can have negative direct impact on scenario presents the lowest average cost due to the
environmental wellbeing, with impacts on air and soil strong reliance on coal power. The main justification
pollution, here represented by CO2, PM and SO2 lies in the other criteria also considered to be relevant
emissions. Land use have also big impact on soil for the economic dimensions, as employment and public
erosion. Noise and visual impact can be considered also health. The best scenario is the one with higher
to be related to environmental damages due to change investments on wind energy and natural gas. The other
on the landscape, noise annoyance affecting local scenario end up being penalized by their higher cost.
population and species.
Figure 9: Scenario ranking under a technical approach.
From the technical perspective, the base scenario is the

best option, followed by the second scenario, i.e.,
Figure 6: Relative weights of criterion for each scenarios with little or no need for additional backup
approach. and grid transmission investments, besides presenting a
very good rate of dispatchable power and technology
The information from Appendix 3 and the weights from mix are beneficed. The 100% renewable scenario is, in
Figure 6 were then integrated on the MCDA of the opposition, the less attractive option from a technical
scenarios described in Tables 1 and 2, using Ribeiro et point of view, due to the high requirements of RES
al. (2013) model. The obtained scenarios preference technologies and the non-dispatchable nature of most of
under each different approach are presented in Figures 7 them.
to 11.
Figure 7: Scenario ranking under an equitable approach. Figure 10: Scenario ranking under a social approach.
From Figure 7 it is observed that, under an equitable From the results, it was demonstrated that 100%
approach, the preference would be the scenario with renewable scenario was by far the best option under a
higher investments in CCGT and wind power. On the social perspective.
other hand, base scenario would be the worst option.
Figure 8: Scenario ranking under an economic approach.
188
Figure 11: Scenario ranking under an environmental effective for policy targeting objectives, namely on
approach. reduction of both CO2 emissions and external
In this analysis, the scenario with major investment in dependency. However, if the imposition is made on CO2
wind and natural gas resulted in the best option, as it emissions caps for the year 2030, then the average cost
represents a compromise solution. Although it results in of electricity production can be reduced.
higher CO2 emissions than the 100% RES scenario, the In respect to the multi-criteria analysis, 100% RES
noise and visual impact are considered to be lower. scenario is the best option under a social perspective.
Scenarios with coal power investments are not the last The base scenario represents the best option on a
options, because criteria such as noise, visual impact technical approach. However, for the equitable weights,
and land use, which benefit coal power plants when economic and environmental approaches, the scenario
compared to RES, play an important role on an with the highest investments on CCGT and wind power
environmental perspective. units is the best option for the electricity system.
Table 3 presents a compilation of the results for ranking Further research will include a more detailed study
scenarios by each approach analyzed. It can be about the land needs versus the available land in
concluded that only from the technical perspective, Portugal to construct renewable power plants, such as
scenario base, i.e., coal power plants, is the best choice wind power plants. Additionaly, considering this thought
for investments for electricity planning purposes. alignment, aspects as the employment needs related to
Scenarios with 100% electricity provided by renewable the operation and maintenance of such power plants and
sources are preferred under social approaches and the effective number of people that can work in
scenarios with major investments on wind and natural Portugal.
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Appendix 1 - Main inputs for the electricity expansion planning model.
FO&M VO&M Fuel Annual Potential CO2 emission
Investment Life time
Technology costs costs costs Availabilit until 2030 factor
(M/MW) (years)
(M/MW) (/MWh) (/MWh) y (MW) (t/MWh)
Coal 1600 40 2 13,4662 0,92 - 0,844 40
CCGT 900 23 1,2 45,17 0,94 - 0,369 30
Run-of-river hydro 2230 56 2,71 - 0,13 - 50
Hydro with 4595
2230 56 2,71 - 0,94 - 50
reservoir
Pumping-hydro 2275 56 2,71 - 0,13 - - 50
Wind onshore 1690 25 2 - 0,29 2650 - 25
Wind offshore 3410 102 2 - 0,29 4000 - 20
Mini-hydro 3900 89 - - 0,32 400 - 30
Sun photovoltaic 2900 44 - - 0,18 9035 - 25
Biomass 2370 83 0,004 9 0,57 1042 - 30
Appendix 2 - Criteria description for the MCDA.
Criteria Description References
Represents the sum of the annualized costs of new installed units, as well as O&M of all units
Total cost (/MWh) a)
(including fuel), divided by the total amount of produced electricity in the planning period.
Investment in The establishment of new electricity power infrastructures may require additional investments in the (Rahman, et al., 2013)
transmission grid transmission system, namely on grid connection, reinforcement and extension. The highest
(ordinal) investment was assumed for solar photovoltaic units, followed by mini-hydro and wind power units. (Robinson, 2013)
For the all the stages for projection, construction and maintenance of generation infrastructures the
(Mamlook, et al., 2001)
use of industry of different sectors is required. This criteria aims to capture the impact of each
National industry
scenario on the dynamics of national industry. Fossil fuel units were considered to have a minor (Akash, et al., 1999)
(ordinal)
impact when compared with renewables. Between these, sun and wind power units have the highest
(APPA, 2001)
impact.
Energy dependency The criteria is evaluated by the share of electricity produced from imported primary energy (coal and
a)
(%) natural gas).
Diversity of mix (ratio) The expression used to measure the diversity of the mix was based on Shannon-Wiener index. a)
The criteria is evaluated according to the ratio between the total installed power of dispatchable
Rate of dispatchable
technologies (hydro power with reservoir, natural gas, coal and biomass power plants) and the total a)
power (%)
installed power of the system.
Estimated values of direct and indirect jobs in each scenario, for the project, construction and
Employment (jobs) (Gaspar, et al., 2012)
operation of the power plants.
(Sliogeriene, et al., 2013)
Revenues obtained as compensation for the establishment of new generation infrastructures can have (Shen, et al., 2011)
Local income (ordinal)
a positive impact in local populations, associations and municipal income. (Mamlook, et al., 2001)
(Akash, et al., 1999)
The new infrastructures of electricity production can have direct and indirect health impacts,
Public health (ordinal) (Maxim, 2014)
including hospitalization and medication, loss of productivity, accidents, etc.
Social acceptance Public preference for the deployment or utilization of a certain electricity generation technology. Sun (Gaspar, et al., 2012)
(ordinal) photovoltaic is the most well accepted technology and fossil fuel units the least accepted. (Burton & Hubacek, 2007)
(Chatzimouratidis & Pilavachi, 2012)
(Ribeiro, et al., 2011)
2
Land use (x1000 km ) Represents the required land for de deployment of new infrastructures. (Afgan & Carvalho, 2002)
Insure overall grid stability in the long term in the context of a growing share of intermittent
generation from some renewable energy sources. Higher shares of intermittent RES power
Backup needs (%) production can require higher backup capacity. This criteria was assessed from the ratio between a)
total installed power of solar, wind and mini-hydro power units and total installed power for the
entire period.
The establishment and the functioning of new power units can cause changes on the landscape having
Visual impact (ordinal) (Carrera & Mack, 2010)
thus a visual impact.
The normal functioning of new generation infrastructures can have noise impact, causing annoyance
Noise (ordinal) (Burton & Hubacek, 2007)
to local population.
Water depletion Ratio between water consumption by all power plants during the overall planning period and the total
b)
(ordinal) electricity produced.
CO2 emissions Ratio between CO2 emissions released by all power plants during the overall planning period and the
a)
(ton/GWh) total electricity produced.
Other emissions Ratio between particulate matter (PM) and SO2 emissions released by all power plants during the
b)
(ordinal) overall planning period and the total electricity produced.
a) Obtained by the long term expansion model.
b) Obtained by a Life-cycle Assessment run in SimaPro software.
Appendix 3 - Impact matrix used on MCDA tool.
SCENARIOS
Coal + CCGT + Wind + 100%
Base
Biomass Wind Hydro RES
Total cost (/MWh) 13,29 13,79 16,6 22,57 32,42
Investment in transmission grid
5 4,2 3,6 2,8 1,6
(ordinal)
National industry (ordinal) 0,6 2,3 3,5 3,8 5
Energy dependency (%) 57% 53% 42% 27% 12%
Diversity of mix (ratio) 1,60 1,59 1,53 1,58 1,57
Rate of dispatchable power (%) 69% 66% 63% 61% 52%
Employment (total jobs) 572 669 53560 185386 695835
CRITERIA
Local income (ordinal) 0,5 2,1 3,5 4,2 5

Public health (ordinal) 0 1,8 4,7 4,9 5
Social acceptance (ordinal) 1,1 1,9 3,6 4,1 5
Land use (km2) 1,0 4,0 6,9 8,1 8,8
Backup needs (%) 0% 0% 3% 7% 16%
Visual impact (ordinal) 4,6 4,6 5 4,4 3,6
Noise (ordinal) 5 2,6 1,8 1,5 2,1
Water depletion (ordinal) 5 5 4,8 3,2 3,2
CO2 emissions (t CO2/ MWh) 345 260 130 65 13
Other emissions (ordinal) 0 2,6 4,7 4,9 5
THE USE OF THE DELPHI METHOD FOR THE VALIDATION OF

A CONCEPTUAL MODEL OF ENVIRONMENTAL
MANAGEMENT STRATEGIES
Wellington Alves, 1* Ciliana Regina Colombo2, Claudio Ruy Portela3, Paula Ferreira1 and Rassa
Dlia3
1
Department of Production and Systems, University of Minho, Guimares, Portugal
2
Department of Engineer of Production, Federal University of Rio Grande do Norte, Brazil
3
Department of Engineer of Production, Federal University of Paraba, Brazil
* Corresponding author: [email protected], University of Minho, Campus de Azurm

4804 - 533 Guimares
KEYWORDS
Delphi Technique, Conceptual Model,
Environmental Management
ABSTRACT In the business context, this concern for

sustainability is even more recent.
Concern over environmental issues has become a
Notwithstanding several companies and
major discussion in the business context, these
organizations always looked for environmental
discussions have driven organizations to pursue
sound practices, even when the subject was still
environmental strategies. There are several
emerging outside the restricted circle of experts
environmental strategies presented in the
and communities affected by environmental
literature, however, no consensus on the
problems (Barbieri, 2011).
appropriateness of these strategies in specific
In this sense, as from the 1972 United Nations
dimensions have been reached. In this context,
Stockholm Conference the environment and their
this study aims to propose a conceptual model
relationship with the company have been gaining
that grouped twenty-eight environmental
increasing importance in business strategies and
strategies raised in the national and international
public policies. The Brundtland Report initially
literature. To validate the model we used the
coined the concept of sustainable development
Delphi Technique for consultation with experts
and defined it as one that uses natural resources
in the field of Environmental Management,
without compromising the ability of future
aiming on the agreement in grouping strategies in
generations to meet their needs.
the proposed dimensions. At the end of the
These force like stakeholders, consumers and the
technique implementation we could obtain a final
legislation have made the commitment to the
conceptual model on environmental management
environment become an important variable in the
strategies. This is expected to contribute to
current competitive scenario. This encouraged
facilitate the choice of strategies that can better
many organizations to initiate voluntary changes
assist companies in reducing their environmental
to bring them closer to ecological principles.
impact, but also on increasing their
These changes have given rise to various
competitiveness.
environmental strategies that vary between two
extreme positions: a typical one for companies
INTRODUCTION that deploy only the minimum required to meet
The preoccupation with the state of the legislation, and an environmental responsiveness
environment is not a recent concern, but only and environmental proactivity one, characterized
during the two last decades of the 20th century it by companies that voluntarily take steps to
finally came in the agenda of governs of the reduce their impact in the natural environment
many countries and of divers sectors of the (Gonzlez-Benito, Oscar; Gonzlez-Benito,
society. Javier, 2006).
195
In the search for environmental balance since the organizations, since these strategies could enable
90's many companies started to act proactively in sustainable development.
addressing environmental issues, as this strategic Over the years various environmental
change could bring benefits to organizations. management strategies were developed and
Aligned with the idea of these benefits, the implemented in organizations, however, no
environmental management proved to be an consensus regarding the nomenclature of such
interesting alternative for dealing with issues strategies exists. Some strategies may have the
related to the environment, leaving aside the same goal, such as reducing the amount waste
reactive position aimed only meet the legal produced in an industrial process, but they are
requirements and searching for more advanced named differently by different authors.
strategies adopting practices that reduce energy For purposes of this research, strategies were
consumption, prevent pollution and waste, bring defined as the way in which organizations
innovations in processes, products and mobilize themselves internally and externally,
operations, trying to become eco-efficient creating environmental tools and tactics that can
(Aragon-Correa et al., 2008). respond positively to the environmental impacts
Thus, strategies for environmental management of their production processes. From this concept,
can be understood as a new approach to enable twenty-eight environmental management
organizations to manage the environmental strategies were identified in the literature and
impacts that derive from its production systems. were grouped into four dimensions: Waste
However, there is no consensus in the existing Management, Environmental Management,
literature on the classification of the Social Responsibility and Environmental
environmental strategies used by organizations, Economics, which allowed a better
i.e., identify which strategy can be used understanding these strategies, their goals and
according to the sector of activities. From this how the companies resource to them on their
context, this research aimed to analyze the main environmental practices.
environmental strategies cited in the national and Waste management dimension can be understood
international literature. Through the Delphi as the way in which organizations manage the
Technique, the strategies were grouped in four waste from its production processes. In the other
dimensions, thus facilitating the study of words, is what the company perceives as the most
environmental management strategies appropriate way for final disposal of waste
implemented in organizations. throughout the life cycle of a product, thinking of
The identification of these strategies can guide the waste generated from the beginning to the
companies to implement strategies directly end of the production process. As such,
linked to each dimension fragility, being it environmental strategies related to waste
economic, waste generation, process management dimension will always focus mainly
management or socio-environmental. As an on the minimization and management of waste
example, there are companies generating large generated by industrial processes.
quantities of waste in the production process, Strategies involving environmental management
thus, the strategies linked to waste management dimension, relate to the instruments or tools that
dimension can assist these companies in better organizations use to minimize or manage the
management of waste, which, in turn, also reduce impacts creating a formal or informal system for
their environmental impact. Likewise companies this. These strategies show the way in which
operating in the service sector, could use the organizations respond internally or externally
strategies linked to dimension environmental about its commitment to environmental issues, in
management to better manage their processes. the other words, the mechanisms that they use to
translate their concern over natural resources,
and also impacts caused by its production model.
ENVIRONMENTAL STRATEGIES
According to Canepa et. al (2003), for the
According to Seiffert (2011), the institutional conventional analytical scheme an economy of
evolution of environmental management has sustainability is seen as a problem, ultimately,
been characterized by the lack of connection because of the inter-temporal allocation of
between the different institutions involved, and resources, consumption and investment by
the lack of coordination and of financial and economic agents whose motivations are
human resources to carry out the management of fundamentally maximizing utility. Strategies
matters relating to environmental resources. linked to the economic dimension exert
In this context we see the need for creation of fundamental role in environmental sustainability,
environmental management strategies, as a new and also for a new economic development that
way to minimize the environmental impacts of address environmental issues.
196
Over the years several environmental

management strategies were developed and
implemented in organizations, however, no Figure 1: Structure of research
consensus regarding the nomenclature of such
strategies was achieved. List of Strategies
The environmental management strategies were
Table 1: Conceptual model of environmental obtained from a literature study in national and
management strategies (formulated by author) international journals that address environmental
issues, as well as through books of some authors
Conceptual Model Final Version that are national and international references with
Environmental regard to the topic of the study.
Waste Management
Management
Environmental
Waste water treatment/ management Creation of Dimensions
Inventory of solid waste/ system/ Certified Recognizing the lack of consensus regarding the
Design for environmental/ ISO 14001/
standardization of environmental management
Reverse logistic/ Recycling/ Environmental
Energy efficiency/ Water policy/ strategies, both nationally and internationally, a
consumption/ Prevention and Environmental conceptual model that brings together four
control of pollution/ audit/ dimensions which in turn, harbored these
Minimization of raw Environmental strategies was created, as shown in Table 1.
material/Ecodesign/Clen license/ The grouping of these strategies was made
Production/ Reuse Lifecycle/Green through the formulation of a conceptual model
Protocol that enabled a clearer picture of how these
Socio-Environmental Environmental strategies are linked in organizations. For
Responsability Economics
example, this will consist of environmental
Environmental
management strategies showing how
valuation /
Environmental organizations mobilize internally or externally
liability / aiming an improvement of its environmental
Environmental education/
Environmental performance, either through the implementation
Responsible acting
compensation/ The of EMSs (Environmental Management
program / Support polluter pay Systems) by creating an environmental policy or
environmental ONGs principle/ Carbon environmental certification processes among
Credit Market/ others.
Environmental
Insurance
The Delphi Method
The validation of this model was conducted
through the Delphi Technique. According to
METHODOLOGICAL PROCEDURES Terence et al. (2000), the Delphi technique aims
In terms of methodology, this research is the to search for consensus opinions of a group of
abstraction of two approaches which cause a real experts about future events. Thus, the conceptual
problem and can be applied to practice. The first model was validated by consulting selected
is approach of Sustainable Development, which experts in Environmental Management,
arises from the needs of the internalization of analyzing their agreement on the aggregation of
environmental issues, and the second is the the strategies proposed in the Conceptual Model
approach of the Strategic Plan, which will in the same cluster representing each dimension.
address the way in which organizations are
mobilized strategically to act responsibly Creating the Group of Experts
regarding environmental issues. Specifically in this work, the experts were
The research was structured in 5 steps as shown consulted through a questionnaire that contained
in Figure 1. 28 strategies raised through the literature review
(see Table 1), and grouped into four dimensions
LIST OF CREATION OF GROUPING proposed by the researcher. For this, 17 experts
DIMENSIONS were selected. These experts were identified as
STRATEGIES STRATEGIES IN
DIMENSION authors in International Journals and national
publications related to environmental
management and also published books with the
APPLICATION OF theme. The search for the experts was made by
MODEL
DELPHI inserting a few keywords such as: Environmental
FINAL TECHNICAL WITH management, Sustainability, Environmental
EXPERTS
197
Strategy, Strategy of Environmental Environmental Management 52 3,06 64,7

Management and Environmental Management of Socio-Environmental
45 2,65 52,9
System, in major databases and journals that Responsibility
discuss environmental issues, both within the Environmental Economics 52 3,06 70,5
general framework as in the business domain.
Following this, a detailed study of the main During this first round some technical experts
environmental strategies studied and discussed suggested some strategies to change their
by these experts in their articles and books was location in the model. For example, the lifecycle
conducted. analysis strategy was initially located into the
A questionnaire was designed with an initial dimension of waste management and migrated to
classification of the environmental dimensions the scale environmental management, the other
and the strategies deemed to be relevant to be case was the strategy responsible care program
included in each dimension. This initial that was part of the environmental management
formulation departed from the previous literature dimension and migrated to the Socio
survey. The experts were then asked to give their Environmental -Responsibility.
feedback expressing their level of agreement
with the proposed classification. To analyze the Development on the Second Round
degree of agreement of the experts was used In this second stage, the experts received a new
Likert scale with five points was used. The questionnaire with the changes suggested in the
experts were also invited to proposed additional first phase of the technique, where some
strategies that hitherto had not been identified in strategies changed their position on the
the research and/or propose to move the dimensions proposed by the initial conceptual
strategies between the proposed dimensions. model.
After this phase, in the second round some
Development of the First Round experts considered that socio-environmental
In a first round, experts were asked to respond responsibility dimension was still fragile with
individually by quantitative means (Likert scale regard to the number of environmental strategies.
with five points as mentioned above) on a As such, one of the experts suggested the
questionnaire about their agreement with regard consultation of the social indicators of the Global
to the positioning each of the strategy in each Reporting Initiative to make the dimension more
dimension. robust. After such consultation the support to
The consensus was assessed through the environmental NGOs (Non-governmental
calculation of the coefficient of agreement organization) and responsible acting program
proposed by Hurtado at al.(2013). According to strategies were included.
the author the concordance coefficient is
calculated by a mathematical expression relating Development on the Third Round
the number of disagreeing experts with the In this phase of the research the questionnaire
positioning of the strategies and the total number was sent again to experts showing the results of
of experts. Thus, the calculation of the coefficient two other rounds of questions. The concordance
of concordance (Cc) was given by the level increased for all dimensions, and even
expression: reached 100% for environmental management.
All coefficient of concordance were higher than
Cc = (1 - Vn / VT) * 100. (1) 80% and were considered acceptable, as
described in table 3.
Where Vn represents number of experts It was however decided to proceed to the fourth
disagreeing with the placement of the strategies, round because one of the strategies of the
and Vt represents total number of specialists. dimension Waste Management was moved to
As result of the first round Environmental Environmental management by suggestion of
management and Environmental economics had one of the experts.
an agreement coefficient above 60% (Cc 60%).
At that stage the dimension with highest Development on the Fourth Round
consensus on the assigned strategies was In the fourth and final round was presented to
Environmental Economics. Table 2 shows the experts the conceptual model already containing
concordance coefficient for the first round all the amendments suggested by scholars
consulted, as well as the inclusion of new
Table 2: Concordance coefficient for the first strategies, since some experts found weakness in
round some dimensions and suggested new strategies.
Dimension Cc Thus, it could be noticed there was agreement
Waste management 51 3,00 58,8 among experts surveyed. The model was not only
198
validated but also the various strategies were Waste management 71 4,18 100
adjusted to the dimensions that most closely Environmental Management 69 4,06 94,1
match their characteristics. Socio-Environmental
65 3,82 88,2
responsibility
Environmental Economics 61 3,59 82,4
RESULTS AND DISCUSSISON

During the application of the procedure it was
As there is no consensus regarding the realized that the dimension of waste management
standardization of environmental management was one that reached the highest consensus
strategies, both nationally and internationally, a among experts. This can be justified by the
conceptual model that brings together four moment when the questionnaire was sent. At that
dimensions (environmental management, socio moment, different regions in Brazil were
environmental responsibility, waste management reformulating their solid waste policy, which led
and environmental economics) was created, the experts to be more aware of this topic.
which in turn, hosts these strategies.
Table 3 shows the result of the rounds and the Another justification comes from the literature,
coefficient of concordance of experts in each as it is recognized that the residues are
round of the Delphi procedure. According to the responsible for significant environmental
table it can be seen that there was an increase in impacts, and management of such waste by
the Cc in each phase. The only an exception is companies would be an important way to reduce
the Dimension environmental economics as in the environmental impacts caused by their
phase Cc drops from 70.6% to 52.9% from the production processes.
first to the second round, but it increases again in
the third round. This reduction in agreement
resulted from the inclusion of environmental
security strategy in this dimension suggested by
some experts in the first round. However during
the second round a few experts disagreed with
this, resulting in a Cc below the acceptable 60%.
Table 3: Coefficients of agreement between

experts for round.
ROUND 01
Cc
Dimension
(%) Figure 2: Rounds of the Delphi technique -
Waste management 51 3 58,8
Environmental Management 52 3,06 64,7
concordance coefficients (Cc)
Socio-Environmental
45 2,65 52,9 The resulting dimension of waste management
responsibility
Environmental Economics 52 3,06 70,6 comprise twelve strategies that take into account
ROUND 02 the way the organization manages the waste from
Cc its production process. In this context the ten
Dimension
(%) strategies included in this dimension after the
Waste management 51 3 76,5 four rounds are: waste water treatment; waste
Environmental Management 65 3,82 82,4 inventory; design for the environment; reverse
Socio-Environmental logistics; recycling; energy efficiency; water
50 2,94 70,6
responsibility consumption; prevention and control of
Environmental Economics 42 2,47 52,9 pollution; minimization of raw materials; reuse.
ROUND 03 Strategies such as EMS (Environmental
Cc
Dimension Management Systems) enable the mapping of
(%)
Waste management 64 3,76 94,1
processes, allowing for the organization to follow
Environmental Management 67 3,94 100 the degree of environmental impact in each stage.
Socio-Environmental This dimension was the one reaching the highest
65 3,82 82,4 Cc, at third round (100% agreement), however,
responsibility
Environmental Economics 63 3,71 88,2 this value was reduced to 94.5% in the fourth
ROUND 04 round because some strategies were repositioned
Cc as suggested by the expert. This was the case of
Dimension
(%) the strategies of cleaner production and energy
199
efficiency that went to dimension waste CONCLUSIONS

management.
According to a survey in the literature the
The strategies included in the socio-
environmental strategies are used by various
environmental responsibility dimension address
industries to minimize their environmental
how the organizations is involved with its
impacts, with these strategies being raised
surroundings and community taking into account
regardless of size or field of activity of the
the issues related to the environment, in the other
organization.
words, how the organization promotes
management strategies related to society and its Each of these strategies has specific benefits if
sustainable growth. taken in isolation but additional gains can be
The final results indicated three strategies to be achieved with an integrated approach. This can
included in this dimension: Responsible acting be seen, for example for the cleaner production
program Support for environmental NGOs and strategy when combined with an environmental
environmental education. management system, can result in reduced costs,
consumption of raw materials and supplies used
in the process, as well as reduction of water and
energy. The benefits of this alliance can be
understand by the strategy of Cleaner Production
a model that relies heavily on a preventive
approach applied to processes, products and
services in order to minimize the impacts they
cause to the environment.
The grouping of these strategies through this
conceptual model will enable scholars of
environmental area a clearer insight into how
these strategies are related is under the
management of the economy or socio-
environmental responsibility. Another benefit of
the model is to provide an analysis of how the
strategies are linked to organizations, i.e. how
organizations can implement environmental
Figure 3: Coefficient of concordance of round
strategies that are consistent with their needs,
04 both as regards the search for good
environmental performance and in terms of
When it comes to the dimension environmental competitiveness, since the inclusion of the
economics, the included strategies take into environmental variable has been increasingly
account economic aspects related to the use of used in companies.
natural resources by organizations, in the other An example of how these strategies can reorient
words, not only how these resources are valued the position of companies as regards the
economically, but also the way the organization environmental issue is the use of strategies that
includes the environmental economics in make up the environmental management
enterprise strategies. From the results, this dimension, these strategies guide how
dimension was composed of six environmental organizations mobilize internally or externally to
management strategies,: environmental an improvement of its environmental
valuation, environmental liabilities, performance and reducing its impact, either by
environmental compensation, the polluter pays implementing EMSs, the creation of an
principle, carbon credit and environmental environmental policy, certifying its processes
insurance market. among others.
In this context, one can see that the dimension
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201
202
GLOBAL REVIEW OF ENERGY POLICY LESSONS FOR RENEWABLE

ENERGY TECHNOLOGIES
Wagner Sousa de Oliveira,1*and Paula Ferreira1

1
* Corresponding author: [email protected], University of Minho, Campus de Azurm, 4800-058, Country Portugal
KEYWORDS low-carbon economy. The goal must not be simply to

Energy Policy, Renewable Energy Technologies, Global installed capacity, but to provide the conditions to
Instruments Review promote a sustained and profitable renewable energy
industry in general, which, in fact, will result in
ABSTRACT increased renewable energy capacity and generation,
and will drive down costs. To achieve this step, viable,
Governments tend globally to appreciate the advantages clear and long-term government participation is
of renewable energy production more than conventional fundamental.
energy production. Therefore, supporting the expansion Finally, the effectiveness and evaluation of policies in
of production capacity of Renewable Energy promoting RETs will depend on their design,
Technologies (RETs) in many manners, which basically enforcement, how well they consider national
aim to reduce the disadvantages of most technologies for macroeconomics circumstances and the extension of the
renewable energy production: the cost and the lack of impacts in the economy, environment and society as
controllability. Also essential are policies that create well. Governments have a number of instruments
markets, and ensure a fair rate of return for investors. available to promote RETs in different times of the
Its notoriously known wind and solar power are more Renewable Energy Projects (REPs). Also we can see a
mature and establish with some competitive costs, taking combination of policies, including standards, education,
into consideration the public incentives. Most of the stakeholder involvement (alliances between public and
countries with a significant level of RETs in its energy private sector), and incentives for investments and
matrix, such as Brazil, Germany, US, China and others production to bring down the final costs of RETs and
have demonstrated that it is possible to create vibrant reduce risk in the private view.
markets for RETs, and to do so very rapidly; but the The development and implementation of appropriate
results in these same countries also shows that the public incentives guaranteeing a specific level of
renewable energy policies have been unsuccessful to support to different RETs based on their degree of
date, in some aspect. Most of the renewable energy technology maturity, in order to exploit the significant
policies development experienced has been driven by potential of the different RETs over time. Generally, a
countries with feed-in or pricing approach schemes. In mix of instruments is essential and a key to success. The
order to adequate the most efficient renewable energy combination of renewable energy policies depends on
policy instruments most applied by governments to the costs of the RETs analyzed, location and
RETs this paper aims to organize a framework to environmental conditions. There is not necessarily a
compare and evaluate these instruments (wind and solar direct link between these policy instruments and specific
power for electricity production) for a different obstacles to greater use of RETs, as some of the policy
classification as discussed in the specialized literature. options tackle a combination of barriers. The main
renewable energy policy instruments are well-known
INTRODUCTION and practiced worldwide.
The renewable energy policy framework developed in
the last decade increased globally as results of the direct AN OVERVIEW OF GLOBAL ENERGY POLICY
efforts by the governments to promote RETs, such as FOR RETs PROMOTION
wind power, solar power and photovoltaic. In order the Renewable Energy policy instruments generally can be
RETs to make a significant contribution to economic classified into two groups: primary instruments (FITs),
development in general, it still should be essential to quotas with tradable green certificates (TGCs) and
improve the diffusion and introduce more and more the tendering schemes) and secondary instruments (fiscal
market share in the global energy matrix the renewable incentives; investment subsidies, and soft loans, among
resources, reduce RETs costs, and develop new others) (Mir-Artigues & del Ro, 2014). Nothing seems
instruments to assure renewable energy resources in the easy in common energy policy for RETs worldwide and
203
to advance more rapidly and with greater consistency is Figure 1 demonstrates the Auction, FIT, RPS/RO,
needed a level of high political commitment, a Tradable Green Certificate (TGC)/Renewable Energy
remarkable volume of investments in energy markets, a Certificate (REC) Market.
clearer regulatory framework and an attitude by national
and international regulators that is coordinated, rigorous,
independent and predictable, case of wind and solar
technologies.
The cost of raising capital is a major factor in REPs.
This is particularly the case for infrastructure projects
like RETs which often involve large up-front costs, and
long construction phase lead times and operating
lifetimes. Some public strategies adopted in RE sector is
to improve the financing terms such as soft interest rates
or longer repayment horizons can significantly reduce
project costs. German and Indian governments have
created special funding agencies (IRENA) to provide
loans for REPs at below-market interest rates
(subsidizing interest rates).
The financing aspects of REPs are particularly important
to RETs because are often capital intensive, and Figure 1: Global RE policy instruments. Source: Azuela
therefore require a greater degree of up-front debt and and Barroso (2012)
equity than power plants with lower initial capital costs
(Wiser & Pickle, 1998). A number of additional factors We also highlight that TGC/REC system, as a RE policy
make it more difficult for RETs to obtain financing at instruments as well as a kind of market schemes that
reasonable costs than for other power generation distributors, retailers, and/or customers must meet a
technologies. Many RETs are perceived by the financial percentage of their energy consumption, as set by
community to have high resource and technology risks regulators, from clean or Renewable Energy Resources
(Finnerty, 2007; Kitzing, 2014; Wiser, 1997; (RES). Globally, the RE market have been supported by
Wohlgemuth & Madlener, 2000). public iniciatives in order to promote and diffuse RETs
Thats why its necessary to develop and improve RE while they become more competitive in economics
policies for a mature development of RETs considering aspects. This governamental goal, in general, is achieved
the competitiveness of these technologies. According to by attaining the requisite amount of TGCs/RECs which
Saidur, Islam, Rahim, and Solangi (2010) theres a can be either earned through self-generation or
variety of policies like Feed-In-Tariff (FIT), Renewable purchased from a renewables market.
Portfolio Standard (RPS), Renewables Obligations The world production for electricity, it has been
(RO), tax credits, pricing laws, production incentives, experienced a crescent and fast growing (see Figure 2).
quota requirements, trading systems and others. have The electricity generated from Renewable Energy
been globally developed and implemented to promote Sources (RES), also defined as RES-E, remarkable in
the use of RETs in the last decade. These strategies have China, OECD Europe and OECD Americas can be a
main objective such as reducing the environmental level absolute an percentual aspects much more
impacts, the cost of energy produced in the energy expressive tan other parts in the globe.
sector, reducing the dependence of fossil fuels and
stimulating new industrial energy development. The
RPS and the FIT are the most promoted in energy
policies. Many researchers discuss about their
effectiveness and application, desiring another better
solution (Del Ro & Cerd, 2014; Ertrk, 2012;
Hoppmann, Huenteler, & Girod, 2014; Kung, 2012;
Lesser & Su, 2008; Loiter & Norberg-Bohm, 1999;
Menz & Vachon, 2006; Mir-Artigues & del Ro, 2014;
Ragwitz & Steinhilber, 2014; Saidur et al., 2010).
The type of Renewable Energy (RE) policy should be
decided by the countries (regions) that which RE policy
can be applicable respecting their idiosyncrasies and Figure 2: Global RES-E production by Region. Source:
public objectives for energy issues. IEA (2013)
In a global view we can notice some RE policy
instruments combined in several constries in order to The global production of electricity from RES is in
promote RETs and face the climate change challengers. expansion moment as we demonstrated in Figure 2.
204
As stated by IEA (2013) in the Medium-Term Continent, according to African Development Bank
Renewable Energy Market Report 2013 the expansion Group (AFDB, 2014) in Table 1, as well as, we can
of RES-E in a global view. Threres an expectation that notice that African RE policies focus on environmental
RES-E will surpass natural gas electricity generation and as socioeconomic issues of the Africa.
double that from nuclear power by 2016, taking the
second most important position in global electricity Table 1: Overview of RETs in Africa
source, after coal. Globally, it os expected RE
generation to rise to 25% of gross power generation in
2018, up from 20% in 2011 and 19% in 2006. It is also
pointed out that wind and solar power will definitely
drive this fast-growing of RES-E generation. This RES-
E behavior can be analyzed as one of the possible
reactions of the governaments support for promotion
efforts of RETs in the world energy mix.
In the first trimester of 2014, at least 144 countries had
RE targets and 138 countries had RE policies in place,
up from the 138 and 127 countries, respectively
(REN21, 2014). Developing and emerging economies
have the leadership in the expansion in recent years and
account for 95 of the countries with RE policies, up
from 15 in 2005. The rate of implementation of RE
policies remained slow relative to much of the last 10
years, that it can be attributed to the strong influence of
several countries have already enacted RE policies for
RETs. This fact is a probably reflection since 2013,
there was an increasing focus on revisions to existing
RE policies and targets, including retroactive
reformulation (redesigning), with some adjustments
made to improve RE policy effectiveness and efficiency,
and others aimed to curtail costs associated with
supporting the deployment of RETs. At the same time, Source: AFDB (2014)
some countries expanded support and adopted ambitious
new targets (Brazil, China and US) (Batlle et al., 2012; Most of African governments adopts RPS as policy
Kitzing & Mitchell, 2014; Resch et al., 2014; Rizzi, van strategy to support RETs taking into consideration the
Eck, & Frey, 2014). technological maturity of the RETs. Another important
On the international level there are numerous energy trend, FITs premiums, those are Power Purchase
associations that attempt to influence legislation Agreements (PPAs) with a set price or premium which
procedures to their advantage. So understand the most can be understood such situation that developer has a
relevant international energy associations within price guarantee for a fixed period of time (usually 10 to
important actors of the energy industry is and advantage 15 years) (Deichmann, Meisner, Murray, & Wheeler,
for research in energy policy and planning at all. 2011; IRENA, 2014a). The African RE policies have
The RE policy instruments in Africa & Middle East also been implemented in several African countries
there is not a general objection to a FIT systems applied during the last decade, but specially in RETs such as
to RETs (wind and photovoltaic power), but the bioenergy, solar power, geothermal, hydropower and
experience shows that FIT system should be designed in wind energy (see Table 1). We also remember that local
a way more consistent with the specific demand for conditions (laws, contries`infrastructure, energy market
capacity additions according to geographical electricity development, etc) must be favourable to the
needs and market policy (Dekker, Nthontho, implementation of specific RE policy instruments.
Chowdhury, & Chowdhury, 2012; IRENA, 2014a, As decision-makers in some African countries consider
2014b; Msimanga & Sebitosi, 2014; Musango & Brent, the future of energy policies of their countries power
2011; Winkler, 2005). sectors (Agencies, Governments sections, and others
African countries can create local value along the RE public energy agents). Moreover, it is satisfactory in a
sector, such as in the materials, components, energy policy development as well, for there could well
construction, operation and maintenance required for be particular lessons that these other energy market
REPs. The RE policies worldwide have been evoluting responses. It could lead us to a reflection of efficacy of
in a different manner during the last two decades, and their energy polices developed.
one of the supposed motivation was the Kyoto Protocol Some RE polocies instruments, case of FITs in
(Aguirre & Ibikunle, 2014). For example in African developing countries, the renewable energy
205
consumption per capita is low, which limitate the are free to adopt such instruments according to the
expansion of this RETs in general. The market-driven energy and macroeconomic situation of the country in
variables (consumption, investments, etc) new market question. These instruments really have enabled a
capacity development are often much higher than in remarkable growth of RES-E generation (Enzensberger,
developed markets (case of North American and Wietschel, & Rentz, 2002; Saidur et al., 2010). Public
European markets) due to macroeconomic`s constries regulators in the EU and OECD are more stimulated to
situation and RE policies instruments more mature the technology-specific tariffs (FITs) for periods of up
(IRENA, 2014c, 2014d). to 20 years. The recipients of FITs is driven to
The future of the development of the African energy endogenous RES-E power plants that feed in electricity
market will have long-term implications for individual produced into the grid of the member state concerned
welfare, national economic development, and (Schaffer & Bernauer, 2014)
greenhouse gas emissions due to the investment in Most EU Countries are applying a FIT and/or FIP
energy infrastructure spans several decades. So, the system, including Germany, France, Spain, Greece,
results of these impacts must be analyzed in different Portugal and the Netherlands. Another instrument is the
governaments`s governance. We point out the early RPS, also called quota system, which is a requirement
technological advancements and cost reductions, the for consumers or their retail suppliers and guarantees
large-scale deployment of RES offers African countries that a minimum percentage of the countrys electricity
a cost-effective path to fast, sustainable and equitable portfolio is produced by RES (Kitzing, 2014;
energy market growth (AFDB, 2014; IRENA, 2014a). Oikonomou, Flamos, & Grafakos, 2014). Various states
In the Middle East region, according to Babiker and of the EU (e.g. UK, Italy, Sweden and Belgium) adopt
Fehaid (2011) one of the the principal lessons and RE these instruments.
policy to be learned include the importance of
monitoring the region carbon footprint, the instrinsec
roles of incentives and Demand Side Management
(DSM) RE policies to promote RETs and reduce Green
Houses Gases (GHGs) emissions in the Middle East, the
potential gains from actively participating in the
international carbon markets through the use of Clean
Development Mechanism (CDM), focus on efficiency
market-based RE policy instruments to achieve the
climate change targets and improve the energy sector in
economics issues impacted by the nationals RE policies.
In view of the reality of Europe, it is perceived that the
liberalization process has been in energy market, more
theoretical than real. Continues the fragmentation of
markets, the interconnections between countries faced
with serious political difficulties and energy prices paid
by consumers are very heterogeneous, among other
reasons, by the difficulties of harmonization of the
marketss differences (Menanteau, Finon, & Lamy,
2003). For these reasons, the EU is obliged to jointly Figure 3: EU-related RE Policy framework. Source:
boost their energy market and institutional relations with Ferroukhi et al. (2013)
other countries. But in addition to do it together, you
must act in a coordinated manner and avoid that, as it is Very few member states of the EU (e.g. France, Ireland)
happening far too often, Member States will seek use a RES-E tendering system, whereby tenders can
bilateral agreements with other countries (Sawin, 2006). relate to a specific technology or to RES-E in general,
The RE policy instruments continued to accomplish, case of France. Normally, project developers are offered
considering the techonologic differential by RETs (cost a long-term PPAs if they submit the lowest kWh asking
and maturity). Speciallly in Europe, (re)new RE policies price. The PPA price could be on a reversed-auction
are emerging to advance or manage the integration of (price as bid) basis or on the basis of a uniform price,
high shares of RES-E into existing power systems, i.e. the highest asking price among those of the
including support for energy storage (energy back-up successful bidders (Resch et al., 2008; Resch et al.,
systems), demand-side management, and smart grid 2014). The additional costs of RES-E tenders are
technologies (Lund, 2009). usually passed on to the power consumers, we mean, the
The political framework for renewables in the EU and final costomers pay the additional cost for RES-E, in a
OECD is defined by a number of RE policies with some microeconomics point of view.
instruments including FITs, RPS, investment subsidies, For Reiche and Bechberger (2004) RE policy
and tendering procedures. In case of EU, Member states instruments most practiced among the 15 largest
206
European Member States in the following order: 1 Table 3: A brief summary of RE policies instruments
FITs; 2 RPS/RO and 3 Auctions. This trend sould RE policies instruments Evaluation
Item
continue for the next years (Ragwitz & Steinhilber, FITs TGC Tendering criteria
2014). There is also a combination of different Eligibility
instruments in European energy market. Many of the of REPs Only new REPs commissioned after a Improve
(new specific period are eligible for support competitiveness
available instruments can essentially be classified in vs. existing)
grants about investment costs and operation Create a complex
(production) (Wohlgemuth & Madlener, 2000). Constant over system that lacks
Although we sure have to look deep to the following RE Intensity of time in the Constant of
support first years over time or transparency and
policies, because we can cite some bad experience such (con- of operation or pre-established comprehend
as German policies for RETs in the last decade. stant or Constant for a fixed % sibility. For
According to Frondel, Ritter, Schmidt, and Vance decreasing quantity of reduction over supply driven
(2010) make great efforts in substantial cost associated support generatio over time. RES-E,
level) operational increasing
with Germanys promotion of RETs, one would expect
phase. weather and
significantly positive impacts on the environment and revenue risk.
economic prosperity, in contrast, the RE policy The longer the
instruments by which Germany governament promotes Duration of Period during which support is guaranteed duration, the
RETs unsufficient benefits as expected. support (e.g.15,20,25 years) more certainty to
the investors
At least 18 American states, Japan, and Australia aldo Size limits have
apply FITs, RPS and mixed RE policy instruments as Small-scale
Market pros (encourage
installations
well (Menz & Vachon, 2006). RES schemes in the EU Size-pecific Plant size; trends;
receive more
small producer)
are national schemes. Since the RETs are characterized Support Revenues; employs and
TGCs than
level etc generation, cons (lower
by high up-front investment costs, governments (PTC in etc
large-cale
economies of
US) often provide investment subsidies and fiscal installations
scale)
incentives to lower the barrier of financing RETs (e.g. Source: adapted from Resch et al. (2014)
tax credits and accelerated depreciation) (Gross, Blyth,
& Heptonstall, 2010; Gross, Heptonstall, & Blyth,
2007). An indirect type of investment subsidy is the CONCLUSIONS AND FURTHER RESEARCH
provision of finance on soft terms (e.g. at a subsidized
interest rate) (Aalbers, Shestalova, & Kocsis, 2013). The EU and the US are major players on the
international energy markets. However, both actors are
Table 2: Projection of RETs generation (TWh), 2010 highly dependent on energy imports from politically and
2020, in North America, by country economically insecure regions, such as the Middle East,
Central Asia and Russia. While the OECD countries are
competing for energy resources with the emerging
economies in Asia, first and foremost with India and
China, forecasts predict their energy dependency to
grows steadily. We need to change the dominant
paradigm for energy issues globally (Delucchi &
Jacobson, 2011).
RES-E development has taken different paths across
countries, underpinned by different policy frameworks
during the last twenty years (Couture & Gagnon, 2010).
Source: Angevine, Murillo, and Pencheva (2012) We could converge to the ideia that the combination of
two main RE policy instruments, the FIT and the RPS,
We can point out in Table 2 a 374 terawatt hour (TW-h) as many researcher put attention on effectiveness of
(or 8%) increase is projected overall, the largest (186 these two instruments for achieving the
TW-h) increase is expected to occur in the US, followed countries`environmental objectives, targets and
by Canada and Mexico. However, in percentage terms obligations defined in international agreements, such as
the largest increase is projected to occur in Mexico, Kyoto Protocol (Abolhosseini & Heshmati, 2014).
followed by Canada and the United States. This pattern RE policies instruments cannot be adopted and
is consistent with expectations for macroeconomic and implemented without critical levels of support from key
population growth in the three countries. groups (industry and government) of interest
Table 3 points out some important aspects of RE (Menanteau et al., 2003). The framing of the problem
policies instruments discussed in this paper. itself can have important implications with respect to
what kind of experience is considered important, energy
agencies and other economic agents must be involved,
207
and as a result also for the evaluation of internal economic, social and technological development.
policy alternatives (Baumgartner et al., 2009). Behind the promotion of important investments, job
Furthermore, investment and operational costs for creation and regional development, and to enhance the
electricity through RES, these economic engineering development of technological and research clusters. The
instruments a focus on reducing the high cost of energy development of endogenous energy resources represents
produced and stimulate the competitiveness of RETs in a high potential for innovation (Oliveira & Fernandes,
comparison with fossil fuel conversion systems. These 2011).
incentives for operational costs can be paid through a Dinica (2006) describes a basic framework to analyze
general base rate or through an additional fee charged the diffusion of RE potential from the point of view of
on behalf of final consumers. the investor through energy policies adopted by the
In Figure 4 shows some important aspects of global map government. Pricing policies that provide remuneration
of RES-E that can change the attention of policy.makers, to independent production projects can help lower
speailly RE policies worldwide. investment risks, create incentives for RES-Electricity
(RES-E) which relieves pressure and allows a better
integration of RES market (Couture & Gagnon, 2010).
This paper discussed about RE policies in a global view
through a driven-issues which can be analized into the
following points:
1. RE policies globally are highly focused on real
policy costsand try to minimize them in order to
reduce the economical disadvantagens of RETs in
energy matrix for stakeholders of RES-E;
2. FITs, used in 20 European Countries, US, China
and India, which represent the oldest and most
Figure 4: Global Map of RES-E. Source: Pazheri, widely used RE policy instrumnent to incentive
Othman, and Malik (2014) RETs globally;
3. Establish standards for technology performance to
We have to declare that countries as Brazil, Canada, encourage the integration of RETs into structures.
Norway changed strangly their energy matriz. The most Standards must also be set for grid technical
remarkable issues is the type of RETs that has been issues;
driven this change: hydroelectric power plants, solar and 4. Renewable energy development is becoming more
wind power. Due to the proper geography or natural complex as renewables increase their share in the
resources? Or a simple reflect of RE policies in these global energy matrix;
same countries? Even though the highest potential of 5. REPs deployment is expected to continue
solar irradiation is a vailable in South Africa and Middle expanding geographically, due to the enormous
Eastern countries, more than 90% of electric power potential of RES;
demand of these countries is met by fossil-fuel based 6. In some markets with good resources, the
power generation since fossil-fuels are cheap and Levelized Cost Of Electricity (LCOE) for some
plentiful in these countries (IRENA, 2014b). RETs (e.g.: onshore wind) is competitive or close
Ensure that the promotion of RETs is not an end in itself to competitiveness versus new coal and natural
raises the debate of which RE policy instruments and gas-fired power plants;
strategies can potentially justify the development of 7. The competitiveness of RETs depends on the
RETs incrementation (Edenhofer et al., 2013). In the market and policy framework within they operate.
past, the main argument for policy intervention intended RES-E, and particularly wind and solar power, have
to foster and develop RES is to avoid climate impacts of only recently reached significant levels of penetration in
fossil conversion technologies and the public some countries, but they are expected to grow
governaments agreements related to environmental considerably in the next decades (Rao & Kishore, 2010).
issues (Pazheri et al., 2014). In some market power (e.g. Denmark, Germany, Spain,
RES in addition to economic criteria and the rules of the and Texas), RETs currently have an important influence
market, come into the agenda needs, interests and on the performance of the energy market by significantly
development guidelines for new technologies, as well as affecting price dynamics, legal market requirements, the
the perception of energy as common good, whose need to balance reserves and manage network
universality and continuity assurance constitutes congestions, etc. Furthermore, RES-E in these markets
strategic factor of development and social inclusion power have a significant impact on electricity tariffs for
(Aguirre & Ibikunle, 2014). Thus, RES can contribute to final consumer.
meet poor communities of electricity and the high global As Kitzing (2014) discuss about which RE policy
growth of electric power consumption (Oikonomou et instrument in general would be more favourable for
al., 2014). Renewable energies constitute the engine of society in terms of benefits. For such an analysis, not
208
only direct intruments, but also indirect effects need to (2009). Punctuated equilibrium in comparative perspective.
be investigated. American Journal of Political Science, 53(3), 603-620.
It will be also particularly important to research Couture, T., & Gagnon, Y. (2010). An analysis of feed-in
tariff remuneration models: Implications for renewable
whether the efficiency of RE policy instruments
energy investment. Energy Policy, 38(2), 955-965. doi:
improves continuously and cost reductions due to 10.1016/j.enpol.2009.10.047
technological learning can be captured in the form of Deichmann, U., Meisner, C., Murray, S., & Wheeler, D.
declining remuneration levels. (2011). The economics of renewable energy expansion in
Government policies and initiatives will lead to the rural Sub-Saharan Africa. Energy Policy, 39(1), 215-227.
installation of new RE power plants and the production doi: http://dx.doi.org/10.1016/j.enpol.2010.09.034
capacity in China. Canada, Brazil, USA, Russia and Dekker, J., Nthontho, M., Chowdhury, S., & Chowdhury, S.
India also have significant potential for hydropower P. (2012). Economic analysis of PV/diesel hybrid power
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International Journal of Electrical Power & Energy
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Systems, 40(1), 104-112. doi: 10.1016/j.ijepes.2012.02.010
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In summary, it can be stated that the global energy the different interpretations of the cost-effectiveness of
market is controlled by a small number of companies, renewable electricity support. Energy Policy, 64, 364-372.
which altogether generate a yearly turnover of trillions doi: 10.1016/j.enpol.2013.08.096
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situation that allows huge multinational companies to Reliability, system and transmission costs, and policies.
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Dinica, V. (2006). Support systems for the diffusion of
effectiveness.
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COMMERCIAL ANALYSIS IN PROJECT APPRAISAL

1
* Corresponding author: [email protected], IPB, Campus de Santa Apolnia, Apartadao 1134, 5301-857 Bragana, Portugal
KEYWORDS The commercial analysis in project appraisal studied by

Project appraisal, Commercial analysis Savvides (1990, 2000) refers to the application of the
strategic principles of marketing. In fact, the commercial
ABSTRACT aspects seek not only to perceive the probability a
project will survive the competitive forces in its market,
An adequate analysis of investment projects should but also to investigate how these aspects can help to
provide a knowledge of the commercial factors that are make financial adjustments that increase the projects
critical to the success of the project. The evaluation of a viability.
project should identify the problems associated with the An adequate analysis should bring a knowledge of the
market where the project will be placed and develop the commercial factors that are critical for the projects
relevant market competencies to allow the project to success, that is, it should find the elements of
meet the markets expectations and face its competition. competitiveness that can lead the project to success. A
As such, project appraisal should analyse the aspects projects evaluation should identify the deficiencies in
associated with the projects commercial dynamic and, the companys performance, in the market where the
therefore, this work supports the idea that project project will seek to place itself, and develop the relevant
appraisal should include an analysis of the commercial markets competencies in order to outperform the
area. competition and meet the markets expectations.
This paper is organized as follows: first there is an
INTRODUCTION analysis of the main aspects of commercial analysis
In investment project appraisal it is common to only use which requires the study of the following four sides
financial evaluation techniques. However, the the definition of the market, the market analysis, the
investment decision process is complex and should strategic evaluation and expected performance (that is,
consider qualitative aspects which are difficult to cash flow projection). Next are the commercial risk
measure. Financial techniques should only be used as a factors, followed by the ways to minimize these risks. In
guide and other factors that can influence the uncertainty chapter 4 is a description of how these aspects can be
analysis should also be taken into account. Moutinho incorporated in the project appraisal. Before presenting
and Mouta (2013) present a brief reflexion about the the conclusions, there is an analysis of the importance
main aspects to consider in project appraisal: financial companies attribute to commercial aspects in project
and non-financial aspects, capital structure, agency appraisal.
problems, governance, real options, stakeholders and
other situations. Moutinho and Lopes (2011b) show the COMMERCIAL ANALYSIS
importance of non-financial aspects for investment Savvides (1990; 2000) studies the commercial aspects in
projects. Skitmore et al. (1989) present a list of factors investment projects in detail and presents four relevant
which influence the success of construction projects, and situations that must be approached in any project. First,
they mention a lot of non-financial factors beyond the in the market definition, the evaluation process is based
financial aspects. Meredith and Mantel (2000) suggest on the market needs the project intends to satisfy,
that there is a need for diversified information and they identifying and selecting the potential competitors and
come up with a list of production, marketing, financial, clients and doing market research to assess the projects
administrative and personal factors. Moutinho and competitiveness and obtain a prediction of market
Lopes (2011b) show the importance that companies penetration.
attribute to the commercial area (75%), considering it From this analysis comes the projects relevant market,
the third most important analysis dimension for projects defines as the part of the total potential market that is
and presenting it as a critical area for the projects competitively accessible to the project. It encompasses
success. all the markets served by the project and its competitors,
213
except for those only remotely related, considering the so that the project may achieve its maximum potential
possibility of appearance of a substitute product and performance.
possible change in its positioning. It is also necessary to A projects competitive strategy, namely the prediction
estimate the expected market size to know the volume of commercial activity and sales, depends on the
and value expected to be used, as well as its possible marketing-mix of a competitive product. The marketing-
changes through time. mix strategy is based on four pillars (Lindon et al.,
Next, there should be a market analysis in three 2000): the product policy; the price policy; the
interdependent and interconnected stages where research placement policy; and the promotion policy.
in one causes changes in the others: market Finally, aiming at emphasizing the expected
segmentation, competition and project capability. performance, the marketing results are transformed into
Market segmentation allows the understanding of the quantitative cash flow projections. In order to do this,
markets expectations and the needs of potential clients, the analysis must focus on determining the quantitative
since it identifies groups of clients with homogenous size of the market, the markets expansion, the market
characteristics and needs. The goal of market share the projects product has or will gain, the
segmentation in project evaluation is to identify projected price and costs of marketing (Savvides, 2000).
potential clients with special market needs that can be Sales are projected as a percentage of the market share
better served by the project. Therefore, market in the total market size. Note that the competitiveness of
segmentation allows the selection of the projects target the project affects the size of the market and the market
market. share that can be gained by the project (Andreou et al.,
After defining the relevant market for the project, it is 1991).
necessary to study the main competitors and their
products. The goal is to study the current suppliers and COMMERCIAL RISK FACTORS
deduce the market profile of the main industry
competitors, as well as to identify differences in There are several risk factors associated with the four
potential capabilities where the project may develop commercial aspects considered above. The inexistence
competitive advantage. It is also necessary to analyse the of or incorrect market definition, whether at the market
possibility of new competitors and/or substitute products needs level or at the size level, creates uncertainty
surfacing on the market, with the changes to the relevant (Savvides, 1990). For Cooke-Davies (2002) the risk
market they may bring. factors are related to the understanding of the consumer
There is also the need to identify the projects capability and the company and their respective needs.
for the relevant market, through the analysis of different As for the market analysis, the inadequacy of the
dimensions such as human resources, organization and projects capabilities to the needs of potential clients,
technology, among other. The market analysis should considering the characteristics of the current and future
lead to the construction of alternate projects that may potential competition is a key issue (Lindon et al., 2000;
combine the limited resourced and available capability Savvides, 1990). As for potential clients, there may be
of the project so as to best aim at the basic needs difficulties not only in their descriptios, but also in the
identified in the relevant market. understanding of their needs, creating a deficiency in the
Another important consideration is the formulation and understanding of the global project market (Savvides,
evaluation of the products strategy. Firstly, the selection 1990). In what concerns competitors, they pose a serious
of a target market for the project that allows it to explore risk since they may have substitute products or potential
its potential competitiveness through the production and capabilities to positively differentiate the product from
distribution of products that are better than those of the the projects product, apart from the fact that there may
competition for market segments that are substantial and be other potential competitors in the future.
potentially rewarding. The project should choose the As for the strategic evaluation, one important mistake in
most appropriate market segment aiming to only employ the definition of the projects placement is to adopt
resources in that segment that it may best serve, several segments of the total relevant market. Therefore,
according to its capabilities and available knowledge when the relevant market has various heterogeneous
and depending on the needs and behavioural segments, if it cannot separate different products for
characteristics of the market segment. Basically, this is each segment, there is the risk of being unable to satisfy
the choice of the market positioning for the project. the customers (Savvides, 1990).
Positioning consists of the selection of the target market, Consider, as well, that an erroneous choice of the
among the various different market segments that exist, marketing-mix policies may lead to a loss of viability for
and the identification of a unique placement for the the project, because the commercial activity (with direct
project product in the consumers perception map of the impact on performance) may not reach the minimum
competing products in the market. Then there should be necessary level.
a listing of the ways that the projects capabilities are Finally, when determining market performance it is
used, considering the opportunities presented by the possible to encounter as risk factors: the expected
market segmentation and the analysis of the competitors, growth rate of the relevant market; the expansion of the
214
market caused by changes in demand; unexpected attainment of the general goals defined by the marketing
changes in market share; price, which should be strategy (Lindon et al., 2000).
attractive for a large number of potential clients; and the Qualitatively, the analysis should focus on four golden
costs with the formulation of the marketing strategy rules: coherence of each component of the marketing-
(Savvides, 1990). mix with all the others and with the positioning that
sustains them; adaptation of the marketing-mix to the
MINIMIZING COMMERCIAL RISKS market and the project; ensuring at least one relative
advantage of the project over its competition; obtaining
In what concerns the market definition, it is important to acceptable results even if some of the assumptions are
verify the degree of substitution of products and of the not fully verified. Quantitatively, it is desirable to
potential competitors of the project. On the other hand, attempt to predict the effects in terms of sales and
there should also be an analysis of the tendencies that market share that will be obtained and the results that
may affect the importance of the potentially competing can come of it. Alternatively, it is possible to determine
products (Savvides, 1990). the point beyond which there is a positive return. In this
As for potential clients, the strategy should involve the way, adopting adequate strategies for the variables of
segmentation of the market based on demographic, the marketing-mix takes a key role in the analysis.
geographic, socio-economic, psycho-graphic, The existing skills in the company should allow a
personality, lifestyle, behavioural and psychological market analysis, through the evaluation of its strengths
criteria (Lindon et al., 2000; Savvides, 1990). There and weaknesses. The need to determine the viability of
should be a search for information about the clients that the project makes it necessary to calculate projected
allows the project manager to make decisions with full sales using projection methods (Lindon et al., 2000). As
knowledge of its competitors positioning. for the market environment, it is important to verify the
As for the projects capabilities, it is necessary to market tendencies, changes in lifestyle and recent
analyse its potential in various functional areas and technological developments that determine opportunities
verify the available knowledge in order to adopt an and threats.
adequate strategy. Apart from delays and additional spending which
Savvides (2000) refers that the selection of the target negatively influence the commercial success of the
market, in a project, should be: focused, promote a project (Wateridge, 1998), the uncertainty about the
concentration of efforts in the business, trying to find a price of output also negatively influences the choice to
good product or service that is well adjusted to the needs invest (Nakamura, 1999).
of the main market segment, rather than trying to attain
all possible clients; consistent, not trying to serve a
EVALUATION OF THE COMMERCIAL
second or third market segment causing a constraint to
ASPECTS
the projects ability to serve the main market segment
well; and flexible, selecting a strategic positioning that is The analysis of commercial factors should be performed
relatively easy and inexpensive to change, should things preliminarily, that is, before the project is implemented,
not go according to plan. The author adds that in order since only through a knowledge of the projects
to optimize a products placement in the market, it is commercial performance is it possible to determine its
necessary to understand the existing products consumer viability. However, continuous revisions should be
map. Alternatively, it is possible to check the criteria on performed with the intention of incorporating eventual
which the clients base their choice of a market brand and adjustments that might be necessary.
how the main competitors and brands approach the Although it may involve the main functional managers
principal dimensions of choice. On the other hand, the of the company, the marketing specialists are better
chosen market segment should be the one that best uses equipped to ensure the adoption of an adequate
the projects assets and plays to the strengths of its commercial policy. Given the importance of these
potential capabilities (Savvides, 1990). decisions, they are analysed from a strategic perspective.
The company should develop product, pricing, In this way, Skaates and Tikkanen (2003) stress that the
placement and promotion policies that are consistent project manager and the project owner may also play a
with the goals defined for the project, but also crucial role in defining the projects commercial policy.
established together and consistently with each other, Without the commercial perspective, the company is
considering the behaviour of the target clients and the unable to identify and respond to opportunities and
desired level of sales (Soares et al., 1999). threats in its market environment (Andreou et al., 1991).
Given that the marketing-mix is the concrete translation
of the orientations defined in the previous steps THE IMPORTANCE OF COMMERCIAL
namely those respecting the product placement and ANALYSIS IN PROJECT APPRAISAL
priority actions in the strategy it is necessary to
analyse whether the marketing plan allows the Moutinho and Lopes (2011b) observe that commercial
analysis is the third most important area in project
215
appraisal, following the strategic and technical analyses. the company and its goals and product differentiation.
These findings support the theory that non-financial Moutinho and Mouta (2011) show that although there is
factors are at least as important as financial ones in a greater probability of performing the commercial
project appraisal. Companies from the commercial analysis in expansion projects, manufacturing companies
sector and that have implemented expansion projects are less likely to perform it.
attribute more importance to commercial analysis.
Companies where the CEOs education is lower and CONCLUSION
CEO tenure is higher, attribute more importance to
commercial analysis. Note also that companies with In project appraisal all the factors that may influence the
expansion projects also attribute a greater importance to projects success should be analysed, rather than just the
commercial analysis. Moutinho and Lopes show that the financial aspects. It is well to remember that the
commercial issues are among the main critical success financial forecasts that determine the projects financial
factors in project evaluation. viability are based on estimates which, in their turn, are
Moutinho and Lopes (2011a) present the most important based on commercial decisions. Meredith and Mantel
factors in project appraisal: studying market needs (2000) and Moutinho and Lopes (2011b) show the
(81,3%), ability to seize opportunities (76%), analysing importance of the commercial area in project appraisal.
the companys capacity (72%), defining the relevant The analysis of a project should consider commercial
market (69,3%), selecting market (69,3%), estimating factors that are critical to the projects success and find
the markets size (68%) and product policy (68%). the competitiveness elements that can lead the project to
These results confirm the studies of Savvides (1990; a positive outcome. In this area of analysis, it is
2000). Those authors also report that manufacturing and important to know and adequately define the market the
commercial companies attribute a greater importance to project intends to serve. It is, then, relevant to segment
identifying and analysing competitors that other the market with the goal of identifying potential clients
companies, whereas the promotion policy is more and perform the competitors and their products. In the
important for large than small companies. When next stage, a target market for the project should be
analysing the type of project, the authors find that selected, choosing the market placement intended for the
expansion projects tend to consider studying market project. Given the outlined goals and selections, a
needs, defining the relevant market and identifying and marketing-mix strategy should be formulated for the
analysing competitors more important whereas in large project that will lead to a viable outcome. As such, there
projects there is a greater importance attributed to should be sales and cash flow projections that permit the
studying market needs, placement policy and promotion evaluation of performance associated with the project.
policy. Another result indicates that identifying and This paper highlights the importance of the commercial
analysing competitors is more important when analysis in investment projects. Moutinho and Lopes
administration owns a participation in the firm, the (2011b) observe that the commercial analysis is the third
project manager is young, has little experience and has a more important area in project appraisal, following the
fixed reward, and also that the more successful the strategic and technical analyses. Moutinho and Lopes
project, the more important it is to analyse the (2011a) present the most important commercial aspects
companys capacity. in project appraisal and show that the analysis should
As for risk factors, Moutinho and Lopes show all encompass studying market needs, the ability to seize
companies consider commercial return, business opportunities, analysing the companys capacity,
volume, competition and market size as very important, defining the relevant market, selecting the market,
although they find that commercial companies consider estimating the markets size and defining the product
the commercial return more important than other policy.
companies. Market size is considered more important To minimize the risks associated with the commercial
for long-term projects than short-term ones, inadequate area, companies use the following procedures:
commercial capabilities have a greater importance when understanding the clients needs, careful customer
managers are owners of the firm, the project manager is analysis, analysing the products market, understanding
inexperienced and has a fixed reward, and when the the company and its goals and product differentiation.
CEO does not have a college graduation, and
competition is a more important consideration when the REFERENCES
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217
218
ECONOMIC EVALUATION OF WIND POWER PROJECTS: AN

INTEGRATIVE PERSPECTIVE WITH LCOEwso METHODOLOGY
Wagner Sousa de Oliveira,1*, Antonio Jorge Fernandes2 and Joaquim Jos Borges Gouveia2
1
2
Department of Economics, Management and Industrial Engineering, University of Aveiro, Country Portugal
* Corresponding author: [email protected], University of Minho, Campus de Azurm, 4800-058, Country Portugal
KEYWORDS In economics view it is necessary that the project could

Economic Analysis, Wind Power Projects, LCOEwso remunerate its costs and create profits for investor as
methodology well as any other economic agent involved. In the other
hand, in engineering aspects, the project must be size
ABSTRACT according to its equipment, utilities and machinery used
in the power station. To optimize a wind farm, each
Economic evaluation of power projects in case of aspect and typical assumption must be challenged and
Renewable Energy Projects (REPs) present different carefully evaluated. The challenge in the evaluation has
approaches and perspectives. There is an exhaustive list been determining the life-cycle economic implications
of authors, institutions about economic evaluation of aspects such as lost availability, losses at full load,
methodologies and approaches applied to energy and no-load losses so they can be included in the design
projects. This article presents the LCOEwso model process. Three economic factors condense the
proposed for economic evaluation of (onshore) wind complexities of the wind farm business model into a
farms as a new tool applied for an efficient planning of form that can be conveniently used in simple
this type of Renewable Energy Technology (RET) spreadsheet calculations to optimize techno-economic
which is one of the key-drivers for REPs. Wind energy power plant for maximized profitability (Maddaloni,
is one of the most potent alternative renewable energy 2005). These factors can be determined from the unique
technology, however, the economics of wind energy is economic characteristics of a specific project, including
not yet universally favorable to place wind at a wind regime, cost of money, tax treatment, and expected
competitive platform with coal and fossil fuels power project return on investment. Wind energy investment
plants. Economic evaluation models of wind projects decisions are driven by economics, not necessity. The
developed are based on NREL/LCOE methodology can wind farm must have the lowest possible total life-cycle
allow investors, developers and related-professionals to cost for the project to maximize its economic potential.
better plan their REPs, as well as provide valuable A specific design choice may have a complex effect on
insight into the areas that require further development to the project financial performance, affecting capital
improve the overall economics of wind energy projects. costs, taxes, insurance, energy revenue, maintenance
costs, and government subsidies. A method is required
INTRODUCTION to simplify the calculations so that alternate design
Interest in the use of renewable energy sources has proposals may be compared and an optimal solution
grown dramatically during the last decade, largely as a chosen based on the specific economic and engineering
reaction to concerns about the environment impact of factors of the particular wind farm project.
the use of fossil and nuclear fuel. However, the subject
of renewable energy is of far wider interest than to ECONOMIC EVALUATION OF WIND ENERGY
environmental issues alone. The use of fossil and PROJECTS
nuclear fuels is so central to industrialized societies that There is not a single price and cost of energy for wind
any examination of the difficulties they cause or their farms. Both depend on the location, size and number of
potential solutions raises a wide range of issues: of turbines, in addition to being influenced by political
technology and design, politics, social structure, incentives or subsidies granted by governments. The
economics, planning and even history. This is an area in initial investment costs cost of equipment, feasibility
which there are many views, of varying degrees of study, installation, and O&M are essential to determine
insight and expertise, but little certainly. the final cost of the technology. In general, the main
variables that make up the production cost of wind
219
energy are the investment costs of fuel and operations cost of wind power. However, this fact does not
and maintenance (Morthorst & Chandler, 2004; guarantee that a specific wind project generates power at
Wizelius, 2007). In the case of wind power there is no a competitive cost level. The capacity to optimize
dependence of the cost of fuel, but the investment cost is production costs depends on a number of other factors
still higher than that of conventional sources. However, (Valentine, 2011). El-Kordy, Badr, Abed, and Ibrahim
the costs of wind farms are decreasing, indicating that (2002) the economic evaluation of energy systems
this trend is likely to continue due to several factors such strongly depends on the four cost factors: capital cost;
as the development of larger turbines and more efficient, maintenance cost; fuel cost; and external cost, when
technological advancement, reduction in the cost of considered. Fuel and external costs are sensitive to fuel
O&M, among others. type and efficiency of the used system. Economic
With regard to wind energy production, evaluation of parameters such as discount, inflation and escalation
renewable energy projects, it is also needed to consider rates, deeply affects the evaluation. Future sums of
other factors, such as potential exposure from this money must be discounted because of the inherent risk
source in the wind resources worldwide, especially in of future events not turning out as planned, the present
regions where wind speeds are expressive. As the output worth method being considered as a suitable tool for
power is extremely sensitive to wind speed, variability comparing the different alternatives.
significantly impacts on financial investments and O&M
costs. Given to this, it is highlighted the importance of An Overview of Economic Evaluation Methods
developing evaluation methodologies for economic and Applied to Wind Power Projects
financial evaluation and management for energy projects
considering the uncertainties associated with this type of A techno-economic analysis of electricity production
technology (EWEA, 2009). from wind energy made by Arslan (2010) discuss about
On the other hand, the wind energy system and green Life-Cycle Cost analysis for onshore wind farm
energy markets have some inherent features that should connected to a grid which essentially includes two main
be taken into consideration. As renewable energies have components, which are the investment and operations
been receiving supports by governments incentives and maintenance (O&M) costs. The investment cost
such as Production Tax Credits (PTCs), Modified includes the costs of the turbine, foundation, grid
Accelerated Cost Recovery System (MACRS) and connection, and civil work. The environmentalist
others finance supports which become wind energy economists maintain that the real cost of a process must
technology competitive comparing to conventional ones be calculated by adding to the investment and
and other renewable energies technologies. However, operational costs the cost of the damages to both human
given the fast growth of wind power during the last health and nature.
decade and the expectations for the future, wind power Zhang, Chowdhury, Messac, and Castillo (2010)
penetration levels may increase to levels where introduce a new concept for economic evaluation of
engineering and economic evaluation for this kind of wind farms. Its formulation is based on cost of energy
system starts to be more and more necessary. (COE) optimization. The result showed that (i) the
The Levelized Cost Of Electricity (LCOE) is one of the profitability is particularly sensitive to changes in the
most important indicators for evaluating fiscal capital cost, the capacity factor, the electricity escalation
performance of power supply systems such as Wind rate, and the initial installation cost; (ii) the profitability
Energy Conversion System (WECS). LCOE is a is slightly less sensitive to changes in the O&M cost; and
technique applied by the techno-commercial analysts to (iii) the impact of the turbine rated power and the
calculate the unit cost throughout the economic life of inflation rate is limited.
the project. The levelized cost for WECS can be Nouni, Mullick, and Kandpal (2007) developed the
describe as the ratio of the total annualized cost of the levelized unit cost of electricity (LUCE). LUCE is one
WECS to the annual electricity produced from the of the commonly used indicators for financial
system. performance evaluation of renewable energy based
The adoption of standardized methodology, such as decentralized power supply systems. Total annualized
NREL/LCOE for calculating the cost of wind energy cost is calculated by taking into consideration the capital
projects is necessary in the efficient management of costs of the different sub-systems of the SWEG project
wind farms. Some approaches can be used for economic and its annual operation and maintenance cost.
assessment in various contexts, to reflect the criteria and The NREL (1995) compiled a Manual for the Economic
priorities of different economic agents involved in the Evaluation of Energy Efficiency and Renewable Energy
venture. The choice of wind power system has the Technologies that provides guidance on economic
greatest impact on the cost of wind power produced. evaluation approaches, economic measures, while
The link between wind turbine production capacity and offering a consistent basis on which analysts can
production cost stems partly from technical economies perform analyses using standard assumptions for each
of scale. In addition to technical economies of scale, case. It not only provides information on the primary
there are production economies of scale that reduce the economic measures used in economic analyses and the
220
fundamentals of finance but also provides guidance

focused on the special considerations required in the The LCOEwso can be calculated within the following
economic evaluation of renewable energy projects. formula [$/kWh]:
Oliveira (2010) makes an overview about the indicators
of attractiveness and risks like Simple Payback (SPB), LCCCM WF LRCM
LCOEwso O&MWFCM RCM WF REPIM (1)
Discounted Payback (DPB), Net Present Value (NPV), LCPM WF
Internal Rate of Return (IRR), Benefit-to-Cost Ratio
(BCR) and Required Revenues (RR). Also are discussed We highlight each part of this formula is composed by
about some indicator of cost analysis in energy projects several other equations, in order to get the inputs and
just like LCOE, Total Life-Cycle Cost (TLCC), Net performance some needed calculations. The
Present Cost (NPC), Levelized Electricity Production parameterization is done by official values published by
Cost (LEPC) and Unit Present Average Cost (UPAC). A scientific renewable energy community and key market
simulation studied with these indicators concludes that players.
they must be used as tool kit for wind energy project
economic evaluation. The indicator studied is not THE LCOEwso APPLICATION
recommended to be applied alone, better combine the
indicators in function of the evaluation objective. In order to demonstrate the new methodology we
According to Magoha (2001) the economic evaluation considered the clusters of variables to be analyzed in the
of wind energy project, a variety of methods can be LCOEwso methodology proposed:
adopted: their accuracy is strictly related to the type of
1. Wind speed ( w ) the energy production cost is
the WECS technology and its application for each strongly dependent on the average wind speed. As an
power plant (e.g. whether it is for remote autonomous example, the energy production cost at an average
use or for grid connection). wind speed of 6.5m/s was twice as high as the cost
for an average wind speed of 10m/s. It was also
A Proposed Methodology: The LCOEwso found that the energy production cost decreases
The economic evaluation methodology proposed, also when the power output of the wind farm increases
called Economic Optimization Algorithm Proposed (Lundberg, 2006). There is clear evidence about the
(EOAP=>LCOEwso) developed by Oliveira (2013). effect of the wind speed at the cost of energy
This methodology based on NREL/LCOE is structure produced in WECS.
into six main modules: Wind Farm Life-Cycle Capital 2. Wind turbines layout (Lwt) the wind turbines
Cost Model (LCCCMWF); Wind Farm O&M Cost Model layout has direct impact on wind farm production
(O&MWFCM); Levelized Replacement Cost Model and costs. Many researcher discusses the most
(LRCM); Wind Farm Removal Cost Model (RCMWF); factors that usually affect wind turbines location are:
Renewable Energy Public Incentive Model (REPIM) (1) optimization of energy production and COE
and Wind Farm Life-Cycle Production Model output; (2) turbines loads; (3) noise emissions and
(LCPMWF). Each of these models was integrated into (4) visual impact (Gonzalez, Rodriguez, Mora,
sub-models, as shown in Figure 1. Santos, & Payan, 2009; Payan, Gonzalez, Rodriguez,
Mora, & Santos, 2011; Zhang, Chowdhury, Messac,
& Castillo, 2012).
3. Operations and Maintenance management
(O&Mmanag) O&M management aims at improving
the availability of the systems and reducing the
overall maintenance cost (Ding & Tian, 2012). This
variable can be also classified into scheduled
maintenance and unscheduled maintenance.
4. Energy policy instruments (Epi) a strong focus on
capacity installations might result in the construction
of projects with little productive efficiency.
Production incentives, in contrast, help to specially
stimulate the development of efficient projects,
resulting in a higher output of renewable energy per
supporting capital involved (Enzensberger,
Wietschel, & Rentz, 2002).
In order to run and and understand the impact of these
Figure 1. LCOEwso methodology scheme in block clusters of variables on LCOEwso we run several
diagram for wind farm economic evaluation proposed by simulations. We have done 900 interactions within the
Oliveira (2013). cluster of variables, considering 3 different sites for a
221
hypothetical 50 MWe onshore wind farm. Table 1 a) Sites with suitable mean annual wind speed (e.g.
shows the technical configuration of the wind power greater than 4 m/s) at the hub-height of the WEC
project. system analyzed;
b) We have considered sites are further away from
residential settlements than other areas. Therefore
any possible impacts that the wind farm might have
on such settlements are expected to be small;
c) Annual constant mean wind speed and direction: the
annual mean wind speed is constant throughout the
simulations and the wind speed direction is fixed
with respect to the farm layout. If another wind
direction is wanted, a new simulation model must be
produced with a rotated layout;
d) The wind distribution and frequency are variable
during the whole lifetime of the power plant;
e) Climate data used for simulations, such as, wind
speed, atmospheric pressure and air temperature are
For the simulations, a flat area was considered for the constant during the lifetime of the wind farm for the
development of hypothetical wind farm in sites in three different sites chosen;
Brazil, Canada and Portugal. A total of 15km2 area is f) The wind turbines are considered to be spaced in a
considered for the development of wind farm of 50MW e way to minimize turbine-to-turbine interference in
capacity. The wind farm is designed using 2000kW size the wind flow (wake and array effects);
wind machines by Vestas at a maximum hub-height of g) We have considered the same wind turbine
105m high. Different wind farm layout conditions are technology during 25 years of lifetime of the wind
defined and considered for simulations: farm operation and for each site chosen the
availability of the same product (wind power plant
1. The 5D/4D layout: the default wind farm layout with equipment);
5 rotor diameters (5D) distance (450m) between the h) Proximity of the site to the electric grid should
turbines and 4D between the rows (360m); preferably not exceed 3km; and accessibility of the
2. The 5D/7D layout: an alternative wind farm layout site, in order to avoid expensive road construction
with 5 rotor diameters (5D) distance (450m) between etc., must be guaranteed;
the turbines and 7D between the rows (630m); i) For each year of operation, different capacity factors
3. The 5D/10D layout: another alternative wind farm are expected, due to the dynamic nature of WECS,
layout with 5 rotor diameters (5D) distance (450m) and in particular, a wind farm analyzed in three
between the turbines and 10D between the rows different sites, during the simulations procedures;
(900m); j) The wind farm production are defined in Wind Farm
4. The 6D/12D layout: the final alternative wind farm Life-Cycle Production Model (LCPMWF);
layout with 6 rotor diameters (6D) distance (540m) k) The Power Delivered (PD ) is exported (sold) to the
between the turbines and 12D between the rows grid, so AEPavail (Annual Energy Production
(1080m). available) is the total power output from the
hypothetical wind farm simulated;
The wind turbines are spaced in a way to minimize
l) Wind farm losses (for production phase) changes
turbine-to-turbine interference in the wind flow. The
linearly with power level output (AEPavail);
exact spacing required depends on the size of the turbine
m) We considered the environmental impacts as
selected, with increased spacing used for the larger
minimal as possible for the wind farm projected,
turbines. For wind measurements are usually made at a
specially related to the local fauna and flora.
height different than the hub height of the wind turbine.
The wind speed is extrapolated to the hub height by So, as result we got Table 2
using the well-known 1/7th wind power law. The wind
speeds for simulations procedures at hub-height of 105m
was also done considering the 1/7th wind power law, as
described by Petersen, Mortensen, Landberg, Hjstrup,
and Frank (1998). Table 2 shows the wind speed at 10m
and 105m (calculated) high for Aracati (Brazil), Corvo
Island (Portugal) and Cape Saint James (Canada). We
also consider for simulations procedures, the following
aspects:
222
and Cape Saint James (Canada). Source: Own

elaboration
For simplification, the economic and financial issues of

the wind project simulated the assumptions, constraints
and limitations are related to O&M costs and
project/turbine availability and other losses; financing
structure and costs; project lifetime, income taxes,
decommissioning rates and asset depreciation.
When we compare the wind profiles during one year,

according to the data shown in Table 2, some evidences
must be taken in relation the wind speed behavior in an
a yearly basis. The annual wind speed behavior in
Aracati (Brazil), Corvo Island (Portugal) and Cape Saint
James (Canada) and we highlight the following aspects:
1. Both Corvo Island (Portugal) and Cape Saint James We considered somo economic-financial assumptions
(Canada) present a similar wind speed behavior for the simulation of the LCOEwso:
during the year analyzed;
2. Wind speed series of Aracati (Brazil) and Cape Saint a) The Power Purchase Agreement Rate (PPAR)1 is
James (Canada) make interception in August and considered different for each site, according to the
September. The wind speeds are 9.6 m/s and 9.7 m/s energy policy by the country (Brazil, Portugal and
in August for Aracati (Brazil) and Cape Saint James Canada). The PPAR is defined in $/kWh;
(Canada), respectively. The same situation happens b) We have considered the 25-year assumed
in September the wind speed of 10.1 m/s and 10.4 project/economic life in all scenarios used in
m/s for Aracati (Brazil) and Cape Saint James simulations;
(Canada), respectively; c) The interest, inflation, debt and discount rates within
3. The behavior of wind speed in Aracati (Brazil) and debt ratio are constant during the economic lifetime
Corvo Island (Portugal) present similarities. In June of the wind project;
and October we can notice a monthly wind speed of d) The financing structure of the wind project is
7.9 m/s and 7.1 m/s and 9.7 m/s and 8.9 m/s, constant during the economic lifetime of the wind
respectively. project too;
The AEPavail and wind speed (vwc) have a direct as e) O&M costs and wind farm availability are also
specific relation the power output is the cube of wind conditioned to Operations and Maintenance
speed and in those three different wind speeds (wind management (O&Mmanag);
resources) impacts on wind farm production as well as f) O&M costs2 are accounted in in Wind Farm O&M
the wind speed increases. Cost Model (O&MWFCM);
g) The cash flow model adopted for economic analysis
by simulations is based on Welch and
Venkateswaran (2009);
h) All monetary values used to calculate LCOEwso are
converted3 to 2010 US$ and updated with the
inflation rate defined, in order to uniform the input-
output values presented in this paper;
1 A Power Purchase Agreement (PPA) is a long-term agreement

between the seller of wind energy and the purchaser.
2 Shipping and warehousing costs for parts are not included. Given
the variability and uncertainty of parts costs, and the number of

options for warehousing spares, we may reasonably assume that
shipping costs are included in the parts costs.
3 Exchange rates of 1.3252 (EUR/USD); 0.9998 (CAN/USD); 0.5986
Figure 2: Total AEPavail during the lifetime of 50MWe (BRL/USD); based on rates on December 31, 2010. Available at
wind farm in Aracati (Brazil), Corvo Island (Portugal) http://www.oanda.com/currency/converter/.
223
i) Initial capital costs of the wind project (yr=0) are Initial Results Summary of LCOE wso Notes
accounted in Wind Farm Life-Cycle Capital Cost
Model (LCCCMWF); 67.6603 yr 1 70.7762 yr 15
j) Capital costs related to major review of the wind 67.8118 yr 2 69.8077 yr 15
power system are accounted in Levelized
68.0210 yr 3 69.9988 yr 16
Replacement Cost Model (LRCM);
k) Decommissioning costs are included in Wind Farm 68.1822 yr 4 70.1987 yr 17
Removal Cost Model (RCMWF); 68.4349 yr 5 70.3955 yr 18
l) The policy instruments that impacts on COE are 68.6241 70.7564
yr 6 yr 19
defined in Renewable Energy Public Incentive
Model (REPIM). 68.8710 yr 7 70.3686 yr 20
The calculations are done and the final results are 69.0863 yr 8 70.5514 yr 21
compared with referenced values. We considered a
69.2587 yr 9 70.8222 yr 22
range for the LCOEwso calculated in order to be
numerically validated the methodology proposed and the 69.4873 yr 10 71.1051 yr 23
technical and economic aspects of the power plant (wind 69.7236 yr 11 71.3664 yr 25
farm) and institutional conditions (current energy 70.0026 yr 12 69.6792 Mean
policy) and climate conditions give us a large range. The
70.2282 yr 13 1.0823 SD
NREL has estimated the LCOE for onshore wind
energy for US and Europe, excluding incentives, an 70.4423 yr 14 -0.4514 (skewness)
average LCOE2010 of USD 71/MWh, as we can see in 69.6792 US $/MWh valid !
Figure 3. LCOE wso
0.069679 US $/kWh
Figure 4: Initial results of LCOEwso for Aracati (Brazil).

Source: Own elaboration. Note: numbers in gray represent
results from LCOEwso methodology calculations
Initial Results Summary of LCOE wso Notes

73.0793 yr 1 78.4116 yr 15
Figure 3: Estimated LCOE for wind energy between 73.4776 yr 2 77.5903 yr 15

1980 and 2009 for the United States and Europe 73.7436 yr 3 78.1098 yr 16
(excluding incentives). Source: Lantz, Wiser, and Hand
74.0885 yr 4 78.5637 yr 17
(2012)
74.4286 yr 5 79.0704 yr 18
The results of the simulation of LCOEwso are presented
in Figures 4, 5 and 6. 74.8887 yr 6 79.5598 yr 19
75.1794 yr 7 77.6767 yr 20
75.4693 yr 8 78.1898 yr 21
75.9694 yr 9 78.6500 yr 22
76.3656 yr 10 78.9953 yr 23
76.6792 yr 11 79.3896 yr 25
77.1795 yr 12 76.8138 Mean
77.5814 yr 13 2.0085 SD
78.0080 yr 14 -0.4651 (skewness)
76.8138 US$/MWh valid !
LCOE wso
0.076814 US$/kWh
Figure 5: Initial results of LCOEwso for Corvo Island

(Portugal). Source: Own elaboration. Note: numbers in
gray represent results from LCOEwso methodology calculations
224
Initial Results Summary of LCOE wso Notes cost method analysis has been developed that can
simulate the major technical and economic aspects of an
84.2996 yr 1 94.3718 yr 15 onshore wind farm to a degree sufficient to be of use in
84.9743 yr 2 94.0482 yr 15 pilot and other preliminary studies and possible other
RETS (e.g. solar power, hydropower, etc.).
85.6626 yr 3 94.8532 yr 16
Some hurdles of LCOEwso are listed as: 1. There is no
86.1247 yr 4 95.7496 yr 17 standard LCOE to be reference for this kind of
86.8183 yr 5 96.6483 yr 18 research. There is not a single price and cost of energy
87.5429 97.4272 for wind farms. Both depend on the location, size and
yr 6 yr 19
number of turbines, in addition to being influenced by
88.1156 yr 7 93.9167 yr 20 political incentives or subsidies granted by
88.8127 yr 8 94.6168 yr 21 governments. These facts will affect the generalization
done which criterion is the minimum LCOE reached
89.7238 yr 9 95.6632 yr 22
from the results in the studies done; 2. It is not possible
90.3120 yr 10 96.4289 yr 23 to harmonize all input assumptions. A large number of
91.1318 yr 11 97.4427 yr 25 assumptions have to be made before model is carried
91.8409 yr 12 91.7081 Mean out. Even though the input assumptions have been
harmonized to an extensive degree in all sub-models, it
92.5685 yr 13 4.1890 SD
has not been possible to reach full harmonization. The
93.6087 yr 14 -0.3343 (skewness) reason is that the sub-models are designed differently.
91.7081 US $/MWh valid ! Some of these differences make it impractical to fully
LCOE wso harmonize model input without impacts the functionality
0.091708 US $/kWh
of the sub-models inter-linked, and some of these
differences significantly affect model results in general;
Figure 6: Initial results of LCOEwso for Cape Saint James 3. Recognize the locational differences for the model
(Canada). Source: Own elaboration. Note: numbers in proposed as universal methodology for economic
gray represent results from LCOEwso methodology calculations
evaluation of wind farms. As for locational
differences may involve e.g. how are considered and
practiced some rules, e.g. energy markets, policy
instruments and taxation. This is strongly influenced by
CONCLUSIONS AND FURTHER RESEARCH the energy history of a certain place. Models based
on countries where a certain technology to the existing
As far as investment decisions when dealing with
date has played an important role tend to look
uncertainty of future events that may not be totally
generously on the prospects for technology also in the
avoided. The decision is based on estimates and
future.
assumptions about future developments and future states
Figure 7 shows the final LCOEwso results for the sites
(prices, volumes, market sizes, regulations, etc.). The
selected for the hypothetical 50 MW e onshore wind
reality may eventually be less favorable than the original
farm.
estimate of project. It is not a productive strategy for
evaluating investments working hypotheses, very
negative. The objective of the investment should not be
too pessimistic, but to evaluate adequately the
uncertainties involved in analyzing and quantifying this
uncertainty in some analytical way. One rule applies to
all methods of economic evaluation of projects and costs
for the private view, if two projects generate the same
results in the future, but are associated with different
degrees of uncertainty, the more uncertain project will
be considered less attractive. There is an inverse
relationship between uncertainty and attractiveness of Figure 7: Final values of LCOEwso for Aracati (Brazil),
the project. Like any other project, the REPs should Corvo Island (Portugal) and Cape Saint James (Canada).
ensure financial returns to investors and managers. The Source: Own elaboration.
evaluation is not limited to assessment of financial
attractiveness, but should include several other factors. The results of simulations done with the variables
An analysis of the fundamentals of LCOEwso selected (vwc, Lwt, O&Mmanag and Epi) for validation the
methodology results a well-considered approach of cost LCOEwso methodology confirm the impact expected on
modeling within the LCOE/NREL methodology that is the cost of energy produced by the hypothetical wind
worldwide used for cost-analysis of RETs. LCOEwso as a farms at Aracati (Brazil), Corvo Island (Portugal) and
225
Cape Saint James (Canada). As expected, changes in compare with other types of economic controls
wind speed (vwc) have such a significant impact on the currently used in the wind market sector;
LCOEwso in function of the AEPavail. Table 4 shows the 8. Analysis of elasticity of LCOEwso in function of the
main results from the simulations, but the strong cost of financing variations in the financing period
correlation confirm the expected impact of this variable. for the same wind farm;
9. Studying the size effect of wind farms on LCOEwso,
as many studies suggest that a large wind farm is
more economical than a small one;
10. In LCOEwso only internal costs were considered, as
externalities (environmental & social impacts) are
analytically different from internal costs, would be
interesting modify the proposed methodology and
compare the final values of LCOE (Simas & Pacca,
2013);
LCOEwso has been applied for the economic analysis of 11. Studying the lifetime effect on LCOEwso for
the wind farm in three different sites (Brazil, Portugal determining the optimized lifetime of a certain wind
and Canada). Although the simulation and validation of farm as have been studied by Ohunakin, Oyewola,
a model just represents a single concept, the results of
and Adaramola (2013).
this cost model are unique for each site simulated.
LCOEwso proved a good basis to compare the effect of
ACKNOWLEDGEMENTS
data (parameters) considered and to assess the effect of
variations that affect both AEPavail and LCOE. We This work was supported by the State Government of
should consider as critical when interpreting the trend Maranho through Foundation for Research and
of levelized production costs in a parameter variation Technological and Scientific Development of Maranho
analysis for making a decision about the power plant (FAPEMA) Brazil under PhD scholarship (BD-
(project) analyzed. The core of the LCOEwso model can 00007/08)
be simplified and does not need to specify the cost
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228
EVALUATION OF THE ECONOMIC VIABILITY OF

PURCHASING AN ELECTRIC VEHICLE IN PORTUGAL
Jos Fontanhas,1* Jorge Cunha,1 Paula Ferreira1

1
* Corresponding author: [email protected], University of Minho
KEYWORDS present characteristics that are seen as disadvantages: its

Electric vehicle, Investment appraisal, Risk analysis low autonomy and higher purchasing cost, when
compared with a conventional vehicle. Due to the low
ABSTRACT maturity and high prices of its batteries, their prices are
still above of what is considered as affordable.
Every day news show that the environment is being
With this study, it is intended to evaluate the economic
destroyed due to human intervention. Green house gas
viability of an acquisition of a electric vehicle in
emissions have been increasing excessively and much
Portugal. It is one of the European countries that still are
hasnt been done to avoid this. With this scenario, electric
under a financial aid program and that face a severe crisis.
vehicles appeared many years ago and were always seen
For this evaluation, a model, in which two vehicles that
and presented as a green solution. However, they have
exist in Portugal were compared, was used: Renault
been repeatedly put aside in detriment of internal
Fluence (Dynamique version) and Renault Fluence Z.E.
combustion engine vehicles.
(Expression version electric vehicle). The vehicles have
Portuguese governments have already acknowledged the
the same characteristics with the exception that the
importance of this matter and have already invested, as
second has an electric motor instead of an internal
well as other European and American countries, on this
combustion engine (ICE). For this comparison, criteria
technology. It is noticeable, due to the issues previously
such as the fuel and electricity cost, vehicles
referred, that the interest on this technology has been
consumption, taxes or the purchasing of a home charger
increasing. Therefore, it is important to evaluate if it is
for EV were considered. Following the approach of
viable to purchase an electric vehicle when compared to
Prudhumme and Koning (2012), the goal was to
a conventional vehicle, in the Portuguese context.
determine what is the excess cost for the consumer, for
INTRODUCTION the society and the impact on CO2 emissions with the
acquisition of an EV. Furthermore, the history of the EV
We are living in a technologic revolution. Every day, new was also briefly reviewed. It is shown that this is not the
products, improved technologies or new discoveries are first time that the EV is being discussed. It has appeared
announced. With this, both the economies and almost two centuries ago but it has continuously been
greenhouse gases (GHG) emission have been growing, turned down. Also, its advantages and disadvantages are
resulting in an increasingly severe environmental brought to discussion ahead.
degradation. The remainder of the paper is organised as follows.
In the USA, around 30% (USEPA, 2011) of its GHG Section 2 explores EV history, running from its
emissions comes from the transport sector, while in the appearance to the present. Section 3 presents the
European Union this value is roughly 20% and in Economic Model developed and where the short and long
Portugal 25,1% (PORDATA, 2011). It is foreseen that term parameter analysis and a risk analysis were
these values will increase in the future, and may double included. In the final section, conclusions taken from the
by 2050, if measures are not put in action (Fulton, model are presented.
Cazzola, & Cuenot, 2009). Hence, finding alternatives to
the current transport solutions is crucial for a sustainable ELECTRIC VEHICLE HISTORY
future. In this regard, the electric vehicle (EV) emerges
Worldwide, humans are becoming more and more
as the greener solution for this problem. Several
dependent on their vehicles for any travel. Based on this
automakers have already presented their electric vehicles
fact, EVs are presented as green solutions, since they
and many more are to come.
allow to overcome the main problem caused by
EVs are seen as the vehicle of the future because they are
conventional vehicles, its excessive emissions. Even
emissions free (while it travels). Besides this, it has the
though this problem is being addressed now, it exists for
same features as a conventional vehicle, without part of
its costs or environmental disadvantages. However, EVs
229
a long time, as well as EVs. However, it has always been to stabilize the balance of trade. Recognizing EVs as
put aside and never could compete with other vehicles. alternatives to ICE vehicles and as a solution for many
problems, lead many countries to invest huge amounts of
EVs appearance capital on this technology. Due to its unique
The first EV was built in 1834. Its creation was due to characteristics, EVs might become the vehicle of the
European and North American scientists. However, future. However, because of its history, it still is too early
around 1895, the USA was the only country that invested to predict whether and when EVs will succeed.
more seriously on this technology (Chan, 2013). Back
then, when compared to conventional vehicles, EVs were ECONOMIC MODEL
much more silent, didnt emit any gases and didnt As mentioned before, the economic model developed in
vibrate like the steam/combustion competitors engines. A this paper was based on the work of Prudhomme and
few years later, the first vehicle to reach a speed of Koning (2012). The model is meant to determine the
100km/h was created. Curiously, it was an EV (Chan, consumer excess cost (CC) (Equation 1), the excess cost
2013). It is estimated that in 1900 roughly 4,000 cars for society (CS) (Equation 2), and the possibility of
were circulating in the USA and one third of these were increasing or decreasing the CO2 emissions (G)
electric vehicles, what demonstrates the impact that it had (Equation 3), which it will be referred onwards as CO2
back then. gain. In the consumer excess costs are considered the
value that the consumer would have to pay for the EV
Decline of the EV (CVE), and for the vehicle with ICE (CVM), assuming
Between 1790 and 1860, the population in the USA grew from the beginning that the cost of the EV will always be
roughly 3,000%, reaching 6 million inhabitants. Roads higher than the ICE vehicle.
between the main cities began to be created and due to
this development vehicles with a bigger autonomy were CC = CVE CVM (1)
needed. This happening turned EVs path even rougher.
Also, the discover of new oil wells decreased the gasoline Table 1 sums up all the parameters considered for the
prices which didnt made it easy for EVs. Henry Ford estimation of CVM and CVE.
presented, in 1908, his black Ford T that deteriorated the
fragile situation of the EV. Table 1 CVM and CVE Analysis parameters
Without any relevant opposition and with the increasing Adapted from Prudhomme and Koning (2012)
appearance of oil stations, the internal combustion engine
CVM CVE
vehicles proliferated. In 1924, there were only registered
Acquisition cost Acquisition cost
381 electric vehicles in the USA, that were rather Fuel cost Home charger cost
insignificant when compared with the over 3 million ICE Fuel taxes Battery cost
vehicles (Cowan & Hultn, 1996). Other fuel costs Electricity cost
Local pollution costs
EV reappearance
In the 1970s, the EV was pointed out as a possible The costs for society come from the economic costs plus
solution for the oil crisis in the USA. CO2 emissions were all the externalities, such as fuel taxes (which include the
also rapidly increasing and the growing energetic needs Special Tax on Oil Products, ISP, and Value Added Tax,
led to the search of viable alternatives. 160 million VAT) minus the local pollution costs. The society costs
dollars were invested in the development of batteries and are a result of an acquisition of an EV and an ICE.
EVs. Due to the need for immediate answers for the
crisis, wasnt granted much time for the development of CS = CSVE-CSVM (2)
this solutions leading to the failure of the programme
(Cowan and Hultn, 1996). The high costs and the low The gases emissions are also calculated (G) and it is
autonomy removed whichever interest might have assumed that EVs emissions (GVE) are smaller than
existed in that time. Japan, one of the first countries to ICEs (GVM).
invest on the EV, saw the first results more recently, in
1997, where Toyota sold roughly 18,000 Prius. G = GVM GVE (3)
EV nowadays The fourth criteria demonstrate the marginal cost of not

Prudhomme and Koning (2012) refer that in 2010 emitting a ton of CO2 (CT) (Equation 4):
several new EVs were present by the majority of the
automakers. Nissan LEAF introduction increased the CT = CS / G (4)
total of EVs circulating around the world to 50,000
vehicles. The emissions that were considered are relative to the
It might be a coincidence the fact that when huge crisis emissions of the vehicle during its trips. The first two
appear, every country and government tries to find new criteria were calculated using the present value of the cost
ways to balance its accounts. One way to promote this is flow during the investment period using as the discount
230
rate the standard rate utilized in the European Union by taxes (44%), storage, distribution and
(r=5%) (URA - DGPRCE, 2003). commercialization (10%) and biodiesel incorporation
For this analysis, two criteria associated to the utilization (2%). Given that these values are relative to the year 2012
of these vehicles were considered: the total distance and considering an increase of 5%/year, the diesel price
travelled (d) and its life cycle. After research, it was to consider is 0.675/litre (PC), to which are added the
concluded that in Portugal it is possible to acquire taxes, VAT - 23% - and ISP (Special Tax on Petroliferous
different batteries with different purchase prices for Products) 0.36753/litre. ISP is a tax defined by the
different levels of utilization. The first kind of battery has government that corresponds to 367.53/1,000 litres
a cost of 79 per month and allows its user to travel for (RMRCFF, 2013). Besides these values, it is still needed
10,000km (d) per year. The second hypothesis has a cost to consider costs associated to the commercialization of
of 122 per month and tolerates a utilization of the EV the fuels. This value was defined as being 0.15/litre (T),
for 25,000km (d) during a year. This difference allows without any yearly changes.
the analysis of the two vehicles in different circumstances Regarding the price of electricity, it was decided to
and with similar conditions, in an attempt to prove if it is consider the average price in 2012. This value was
better for the user a bigger or lower utilization of the EV. 0.2063 /kWh and it already included taxes (DGEG,
For the ICE vehicle cost, its initial purchase cost and 2013). This value is one of the highest in Europe and
other costs associated with fuel consumption (like the represents only 43% of what the consumer pays. The
fuel costs, taxes and others) were considered. Regarding other 57% represent other costs linked to the network
the EV, it was also considered its initial purchase cost, maintenance, renewable energies and others.
the costs of renting the battery, the costs of consumed The local pollution costs considered were the same as in
electricity and the cost of installing a home charger. This Prudhomme and Koning (2012). This value is the result
was contemplated due to the fact that, even though of a French study, where the costs value in 2000 was
Portugal has a network of chargers spread across the considered as being 0.01/km. Reflecting a decrease on
country, it might not be able to supply all the demand in vehicle emissions, this value also decreases 4.5% per
case of massive utilization. Therefore, so that every user year, reaching, for year 0 in this model, the value of
can charge its car, and not depend uniquely on the current 0.0055 /km (CPL) (Boiteux, 2001).
chargers that exist, it was considered the possibility of For a better understanding of the impact of these
installing a home charger. particular vehicles in the environment, it is essential to
calculate these vehicles emissions. According to
Baseline case Prudhomme and Koning (2012), a litre of diesel oil
For the analysis, it was considered a timeline of 15 years, contains 2.6kg of CO2 (evm). Considering the assumed
where the vehicles were utilized for 10,000km and consumption for the Renault Fluence (5.2l/km), and
25,000km, according to the type of battery. It was also assuming that this vehicle travels for 10,000km and
considered a 5% social rate of discount, as stated before. 25,000km, the total amount of CO2 emitted by this
According to the data provided by Renault, the price of vehicle is 20,280 kg (20.3 ton.) and 50,700 kg (50.7 ton.),
the ICE vehicle is roughly 26,000 (PVM) and the EVs respectively. For the estimation of EVs emissions, it was
28,000 (PVE). Also, the former has a fuel consumption necessary to obtain the total amount of CO2 emitted
of 4.5 l/100 km (according to EEC standard N 93/116). during the production of the electricity that is consumed
The EV presents an electricity consumption of 140 by every user (APA, 2013; DPE, 1994-2011).
Wh/km. Both values are presented by Renault and Considering that in 2011 52,460 GWh were produced
represent the utilization of the vehicles in a controlled and 14,256.34 Gg of CO2 were emitted, it can be
environment and in specific conditions. However, when concluded that the amount of CO2 emitted per kWh is
they are working in considered normal conditions, its 246.55 g/kWh (c).
consumptions are rather different. Taking this into Concluding the model presentation, Table 2 summarises
account and following Prudhomme & Koning (2012), it all the parameters and values used for the study.
was estimated that the real consumption was slightly Based on these parameters, and assuming that these
higher than what was communicated (roughly 15% to values remain constant, it is possible to state that the
20%). Therefore, the consumptions considered were 5,2 acquisition of an EV in Portugal does not represent an
l/100km (yVM) for the ICE and for the EV 18 advantage for the average consumer, as it was a priori
kWh/100km (yVE). The annual cost of the battery rental expected and is in line with the findings of Prudhomme
is 948, for the first scenario, and 1.464 or the second and Koning (2012). Also, the cost per CO2 ton emitted is
one. very high, showing that theres still a lot of work ahead.
In Portugal the fuel prices are slightly above the As shown in Tables 3 and 4, the excess costs are still
European average (Europe, 2013). For this exercise, it considerably high, even though it is possible to conclude
was considered the average annual retail prices of the that higher the distance travelled by both vehicles, better
diesel oil, supplied by APETRO (Portuguese Association is the result for the EV.
of Oil Companies). This indicated that the diesel price
was 0.643 per litre, tax free, representing roughly 44% Sensitivity analysis
of the final price. The remaining percentage is distributed
231
If it is considered that the parameters will remain constant Table 2 Parameters

for the following years, the acquisition of an EV will not
PARAMETER VALUE
be viable and will not be able to conquer a significant
market share. As so it is very important to make a Total of years (t) 15
sensitive analysis in order to understand the impact of
Discount rate (r) 5%
changes in some critical parameters, as well as to identify
in what conditions the EV could be a viable option for Traveled distance (d/yr) 10,000
consumers. Following the suggestion of Prudhomme Diesel oil litre price (PC) 0.675
and Koning (2012) the sensitivity analysis was
performed distinguishing the short term impacts from the Internal Combustion Engine
long term ones. The justification for this reasoning is that Acquisition cost (PVM) in 26,000.00
it is most likely that changes in some parameters (e.g. fuel
or electricity prices) can happen in the near future, Vehicle efficiency (yVM) in litre/km 0.052
whereas the impact of changes in other variables (e.g. Fuel price without other costs (/litre) 0.675
EVs price and efficiency) will be felt in the long run.
Change in fuel price (%) 5%
Social rate of discount VAT (23%) 0.15525
The social rate of discount reflects the way as future
results must be valued in relation to the actual benefits Change in VAT(%) 0%
and costs. There are different opinions regarding the Special Tax on Petroliferous Products
0.36753
social rate of discount that must be considered depending (ISP)
on the type of project or the countries where they are Other fuel costs (T) 0.15
developed. In this particular case, the rate of 5% was
chosen, because it is a rate that its the standard rate for Changes in local pollution costs (%/year) -4.50%
EU financed projects (URA - DGPRCE, 2003). Local pollution costs (CPL) (/km) 0.0055
For the sensitivity analysis undertaken, a change of the
discount rate for 3% and 7% was considered. CO2 emissions (evm), in kg/lit 2.6
Considering this, it can be concluded that the acquisition Electric vehicle
of an EV in Portugal is most benefited by higher rates of
Acquisition cost (PVE) in 28,000.00
discount. In both scenarios, the reduction of CC and CS
are not significant, decreasing less than 10% (see Graph Home charger cost in 1,000.00
1 to Graph 4).
Battery rental (B) in /year 948
Fuel costs Vehicle efficiency (yVE) in kWh/km 0.18
Given the current economic instability, fuel prices
Electricity price (PE) /kWh 0.3163
fluctuate very frequently (BP, 2013). In this case, it was
considered an increase on the fuel price of 5% per year. Change in electricity price (%) 0%
If it is considered an even more uneven scenario, where
Amount of CO2 in electricity (c) in g/kWh 246.55
prices rise 10%, the difference between the studied
vehicles in all criteria increases in the second scenario. In
Table 3 10,000km results.
the first case, the excess cost for consumer rounds 6,000
whilst CS is roughly 2,000. In the 25,000km scenario, 10.000 KM RESULTS
CC and CS are approximately 5,000, and the cost per
Excess cost for consumer (CC) in 8,048.73
CO2 ton decreases almost 75% (see Graph 1 to Graph 4).
Excess cost for society (CS) in 8,358.68
Gain of CO2 (G) in tons 13.62
CO2 cost per ton in /t (CT) 613.56
Table 4 25,000km results.

25,000 KM RESULTS
Excess cost for consumer (CC) in 6,217.87
Excess cost for society (CS) in 6,992.74
Gain of CO2 (G) in tons 34.06

CO2 cost per ton in /t (CT) 205.32
232
much more meaningful percentages: CC decreases 75%

Fuel taxes and CS roughly 61%. Based on this results, it can be
Portugal is one of the countries with higher taxes rates on concluded that the viability of the acquisition of an EV
fuels and its increase is seen as not very likely to happen begins to be possible, given this small but impactful
in the next few years. In the chance it might occur, it was changes.
considered a 5% increase. With it the difference between
the baseline case and CC is not significant, decreasing Longer-term sensitivity analysis
3% and 9% in the first and second scenario, respectively. The following parameters are considered long term
Neither CS nor G are affected by this variation, because because it is not predictable that, in the upcoming years,
it only impacts the customers. they change in a significant way.
Electricity price EV acquisition cost

The rising price of electricity has an easily understood EVs are top notch in what concerns technologic
negative impact on CC and CS. In the first scenario, as it development. However, their batteries besides presenting
can be seen on Graph 1 and 3, it would increase both perceived low autonomies, are quite expensive. This fact
values nearly 1,500 and in the second one 3,500. This itself increases the price of an EV for values higher than
growth would also be noticeable on the cost per CO2 ton. a conventional vehicle. In this particular case, a reduction
of 20% in the acquisition price of Renault Fluence Z.E.
Excess cost for the consumer ()
decreases CC roughly 70%, just like CS, proving this that
a slight decrease on purchase price can turn EVs into
e)+f)+g) much more cost attractive vehicles.
g) EV efficiency increase
f) Yearly rental cost decrease Battery rental cost
e) EV acquisition cost decrease Considering a decrease on batterys rental cost of only
a)+ b)+ c) + d) 20%, the costs on the first scenario decrease about 25%
d) EV efficiency increase
and, in the second scenario, the impact of this measure
c) Electricity price increase - 5%
would represent a reduction of 50%.
b) Fuel taxes increase
a) Fuel prices increase
EVs efficiency
Discount rate - 7%
EVs efficiency is higher than a conventional vehicle.
Discount rate - 3%
However, it is not big enough to increase EVs
12 000,00 10 000,00 8 000,00 6 000,00 4 000,00 2 000,00 0,00 2 000,00
competitiveness. If it is considered an increase of 50% in
EVs efficiency, a reduction of 25%, in the first scenario,
Graph 1 Excess cost for consumer 10,000 km.
is verified on CS and CC, which is pretty reasonable. In
the second scenario, this value would decrease almost
Simultaneous changes
80%, proving that if this scenario is achieved, it would
All the changes considered for the different parameters
increase considerably the odds for EVs, which can be
caused slight variations on the final results. However, the
seen on graphs 2 and 4.
isolated occurrence of each one of those changes is highly
unlikely. Therefore, it is important to consider the
Combination of variables
occurrence of all the referred factors simultaneously. So
Just like stated before, it is important to consider the
it was studied an increase of 10% on fuel prices, 3%
simultaneous occurrence of changes in these variables.
increase on fuel taxes, 5% increase on electricity price
Therefore, considering a decrease of 20% on EVs initial
and an improvement on EVs efficiency by 10%.
price and battery rent and an increase of 50% on its
efficiency, the EV would become more cost effective. It
Excess cost for the consumer () can be seen in all graphs that, either for society or for
consumers, the mix of these three hypothesis is highly
e)+f)+g)
g) EV efficiency increase favourable to all parts.
f) Yearly rental cost decrease
e) EV acquisition cost decrease
a)+ b)+ c) + d)
b) Fuel taxes increase
Discount rate - 7%
Discount rate - 3%
000,0012
16 000,0014 000,0010
000,00 8 000,00 6 000,00 4 000,00 2 000,00 0,00 2 000,00 4 000,00 6 000,00
Graph 2 Excess cost for consumer 25,000 km.
In the first scenario changes of around 20% in CC and CS

and 10% in G were obtained. The other scenario shows
233
Excess cost for society ()

of the data, it was concluded that no clear distribution
could be used with guarantees that represents the price
e)+f)+g) evolution over time. As such, for simplicity, a triangular
g) EV efficiency increase distribution was used, requiring only the minimum,
e) EV acquisition cost decrease
maximum and the average value of the series. In this
a)+ b)+ c) + d) case, the minimum value was 32.8161/barrel and the
d) EV efficiency increase maximum 95.0338/barrel. These values correspond,
b) Fuel taxes increase respectively, to 47.08% and 136.35% of the average
a) Fuel prices increase value of 69.6979/barrel. Extrapolating these proportions
Discount rate - 7%
Discount rate - 3%
to the model used and taking into account 0.675/l as the
12 000,00 10 000,00 8 000,00 6 000,00 4 000,00 2 000,00 0,00 2 000,00 average value (baseline case value), it follows that the
maximum a liter of fuel will cost will be 0.9293/l and
Graph 3 Excess cost for society 10,000 km. the minimum 0.3178/l, which have been tested in both
scenarios.
Excess cost for society ()
Results
e)+f)+g) From the probabilistic risk analyses, it was concluded
g) EV efficiency increase
that, for the first scenario, it is impossible for the EV to
e) EV acquisition cost decrease compete with a conventional vehicle. The minimum
a)+ b)+ c) + d) values obtained are positive, what indicates that the cost
c) Electricity price increase - 5% of acquiring an EV will always be superior to the one of
b) Fuel taxes increase purchasing a conventional car. Nevertheless, in the
Discount rate - 7%
second scenario, there is a chance of this to happen
Discount rate - 3% (inferior to 5%), where the EV would cost less 2,000 for
12 000,00 10 000,00 8 000,00 6 000,00 4 000,00 2 000,00 0,00 2 000,00 the consumer and 870 for the society. Somehow, this
represents an optimistic view of the case. However, just
Graph 4 Excess cost for society 25,000 km.
like these values can favour the EV, theres also the
possibility of the difference helps the devaluation of the
Risk Analysis
EV. It is possible for the difference to grow to roughly
The values obtained on the previous analysis allow the
12,500.
reader to conclude about the impact that changes in each
parameter of the model has on the final results. If, for
CONCLUSIONS
example, the fuel price considered was unusually high, it
would harm the outcomes and no reliable analysis would EVs have recurrently been set aside and not seen as a
be obtained. However, this is a deterministic approach of good choice. The higher costs associated to it and its
risk. Therefore, in this subsection the results of a perceived low autonomy are the main reasons why its
probabilistic analysis of risk are shown. For that purpose, sales are so small. However, there seems to be a growing
the impact of two critical variables (electricity and fuel interest on this technology, as main automakers and
prices) was analysed. In particular, the impact of governments are investing on it and Portugal is also
fluctuations on those prices on the cost for consumer and trying to keep the pace.
for the society was assessed, based on Monte Carlo It is possible to determine that within the actual
simulations. These calculations were performed using circumstances, it is not viable to purchase an EV in
historical data regarding electricity and fuel prices and Portugal. Through the presented model, it can be said that
identifying the distribution that best fits the data. only if a set of parameters happen to change the EV will
In the case of electricity prices, values of MIBEL become more cost effective. Although in the next years it
Iberian Electricity Market were considered, for a time is less likely for this to happen. One can also conclude
range comprising last years electricity price evolution, that the higher utilization of the EV makes the acquisition
and a normal distribution was considered as the one that more profitable.
best fits the data. Therefore, it was found that in MIBEL As future work, one can state that an in-depth study on
the electricity prices standard deviation was the CO2 emissions that result from electricity production
14.79/MWh, which corresponds to about 31.5% of the might be important, so that the real impact of its
average value. Therefore, an identical proportion for the production can be determined more accurately. Also, an
standard deviation was used in our model, which meant update on the values utilized might show what was
a value of 0.064927/kWh. The mean value used in already predicted, that the EV will become more cost
calculations corresponded to the average price of effective. Other topic that deserves attention is the impact
electricity, 0.206/kWh. The simulations were tested for that a sudden change on the vehicles utilized worldwide,
both scenarios (10,000 km and 25,000 km). where an EV would replace every ICE, would have on
Regarding fuel prices, the evolution of the price of the the global CO2 emissions. This study would also be
barrel of Brent, between January 2009 and August 2013 helpful to determine if a general acceptance of EVs
was considered. When performing the distribution fitting
234
would benefit or harm the environment, considering the estufa (potencial de aquecimento global): por alguns
way each country obtains its own electric energy. sectores de emisso de gases (%) - Europa. Retirado de
Portugal still has a long path to walk but, despite the http://www.pordata.pt/Europa/Emissao+de+gases+com
crisis, the investment that was already made must not be +efeito+de+estufa+(potencial+de+aquecimento+global)
forgotten. This investment on EVs infrastructures must +total+e+por+alguns+sectores+de+emissao+de+gases-
keep going on, because a developed network of charging 1481-55011 (in Portuguese)
infrastructure is essential for consumers to travel larger Prud'homme, R., & Koning, M. (2012). Electric
distances. vehicles: A tentative economic and environmental
There is no doubt that the EVs are the vehicle of the evaluation. Transport Policy, 23, 60-69.
future and, even though it presents some downsides when RMRCFF, Rogrio Manuel R. C. Fernandes
compared with a conventional vehicle, it has everything Ferreira - Sociedade de Advogados, RL. (2013). A
needed to surpass ICEs. However, it is not possible yet to Tributao dos Produtos Petrolferos, da Electricidade e
predict when EVs acquisition will become viable. do Gs Natural em 2013. Retirado de
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technology continues, not only through the development Newsletters/A_tributacao_dos_produtos_petroliferos__
of the technology itself, but also by creating and da_eletricidade_e_do_gas_natural_em_2013.pdf (in
developing awareness on the population worldwide Portuguese)
because EVs will only begin to create an impact on the URA-DGPRCE, Unidade Responsvel pela
environment from the moment it starts to become a Avaliao DG Poltica Regional Comisso Europeia
choice for everyone. Given the state of the environment (2003). Manual de anlise de custos e benefcios dos
nowadays, it is essential that new measures are taken, not projectos de investimento. (in Portuguese)
only by trying to reduce the emissions of CO2 and other USEPA, United States Environment Protection
gases, but also through the public, government and Agency (2011). Sources of Greenhouse Gas Emissions.
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http://www.epa.gov/climatechange/ghgemissions/usinve
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235
236
INTEGRATION OF RISK MANAGEMENT IN OCCUPATIONAL HEALTH

AND SAFETY SYSTEMS
Delfina Ramos1,* Ana Costa1 and Paulo Afonso2

1
Technology School, Polytechnic Institute of Cvado and Ave, Portugal
2
* Corresponding author: [email protected], Polytechnic Institute of Cvado and Ave, Vila Frescanha S. Martinho, 4750-810, Portugal
KEYWORDS national and community policies in the European Union

Risk Management, Occupational Health and Safety, (EU). Indeed, according to the European Agency for
Questionnaire Safety and Health at Work (2013), priorities for
research related to the Occupational Health and Safety
ABSTRACT (OHS) in Europe during the period 2013-2020 include
risk management.
Risk management can be considered as part of the
Reaching the high-level goals of Horizon 2020 and the
Occupational Health and Safety System (OHS) of an
overall EU policies for the next decades will depend on
organization and can be used to develop and implement
the success of new enabler technologies such as those
the OHS policy and manage the associated risks. The
needed for the new energy policies, climate adaptation
success of the integration of risk management in OHS
and future manufacturing. However, new technologies
depends on both technical and human aspects. Thus, this
will succeed only if the benefits are clearly visible and
paper presents and discusses the case of a company
the potential risks are regarded as acceptable by society.
working in the area of solid waste treatment. This
This requires identifying and addressing stakeholder and
company was certified in 2009 with an Integrated
public expectations and responding to their concerns in
Management Systems for Quality, Environment,
order to build trust and confidence and to show that the
Occupational Health and Safety. The evolution of
new technologies are well under control. This in turn,
accidents before and after the implementation of the
requires identifying and assessing the health and safety
integrated system was analysed and a questionnaire was
risks associated.
used to capture the perceptions of the technicians on the
Occupational health and safety (OHS) is good for
risk management system. The analysis of the findings
business as well as being a legal and social obligation.
showed that the frequency of accidents increased since
Enterprises appreciate that OHS prevents people from
2009 but the severity has been reduced. Several
being harmed or made ill through work, but it is also an
interrelated causes and consequences were analysed and
essential part of a successful business (EU-OSHA,
discussed. Furthermore, the analysis of the opinions of
2007). The benefits of management system of OHS are
the companys technicians permitted to highlight some
presented in Figure 1.
important aspects on the integration of risk management
in the OHS system of the company. In line with this
discussion some hypothesis have been formulated.
INTRODUCTION
A proper risk management system is vital to enhance
the competitiveness and productivity of enterprises and
it contributes to the sustainability of social protection
systems, in that it leads to a decrease in the costs of
accidents, incidents and occupational diseases.
On the other hand, fewer accidents result in increased
worker motivation, with positive effects on productivity.
Work accidents and occupational diseases represent an
enormous financial burden on the public and private
systems of social protection and require an integrated,
coordinated and strategic response, as well as close
cooperation between key actors in the development of
237
Figure 1: The benefits of management system of OHS The principle of Plan-Do-Check-Act, or PDCA can be
(EU-OSHA, 2007) applied to OHS management (Floyde et al., 2013):
Plan design of an OHS policy, to include resource
A management system of OHS helps to demonstrate planning, skills and system organisation, identification
that a business is socially responsible, protects and of hazards and risk assessment.
enhances brand image and brand value, improves Do implementation of the system and operation of
employee motivation and commitment, maximizing the the programme.
productivity of workers, reduces business costs and Check monitoring the active and reactive
disruption and enables enterprises to meet customers performance of the system.
OSH expectations (EU-OSHA, 2007). Act system review by continual improvement and
According to Badri et al. (2012), risk management system priming for subsequent cycles.
integration in the OHS system depends on several The PDCA system can be customized to suit the size
aspects namely, which are the risk management and type of company and its particular risks. An OHS
activities during the life cycle of the project, the existent management system may be simple, to suit an Small and
OHS system and legal aspects and legislation which are Medium-sized Enterprise (SME), or much more
related with the two previous aspects. Indeed, the complex to fit a larger organization.
integration of Risk Management in OHS systems asks The five basic requirements for an OHS management
for effective models and methodologies. Furthermore it system are set out in Section 4.1 of OHSAS
depends on both technical and human aspects. 18001:2007: the organization shall establish, document,
In this paper, the accidents and the results of a implement, maintain and continually improve the OHS
questionnaire on the perceptions of risk management in management system and determine how it fulfill these
a Portuguese company are analysed and discussed. This requirements (Santos et al., 2013).
company develops its activity in the area of solid waste Risk management is included in Section 4.3.1 of
treatment. It was certified in 2009 with a Integrated OHSAS 18001:2007: this involves a procedure for
Management Systems for Quality, Environment, hazard identification, risk assessment and determination
Occupational Health and Safety. of necessary controls. Nevertheless, OHSAS
The frequency and the gravity of accidents rates were 18001:2007 does not present details for risk
analysed considering the period before the management.
implementation of the OHS integrated system and the The publication of the standard ISO 31000 (2009)
period after that integration. Risk Management has filled a gap in the ISO 9000,
For the analysis of workers perceptions on the risk ISO 14000 and OHSAS 18001 standards as regards risk
management system, a questionnaire was designed management. Not being a standard which may serve as
considering the literature (Badri et al., 2012; Fung et al., a basis for certification, ISO 31000 provides very useful
2010; Santos et al., 2013; ISO 31000, 2009; ISO Guide principles and guidelines for managing risk, particularly
73: 2009). for industry (Badri, 2012).
Thus, an exploratory study has been conducted in order The ISO 31000 (2009) standard presents very useful
to identify pertinent research questions and guidelines for the process of risk management in
opportunities for the study of the integration of risk organizations, with particular relevance to the risks
management systems in day-to-day life of the related to occupational health and safety.
companies. The process of risk management according to ISO
The remaining of the article is organized as follows. Guide 73 (2009) is based on the systematic application
Next section presents a literature review on risk of management policies, procedures and practices to the
management and related aspects. Section three and four activities of communicating, consulting, establishing the
present the research method and the field site. context and identifying, analyzing, evaluating, treating,
Subsequent sections present the analysis and discussion monitoring and reviewing risk.
of the main findings. The last section is devoted to the Risk communication, and OHS communication in
conclusions and opportunities for further research. The general, are closely related to the transfer and
questionnaire is presented in appendix. dissemination of research results. Risk communication
is also a key component of effective risk management.
LITERATURE REVIEW Appropriate risk communication empowers non-experts,
including the different OHS stakeholders including
Risk Management in OHS workers, to make informed judgments and informed
The occupational health and safety (OHS) management decisions. The challenge is to provide the right
system can be considered as part of the management information in the right way in order to allow changes in
system of an organization partly being used to develop the receivers belief, attitude or behavior related to risk
and implement policy on OHS and manage related risks issues.
(Gadd et al, 2003; OHSAS 18001, 2007; Santos et al, Risk assessment is a key pillar of the Framework
2013). Directive on Occupational Health and Safety (OHS)
(EU-OSHA, 2008), as well as of other directives related
238
to the same topic. Risk assessment typically constitutes

the first phase of the risk management approach, being a
first step towards a systematic OHS management.
Accordingly, risk management can be considered as part
of the Occupational Health and Safety System of an
organization and can be used to develop and implement
the OHS policy and manage the associated risks (Gadd
et al., 2003; OHSAS 18001, 2007; Santos et al., 2013).
ISO 31000 (2009) presents useful guidelines for the
process of risk management of organizations, namely in
terms of risks related to Occupational Health and
Safety.
According to ISO Guide 73 (2009), Risk Assessment is
the process of comparing the results of risk analysis
with risk criteria to determine whether the risk and/or its
magnitude is acceptable or tolerable.
ISO/IEC 31010 (2009) presents risk assessment
techniques. Risk assessment is that part of risk Figure 2: Integration of risk management into the
management which provides a structured process that management system of OHS (Badri et al., 2012)
identifies how objectives may be affected, and analyses
the risk in term of consequences and their probabilities Badri et al. (2012) present a critical review and provide
before deciding on whether further treatment is an overview of research and industrial practices aimed
required. at systematic integration of OHS risks into the execution
Risk assessment attempts to answer the following of projects, based on published scientific literature.
fundamental questions: They introduced some of the tools, methods and
what can happen and why (by risk identification)? approaches being developed or adapted to integrate
what are the consequences? OHS and a general description of the current status of
what is the probability of their future occurrence? this integration in various fields. Their focus was on
are there any factors that mitigate the consequence of laws and management systems among other approaches
the risk or that reduce the probability of the risk? aiming to integrate OHS risk management and industrial
ISO/IEC 31010 (2009) is a supporting standard for ISO safety practices. According to these authors, in terms of
31000 and provides guidance on selection and laws, several laws have been created or amended
application of systematic techniques for risk assessment. worldwide to facilitate the management of OHS in the
If a risk assessment (identification, estimation and workplace. Several experiences have been suggesting
evaluation) determines that a specific risk is not favouring a systematic approach to integrating OHS.
acceptable - acceptable risk is a risk that has been In terms of Management systems and OHS risk
reduced to a level that can be tolerated by the management, the OHSAS 18001 (2007) standard is the
organization and taking into account their legal most widely recognized OHS Management System
obligations and its own OHS policy according OHSAS Standard.
18001 (2007), then it is necessary to proceed to the set In this context, the analysis and assessment of risks is
of actions to control risk. viewed as a crucial step. Furthermore, risk assessment
This refers to processes of decision/action for the plays a major role in identifying and rectifying
management and risk reduction, its implementation and inequitable situations (Viau, 2009). The different tools
periodic review, by using the results of risk assessment which can be used to evaluate risks of accidents will
as an input. vary according to their analytical development.
The integration of risk management in OHS Workers perceptions

The integration of risk management into the OHS The understanding of workers perceptions about the
system can be presented in different ways. Figure 2 risk management system are very important to turn its
presents the suggestion of Badri et al. (2012). integration in the OHS system more effective.
As shown in Figure 2, the integration of OHS risk Several factors influencing risk perception in the area of
management in industrial safety practices of an occupational health and safety are known, but there is
organization should be made taking into account the still lack of a full understanding of the ways in which
applicable law and risk management throughout the people characterize risk (Alexopoulos et al., 2009).
project life cycle, according to the system risk According to Wachter & Yorio (2014), from a
management of the organization. behavioral perspective, workers bring their beliefs,
values and vision to the design and implementation of
safety management systems and ultimately in
performing work. Motivation to participate can be
239
affected by workers beliefs and values, which can administering the questionnaire and compiling the
impact the workers degree, quality and consistency of resulting data.
participation. The design of the questionnaire affects all subsequent
Worker engagement in safety reduces the probability of stages of data collection and analysis. The research
occurring human errors. Workers are more involved question, the type and size of the sample, and the
with and aware of their tasks and surroundings and available resources influence questionnaire design.
associated risks. Statistical significance is an important criterion for
There are cross-cultural differences in the perception of evaluating survey findings. However, substantive
risky activities that pose threats to health and safety significance has an equal weight.
(Alexopoulos et al., 2009). Assessing workforce The questionnaire was designed taking into account
perceptions of risk is of importance in order to develop previous literature namely, Badri et al. (2012), Yoon et
a proper safety culture. al. (2013), ISO 31000 (2009) and ISO Guide 73 (2011).
Risk perception research has been criticized for For example, according to Badri et al. (2012), the
insufficient analysis of the causal relationships between integration of OHS risk management in industry is
risk factors and perceived risk. progressively recognized through the direction towards
Studies on risk perception have shown that personality Total Quality Management (TQM). Toulouse et al.
characteristics have to be examined at individual and (2005) have highlighted the importance to consider the
cultural level. priorities of managers when implementing risk
People perceive risk in different manners in various management in enterprises. Other authors have put
situations and such perception is influenced by early emphasis on the performance of the OHS system (e.g.
experiences, education, personal beliefs, attitude of Fung et al, 2010).
coworkers, and culture. Researchers emphasized the
importance of various social and institutional factors to The Questionnaire
risk perception, factors which are ultimately combined
The questionnaire is divided into three distinct parts.
by human judgment.
This comprehensive questionnaire has a total of 25
Experience holds a vital role in risk perception since, for
questions and 50 subquestions. The questionnaire starts
example, misleading experiences may underlie an
with an initial section with 6 questions about general
individuals tendency to believe that he or she is
information on the respondent, allowing to analyse
personally immune to many hazards (Alexopoulos et al.,
results in terms of several aspects namely, gender,
2009).
department and function in the firm and education level.
Respondents were also asked if they have suffered any
RESEARCH METHOD
working accident. The questionnaire was not
The research methodology was designed considering anonymous for means of control.
empirical data obtained in two different moments and Section A is about the OHS management system. It is
from two different sources. composed by 9 main questions and 16 subquestions.
Firstly, it was collected data about the accidents in the Section B, risk management, has 8 questions and 28
company, related with the period previous to the subquestions.
implementation of the OHS integrated system and the Section C, integration of risk management in OHS, has
period subsequent. 2 questions and 6 subquestions.
This data was analysed and several rates and indexes A 5-point likert scale was used, ranging from 1 to 5.
were produced and compared namely, the frequency and The lower point in the scale means Completely
gravity of accidents rates. disagree/Very unsatisfied/ Very low and the upper
Secondly, considering the contributions for the point means Completely agree/Very satisfied/ Very
integration of Risk Management in OHS and previous high. The middle point in the scale could be used for
literature on worker perceptions, a questionnaire was the case of non-answer/I do not know. The scale is
produced. complete with two intermediate points.
According to Preston (2009), questionnaires allow for The questionnaire is presented in Appendix. For space
gathering statistical information about the attributes, reasons, some subquestions are omitted but the
attitudes or actions of a population by a structured set of complete questionnaire can be obtained from the
questions. authors.
Questionnaire surveys can be made in person, by Before being applied, the questionnaire has been tested
telephone, by mail or via Internet, to a targeted with three technicians. In general, it has been well
population. The aim is to obtain information suitable for understood; it was suggested to include the possibility
statistical analysis, so attention is paid to how of an intermediate answer (e.g. in some cases the
respondents are selected, the extent to which questions possible answers are high or low, without intermediate
relate to underlying concepts, and completion rates. The answer). Nevertheless, the questionnaire has not been
information obtained from questionnaire surveys is changed, because in this study it was intended to reduce
constructed through the process of designing and the range of possibilities for further analysis.
240
The questionnaire has been applied only to technicians and related costs. Nevertheless, some considerations and
and not to all the workers. In fact, the questionnaire cautions should be taken into account when interpreting
would be too long and not easily understood by less this phenomenon.
qualified workers.
This exploratory research aimed to obtain findings y the Number of Accidents
answers in order to obtain a too more directed to all the
Considering the period that has been analysed (2007-
workers.
2013), there is no concrete trend in terms of the number
The questionnaire has been answered by the technicians
of accidents.
of the company from diferente departments (Technical
Paradoxically, between 2007 and 2008, the number of
Department, Quality, Environment and Occupational
accidents increased from 13 to 18. This can be
Health and Safety Department, Administrative and
explained by the fact that in 2007 has started
Financial Department, and Communication/Public
registration of accidents and this has become
Relation Department), with a total of 16 respondents.
increasingly strict: before 2007 there was no record of
For the analysis of the responses, they were mainly
accidents, so probably in 2007 some events were not
considered the absolute (equivalent to the relative)
recorded. The registration system has become a
frequency of responses per question and group of
common practice in 2008 and the workers began to
questions. This simple approach was enough to compute
report all occurrences. This means that in a first stage
the median and to highlight the most important aspects
the number of reported accidents has increased but,
for discussion considering the exploratory purposes of
afterwards the impact of risk management practices
this research.
became evident, leading to a sustainable reduction of
work accidents.
CASE STUDY
In fact, accidents decreased in 2009 to 16 in 2010 and
The case study envolves a company which is decreased to 9, a very significant reduction.
responsible for intermunicipal system recovery and In 2009 the organization decided to request the audit of
treatment of municipal solid waste and covers different concession of OHS management system for the first
activities: reception of waste in landfill, selective time and then all practices were developed to improve
collection (which includes collection of separate the system, including several awareness actions in terms
disposal, collection door to door in shops and the of OHS and the implementation of improvements in the
collection of used cooking oil for subsequent production company (signaling, protection of machinery, provision
of biodiesel), manual screening of recyclable waste, of personal protective equipment (PPE), implementation
energy recovery for biogas and production of biodiesel, of consultation with employees in terms of OHS, more
as well as a water treatment plant for treating leachate detailed reviews of risk). These initiatives have led to a
from the landfill. greater awareness on safety by all employees, these
This company was certified in 2009 with a Integrated being more involved and having a greater perception of
Management Systems for Quality, Environment, risk which in turn had led to a more appropriate attitude
Occupational Health and Safety according to the to the risks to which they were subject.
standards ISO 9001:2008, ISO 14001:2004 and OHSAS Alongside these data it should be noted that the number
18001:2007, respectively. of workers increased. This increase was more
In this company, OHS has evolved due to the significant from 2007 to 2008 (83 to 107), which may
importance given to aspects related to the health of explain the increase in accidents in the same period. In
workers, albeit in a slow manner due to some relative terms (13/83 in 2007 and 18/107 in 2008), the
limitations, such as the workers underestimation of number of accidents has also increased. This means that
certain risks and habits acquired over time and that are the propensity of workers to incur new risks and
difficult to change. The communication of OHS matters accidents may be higher. The number of employees also
is also reduced, including the risk evaluations. increased from 2008 to 2009 (107 to 131) and in this
period the accidents started to decrease (until 2010)
ANALYSIS OF FINDINGS which is probably explained by the reasons described
above.
In this section, the main findings in terms of accidents
However, from 2010 to 2011 the number of accidents
are presented and analysed as well as the most relevant
increased again (from 9 to 14) and continued to increase
results of the questionnaire on workers perceptions are
in 2012 and also in 2013, reaching the highest values of
presented. The analysis of the accidents is particularly
workplace accidents. But in fact the accidents are less
relevant to contextualize the results of the questionnaire.
serious; this can be explained by some sort of
dissatisfaction with working conditions, small
Analysis of Accidents
distractions, etc. On the other hand, over time, perhaps
Some important findings can be highlighted from the the workers paid less attention to safety procedures that
empirical evidence that has been collected. Risk have been intensified in the early years of the
management effectiveness depends on the impact of certification system because it has become a habit.
preventive measures in terms of reduction in accidents
241
In terms of the distribution of accidents per workplace, lower, which means that there is a higher number of
most of the accidents occur with screening operators, accidents but with a lower severity (less work days lost).
which can be explained by the fact that this is the It can also be concluded that, except for the year 2010,
activity with the highest number of workers, followed which presented a slight increase of the severity rate and
by the operators of selective collection, which is the 2012, with an increase respect to 2011, the severity rates
activity with the second highest number of workers. have been decreasing. In fact, the severity rate in 2013
In terms of gender, in all years studied (2007-2013), the has been only about 1/3 of the severity rate in 2007, in
number of accidents involving men is much higher than spite of some fluctuations in intermediate years.
those involving women. This is related to the fact that in The explanation for the reduction of the severity index
the same years the number of male workers has been can be explained by the reasons previously described,
always higher than the number of women and also that namely the implementation of better OHS practices,
the tasks performed by men present more risks than the leading to a greater awareness of the risks to which the
tasks performed by women. It should be noted that most workers are exposed and therefore are forewarned so
women perform functions in the screening station, while that accidents do not occur with high severity.
men are distributed among the remaining activities. As to the frequency rate, it increased from 2007 to 2008,
In line with this, the following hypothesis can be greatly diminished until 2010 and from 2010 to 2013
formulated: has increased from year to year. As mentioned earlier it
H1: The implementation of a Risk Management is found that when the severity rate is higher the severity
Systems improves transparency in terms of accidents. rate is lower.
H2: Workers awareness is a mediating variable Most of the accidents result in a temporary disability, in
between the Risk Management System and the most of the cases with a leave from 4 to 30 days,
reduction of accidents. followed by accidents which dont lead to a leave. Even
H3: The number of accidents is more dependent on the with a significant value are those that lead to a leave
number of workers than the type of work performed. higher than 30 days.
The following hypothesis can be formulated:
Rates of Severity and Frequency H4: The reduction of the severity rate reflects the
implementation of OHS good practices.
Simultaneously with the data of accidents, the indexes
H5: Increased awareness of the workers concerning the
of claims (rates of frequency and of severity) should be
risks decreases the severity of the accidents.
analysed. These rates have been calculated according to
the Portuguese Legislation.
Causes of Accidents
The rate of frequency represents the number of work Almost one third of workers who responded to the
accidents per million hours effectively worked: questionnaire had experienced at least one work
Rf = number of work accidents 106 / number of hours accident.
effectively worked. It can be seen that most of the accidents occur with
The rate of severity represents the number of work days workers that are in the company for between 5 and 10
lost per million hours effectively worked: years, followed by those who work in the company
Rs = number of work days lost 106 / number of hours between 2 and 5 years. This can be explained by the fact
effectively worked. that most of the workers are included in these groups
and also that they are more acquainted with the activity.
It can be seen that, with the exception of 2009 and 2012,
accidents occurring within the facilities are greater than
accidents outside facilities, which can be explained by
the fact that outside the premises occur only the
activities of selective collection and maintenance of
selective disposal sites; all other activities are performed
in the premises of the company.
Accidents can occur due to many unsafe acts. By
observing the data it appears that Imprudence /
distraction is the unsafe act that causes accidents more
frequently, followed by not compliance with the rules.
Some accidents occur due to lack of use of PPE.
Certain hazardous conditions can also lead to some
Figure 3: Evolution of Accident Rates (severity and
accidents. However, according to the accident
frequency rates)
investigation, it appears that some accidents occur due
to the use of inappropriate tools, however most of them
Figure 3 represents the evolution of the indexes of
are due to other hazardous conditions not specified.
claims. It can be concluded that, except for 2008, when
It appears however, that most of the causes of accidents
the rate of frequency is higher, the rate of severity is
are random.
242
Thus the following hypothesis can be formulated: accordance with stakeholders is also not considered as a
H6: workers with more years in the company suffer central reason. In fact, these two aspects are those that
more accidents. are less seen as motivators for implementing the system.
H7: Most of the accidents are due to fortuitous causes However, the majority (81.25%) believe that there is
and unsafe acts. actually a better management of health and safety but
disagree that there is an improvement in awareness on
Perceptions on risk management the part of management. Most workers are unaware of
the costs of OHS management system, because the costs
The results of the questionnaire were analyzed in terms
of health and safety before and after implementation of
of absolute and relative responses to different questions,
the system have never been analysed.
considering the Likert scale used which ranged from
The main benefits of the OHS management system
low / high and strongly disagree / strongly agree.
which have been highlighted are: promotion of the
health and safety of the workers and reduction of the
General considerations
number/severity of accidents.
Overall and analyzing some key responses of injured Concerning the increase of the companys visibility in
workers, it can be concluded that most of the the market, the opinions are divided between high and
respondents agree that the safety training provides low. However, considering the characteristics of
adequate and sufficient information about hazards and business of the company, this is not a fundamental
risks in the workplace and most agree that they follow aspect, fact that is a common knowledge among the
all the rules and procedures while performing their workers.
work. Thus the following hypothesis can be formulated:
The majority responded that there is actually a better H10: The main motivation for implementing an OHS
management of OHS health and safety and a higher management system is the elimination and management
safety awareness by workers. of OHS risks.
The opinion concerning the OHS management system is H11: The perception of cost reduction related to the
globally positive, although there are still some reduction of accidents is still not very evident.
improvements to be made. H12: The main benefits of the OHS management system
In terms of effectiveness of risk control, the opinions are are the promotion of health and safety of workers and
divided as to their contribution to the steps of risk the reduction in the number / severity of accidents.
management, the responses tend toward the low or do
not know / no answer, as well as in terms of regular Risk Management
monitoring and surveillance of the actions of risk
Part B of the questionnaire consists of 8 questions and
prevention.
28 subquestions and allows to understand the
Thus, we can perhaps conclude that in general the
respondents opinion regarding the Risk Management in
involvement of technical employees on risk
the company.
management is still somewhat superficial.
All respondents felt that the Risk Management implies
Thus the following hypothesis can be formulated:
to Analyze the Risk, Assess the Risk and Control the
H8: a better OHS management of health keads to a
Risk.
higher safety awareness of the workers.
However, only about a third of technicians considered
H9: The perceptions on risk management of the workers
that the Risk Control in the company is effective (which
reduces the severity of the accidents.
may be related to the fact that all the related risk
assessment is made by an external OHS technician and
Management System of OHS
later monitoring is performed by an internal worker with
Considering part A of the questionnaire consisting of 9 less knowledge; this is not its primary function, so this
questions and 16 subquestions, the following aspects control is not sufficient and the remaining technicians
can be highlighted. have this perception.
Only 50% of the respondents consider that the evolution Regarding the contribution in steps of Communication
is high and 31.25% consider that the evolution is low. In and Consultation and Establishment of the Context of
fact, the less positive opinion is related to the evolution Risk Management, technicians consider their
of the system; the OHS management system has been participation as reduced, which may be related to
implemented in 2009 and be considered as still in reduced efficacy of Risk Control. This is consistent with
progress. the reply regarding the knowledge of risk
Concerning the motivation for the implementation of communication plans and measures to address the risk.
the OHS management system, it was found that the Most of the answers show a high knowledge of the steps
reduction of health care costs and safety management is that are included in the Risk appreciation.
seen as less relevant motivation. The technicians do not The explanation to have a greater understanding of the
see until now a clear advantage of the investments awareness of risks may be due to the frequent training in
made, as the perception of cost reduction related to the the area of OHS, however the contribution /
reduction of accidents is still not very evident. Acting in
243
participation in the evaluation itself is small as it is enhance the competitiveness and productivity of the
carried out by external expert. company. Such system can induce fewer accidents and
Subsequently, the communication of the risk assessment that will result in increased worker motivation, with
is reduced, hence the answers of respondents goes in positive effects on the firms overall productivity. But a
this direction. proper and effective integration of risk management in a
Thus the following hypothesis can be formulated: firms OHS system depends on technical and human
H13: The participation in the steps of the risk aspects. Technically, it is necessary to achieve an
management process is still reduced, so risk control is evident and sustainable reduction of accidents and
not very effective. related costs. Furthermore, workers conditions and
their perceptions in terms of working conditions and
Integration of risk management in OHS safety should be observable.
In this paper, the integration of risk management in the
The opinion on the integration of risk management in
OHS system has analysed and discussed. According to
OHS was analyzed using the last block of questions that
Badri et al. (2012), risk management integration in the
consists of 2 questions and 6 subquestions.
OHS system depends on several aspects. Indeed, it is
The expressed opinion was unanimous in order to
necessary to understand the dynamics of adoption and
consider that the integration of risk management in OHS
institutionalization of risk management practices in
improves the knowledge of safety professionals and that
OHS systems. Institutional pressures and the
risk awareness affects (positively) the quality and
institutionalization process as well as technical aspects
reliability of risk management. An efficient
should be taken into account for the understanding of
communication with workers should be sought and all
the process of risk management integration in an OHS
of them must be aware of their risks at work.
system.
Thus the following hypothesis can be formulated:
This exploratory research mays be used to identify
H14: Awareness of risk positively affects the process of
pertinent research questions and opportunities for
risk management.
further research in this domain. Several considerations
and particularly a set of hypotheses have been
Table 1 presents the results related with the most
formulated considering the different domensions of the
important findings which have been discussed in this
integration of risk management in OHS systems.
section.
ACKNOWLEDGMENTS
Table 1: Results of the Questionnaire
Low/Disag Don't no High/Agree The authors would like to thank the company for
Question A6 31,25% 18,75% 50,00% 0,00% supplying the data and collaborated in the
Question A7.4 31,25% 31,25% 31,25% 6,25%
questionnaires.
Question A7.5 31,25% 12,50% 56,25% 0,00%
Question A8.3 12,50% 6,25% 75,00% 6,25% REFERENCES
Question A8.4 18,75% 62,50% 18,75% 0,00%
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244
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8. Monitoring is the verification or supervision of the level of
APPENDIX compliance of the actions of risk prevention. Revision is
the activity of checking that preventive actions are
Questionnaire appropriate to the risks to which workers are subjected.
(includes 2 subquestions).:
PERCEPTIONS ON THE INTEGRATION OF RISK
MANAGEMENT IN THE OCCUPATIONAL C. INTEGRATION OF RISK MANAGEMENT IN OHS
HEALTH AND SAFETY SYSTEM (OHS)
1. In your opinion what should be done to improve the safety
GENERAL INFORMATION performance?
1.1 An effective communication with employees should be
Name, gender, age, education, years working in this sought.
firm, function/activity, number of work accidents. 1.2 Effective safety instructions should be provided to
workers.
A. MANAGEMENT SYSTEM OF OHS 1.3 The safety awareness should be increased.
1. How far are you satisfied or dissatisfied with the 1.4 All workers should be aware of their risk at workplace.
implementation of the Management System for 2. In your opinion what may affect the reliability of risk
Occupational Health and Safety in your company? management?
245
2.1 Improve the knowledge of safety professionals and

awareness of safety risks and how they affect the quality
and reliability of risk management.
2.2 The lack of systematic techniques for risk management of
safety professionals leads to based on their own
experience and knowledge, which limit the reliability.
246
REMOVABLE BATTERY PACKS TO REMOVE AIR POLLUTION IN

PARIS: ECONOMIC EVALUATION BY THE COBAYE DECISION-
MAKING TOOL
Satya-Lekh PROAG1,2* and Jonathan BAINE1,2

1
2
* Corresponding author:
[email protected],
Unit dEconomie Applique, ENSTA ParisTech, 828 Boulevard des Marchaux 91762 Palaiseau, FRANCE
KEYWORDS In the fight against air pollution, a local public action on

CoBAYe, Economic evaluation, electric battery packs mobility and road traffic would have a significant
impact. Moreover, through the comparison of the
ABSTRACT number of taxis serving this area to the emissions
emitted by road traffic in the Ile de France region,
In November 2013, the Council of Paris voted the assessing the weight of taxis on air pollution is possible.
implementation of a charging point network According to the Air Quality Surveillance organization
infrastructure in the French capital, intended to both in Ile-de-France (Airparif 2012) and a recent
private and professional road users (Conseil de Paris governmental report on taxis (Thvenoud 2014),
2013). This policy is part of a wish to promote the emissions by taxis would account for 3% of oxigen
emergence of electromobility and hence curb air dioxyde (NOx) an 2% of particulate matter (PM10)
pollution in Paris. However, another choice could have emissions for instance. We must note that such
been made in order to achieve the same objectives: for calculation is based on conservative assumptions.
instance the implementation of a dense infrastructure in Indeed, compared to the majority of vehicles, taxis run
the French capital, similar to the existing filling stations, all day (and night sometimes) and roam urban areas
but of removable battery pack exchange stations, where the problem of PM10 concentration is more
following the example of Better Place in Israel, but also prevalent. In addition, although their vehicles are often
in the Netherlands, especially for taxis. recent or new, taxi fleets are mainly equipped with
In this paper, we propose to apply CoBAYe (Cost- diesel engines. Their contribution to air pollution is
Benefit Analysis under interdependency and therefore potentially higher than our estimate.
uncertainty) as a methodology to assess and compare the Even if the taxi sector is a lever for action for any policy
two abovementioned public policies, while considering involved in the fight against air pollution, it is
the interdependencies of a wide variety of public nevertheless necessary to emphasize the nature and
policies and private strategies associated with the difficulties faced by industry stakeholders, in order to
emergence and the diffusion of the contemporary develop a coherent and relevant public policy proposal.
electric automobile. More precisely, we will explore the The main observation we can draw is that there is a lack
case of the diffusion of taxi fleets equipped with of sustainability on the taxi industry in many
removable battery packs in Paris. dimensions, which we propose to both identify and
clarify. The challenge is thus to imagine a solution
INTRODUCTION addressing not only the environmental issue, but also the
governance aspect and the adaptation of the industry to a
Paris was one of the first State capitals to welcome a
changing economic and technological context,
taxi fleet. Nevertheless, its future seems, to some extent,
questioning its future.
in jeopardy. Indeed, taxi fleets are confronted with many
In order to reach both the objectives of promoting the
difficulties, first cyclically because of the rise of
emergence of urban electromobility and hence curbing
competitors capitalizing on the diffusion of information
air pollution in Paris, two public policies seem in
and communication technologies (e.g. dynamic
competition: on the one hand, developing an electric
carpooling,), but also structurally, due to the necessity to
charging point network infrastructure, as voted by the
redesign the governance.
City Council of Paris in November 2013 and, on the
247
other hand, implementing removable battery pack granted free of charge by the Police Prefecture of Paris
exchange stations in Paris, thus enhancing the diffusion to companies and individuals who are previously
of taxi fleets equipped with removable battery packs. registered on a waiting list. Once obtained, the Taxi
The first section of this paper explains the choice to use License follows the law of supply and demand which
taxis as a lever for curbing pollution in Paris. A public leads to both very long delays (around 15-18 years) and
policy proposition to achieve this objective is then very high exchange prices (estimated at 235,000 Euros
presented in section 2. The next section briefly explains in 2012 Thvenoud (2014)). Such a bottleneck can
CoBAYe (Cost-Benefit Analysis under interdependency jeopardize the profession. Indeed, the return on
and uncertainty), which is the decision-making tool investment is difficult, while the level of customer
chosen to evaluate the two abovementioned policies to satisfaction is low. If, based on the number of
tackle air pollution in Paris. Finally, the next two inhabitants in the Parisian urban area, the taxi number is
sections consequently show some of the CoBAYe equivalent to that of other European capitals (Agenzia di
process results for the two policies, before discussion. Roma 2008, sec.Appendix 1), users are very dissatisfied
with the lack of taxis, especially at peak hours (GFK
THE TAXI INDUSTRY: A DESTABILIZING 2007; Darbra 2010). This feeling is mainly due to the
TECHNO-ECONOMIC CONTEXT WITH A limitation of the analyzes produced (no inclusion of
FRAGMENTED GOVERNANCE alternatives to taxis, such as shuttles and chauffeur-
driven cars, and analysis based on the population and
The weakening of the taxi industry has undergone not on the actual number of people daily in the area) as
multiple phases, which have accumulated over time and well as the practice of cuts, as some taxicabs choose
contributed to sharp competition. From a historical point to operate only at businessmens hours and not all over
of view, the first competitors were taxi shuttles, i.e. the the day (Darbra 2008).
transportation services performed by a road vehicle used The corollary of this brief analysis is that the potential of
for short and repeated connections, mainly between two taxis appears under-exploited in the Paris area. To
places. In France, taxi shuttles are regulated by the Loi compensate for this under-utilization, while respecting
dorientation des transports intrieurs (LOI 82-1153 the stakeholders interests, many possibilities have been
1982), which has extended its range in 2005. The put forward (Attali 2013; Thvenoud 2014). However,
second competitor of traditional taxis was the none of them has crossed this perspective with the need
motorcycle taxi, whose activity is regulated by the law for a sustainable solution, not only governance-wise, but
of October 20, 2010 (LOI 2009-288 2009). Unlike four- also environmentally friendly-wise.
wheel vehicle taxi drivers, moto-taxi drivers must be Based on the abovementioned analysis and to achieve
able to justify a prior reservation, meaning they are not the objective of curbing air pollution in Paris, we
allowed to drive or park on the street searching for believe a public policy using mobility and road traffic as
clients. Finally, in addition to these product and a lever should meet to the following criteria:
organizational innovations, new activities on the rise are - to be based on an urban transportation system
subjecting the taxi industry to a severe pressure. The that is low or non-polluting;
emergence of these activities, which degree of - to be complementary to the current offer and
competition with taxis is related to the importance of provide a high level of service;
their respective diffusion, is contemporary and often - to remain accessible, both through prices and in
relies on the pervasive propriety of information and terms of number of vehicles;
communication technologies. They include carsharing, - to be applicable under the French state
dynamic carpooling, and most of all, chauffeur-driven regulation and get a good acceptance from
cars (French translation of Voitures de Tourisme avec drivers, taxi companies as well as users.
Chauffeur). Partial results derived from these criteria is to increase
The number of chauffeur-driven cars has grown rapidly the number of licenses granted to taxis, while providing
from 2010, when a decree recognized them a service that meets the needs expressed at peak
institutionally in France and allowed the service to attendance, and provided these taxis are electric
develop. First, they positioned themselves in the high- vehicles, as they are environmentally-friendly and
end market, and then gradually extended their scope. In benefit from decreasing marginal cost (Baine 2013).
January 2014, nearly 4.100 registered chauffeur-driven In order to create the framework of this public policy,
cars operate in France (DellOro 2014). we believe a brief analysis of supply and demand on the
These techno-economic difficulties cannot hide the Parisian market for taxis should be carried out. On the
structural dimension of the constraint on which Parisian supply side, the challenge is to understand what are the
taxis are subject in Paris and its neighborhood. Indeed, particular statutes of taxi drivers. In Paris and its
the governance of the sector is essentially based on the neighborhood, 52.7% of taxi drivers are artisans
principles of the transferable Taxi License and the (Thvenoud 2014) and therefore, own their license and
numerus clausus. Thus, in order to respect a maximum vehicle. The remainder is distributed mainly between the
quota of taxis for Paris and its suburbs, taxi licenses are self-employed tenants renting the use of the license
248
and the vehicle for their work and taxi drivers who are buy or equip their fleet of electric taxicabs with
purely employees, that is to say who drop their vehicle removable battery packs, such as in the Renault Fluence
at their employer at the end of day. Extrapolated to the Z.E. model. Simultaneously, in order to reduce local
number of taxis on the roads of Paris and its inner urban pollution, travelling with electric-driven taxis
neighborhood, these figures allow us to estimate that would maximize the use of battery pack exchange
8,000 vehicles belong to private companies. Besides, in stations and of public charging stations. In addition, we
the taxi services market, call centers and reservation may primarily address the market of companies that
centers are other important stakeholders as they employ taxi-drivers, because their vehicles could be
aggregate travel requests and share it to the taxi fleet to recharged overnight. In case of inertia voluntary or not
which they are affiliated. Three major stakeholders share by the call centers, we propose to combine these
the Parisian market, Taxis G7, Taxi Bleus and Alpha electric taxis to the development of electronic
Taxis, in decreasing order of vehicle fleet. Between marauding. These technologies allow a driver to
them, these three call centers possess over 13,000 respond to the request of a client who has prior informed
affiliated taxis, i.e. nearly 70% of all taxis in Paris and about his points of departure and arrival. The taxi driver
its neighborhood. can respond positively or negatively, depending on the
Although the degree of competition within the taxi load of his electric car.
industry seems important, it remains a highly regulated
market. Firstly, the number of taxi licenses is limited, Reference Case and Project Case
i.e. there are barriers to entry and secondly, prices are This paper does not aim to analyze if tackling pollutant
determined each year by governmental decrees. emissions from road traffic by promoting electric
However, it is not a fixed price, but a maximum price, vehicle use is the best solution to curb air pollution,
because the fare depends on diverse criteria among assuming that decision-makers are subjected to bounded
which the distance traveled, the time spent or the time rationality (Simon 1947) at the decision time and have
slot, for instance. hence identified their best solution before or through
Concentrating on a broader market scale such as the the City Council deliberation. Thats why we choose to
transportation services performed by a vehicle, the concentrate only on analyzing the effects of the electric
structure of competition is much more fragmented, charging point infrastructure network implementation
prices are unconstrained and, to some extent, entry too. public policy as decided in (Conseil de Paris 2013), and
Moreover, alternatives to traditional transportation by according to the reference and project cases hereby
taxi are often engaged in a head-on competition against defined.
the latter. For some of them, the competition is restricted
to a particular market segment: the shuttle is for instance The Reference Case
substitutable to usual taxis only for travels to attractive A reference case is a scenario representing what would
poles (airports, amusement parks). Dynamic carpooling happen if no policy were implemented (Snell 1997). In
and carsharing are substitutable for local journeys this paper, the reference case is chosen to follow the
whereas for chauffeur-driven cars, the competition present baselines in the field of transport and air quality
market lies on a broad spectrum of all the travels which in the City of Paris, based on the Plan de Dplacements
can be planned in advance. Urbains dIle-de-France (PDUIF), the sustainable
On the demand-side, analyzing users and their travel urban mobility plan published by the Syndicat des
needs is also essential to address the issue of a public Transports en Ile-de-France (STIF), the public
policy favoring low-emission mobility by taxi. In transport organization agency of the le-de-France
particular, 70% of the taxi business is based on journeys region (Syndicat des Transports dle-de-France 2012).
that are booked, according to the CEO of Taxis G7 Concerning the city of Paris, the reference case we
(Dupont-Calbo 2014). Insofar, those journeys and their choose is therefore the pursuit of the present baselines in
distance are known in advance, by the call center or all sectors, and in particular in the transport sector and,
directly by the driver, thanks to applications developed as a result, our reference case does not expect electric
by many publishers (e.g. myTaxi) that seek to enhance vehicles to replace fuel-driven ones on the Paris public
the links with clients and their needs. In addition, the le- roads.
de-France region transportation survey (Stif - DRIEA -
Omnil 2012) revealed that of all daily trips in le-de- The Project Case
France in 2010, 57% had to cross by Paris, active On financial grounds, the charging point infrastructure
mobility included. policy voted by the City Council of Paris in November
Finally, this public policy goal consist in adopting 2013 presented implementation costs born by two
incentives to promote the electric vehicle in the taxi different stakeholders: 3 million Euros from the Cit
market, in order to meet a twofold challenge: curbing air Council and 3 million Euros from Groupe Bollor, the
pollution and modifying the governance of the taxi founder of Parisian car-sharing system Autolib. With
sector. Technically, the proposition is to give new taxi such an envelope, developing a battery pack exchange
licenses for free to companies and drivers who accept to network for electric vehicles in Paris is therefore
249
financially possible: indeed, because of the price of one COBAYE: COST-BENEFIT ANALYSIS UNDER
battery pack exchange station (around 250,000 Euros), INTERDEPENDENCY AND UNCERTAINTY
this network would initially be of only 12 battery pack
Our work hypothesis considers that a significant part of
exchange stations (called quick drops, or QD) in the
the Parisian taxis answer to the public call and adopt this
Paris area. These stations, similar to the Better Place
technology, assuming the system profitability will be
model would be distributed on the following sites:
secured by the frequency and the time repartition of
- Porte Maillot, directly linked to the district of
uses. In that way, we look to demonstrate whether a
La Dfense;
battery removable pack policy concerning a particular
- Porte dAubervilliers, directly linked to Roissy
fleet could be more interesting than a charging point
Charles-De-Gaulle airport;
infrastructure network implementation policy as voted
- Porte dItalie, directly linked to Orly airport;
by the City Council of Paris especially in terms of air
- Porte de Bagnolet, Porte dOrlans, and Porte
pollution reduction and impacts on the local economy.
de Versailles, in order to cover the whole
Our research essentially lies in public economics, and
Parisian region on its four cardinal points.
proposes a new tool for project appraisal. Indeed, the
- Six railway stations inside Paris: Gare Saint-
evaluation and comparison of both the above-mentioned
Lazare, Gare du Nord, Gare de lEst, Gare
public policies will be carried out by a new decision
Montparnasse, Gare de Lyon and Gare
making-tool, called CoBAYe. Based on the traditional
dAusterlitz.
cost-benefit analysis (CBA), CoBAYe proposes to
identify, rank and monetize all the implications of a
given public policy on the territory on which it is
applied, and especially on its economic structure in a
specific spatio-temporal framework.
Therefore, CoBAYe tries to supplement CBA by taking
into account radical uncertainty and spatial, temporal,
technical and functional interdependencies between
public policies and private strategies. Thus, in order to
achieve its goal, this decision-making tool proposes to
use a systematic typology based on the consideration of
direct, indirect and induced effects of the
Figure 1: Representation of the location of the battery pack implementation of the given public policy, accruing to
exchange stations (blue dots) in Paris (red area, crossed by the each affected stakeholder (Le Goff & Proag 2014a).
Seine river) Indeed, CBA as currently practiced is often limited to
the evaluation of what we call the policys direct effects
In addition, these stations should be similar to Better (i.e. the intended effects related to the actions that took
Place ones, in Israel or, by analogy, similar to the station place, or that have been implemented without any other
that Better Place operates at Schipol Airport, in order to public intervention) and indirect, or wider economic
enhance the use of electric cars through taxi fleets effects (i.e. effects related to the actions that took place
between the airport and downtown Amsterdam. We although unintended, still without any other public
assume that the operator of these stations, noted BP 2, intervention). However, we believe that the
would be responsible for the construction of the network consideration of these effects is not sufficient to conduct
and for its operations. The initial investment for BP2 an evaluation of a transversal public policy, affecting
would be therefore limited to 3 million Euros. The numerous sectors of the economy. In particular, if the
maintenance cost of the network, as well as the benefits public policy to be evaluated does generate effects on
would be paid and in favor of BP2. other public policies and private strategies, and which
In parallel, the investment of the City of Paris would would not have arisen without the original policy (i.e. in
also be of 3 million Euros and would include providing the reference case), why not take them into account in
and upgrading the places where the stations should be the assessment?
located. Indeed, this project case assumes that the City
of Paris uses the 3 million Euros budget to compensate
current real estate tenants and hence provide locations
for quick drops next to train stations or on the filling
stations spaces in the case of the QD located at the
outskirts (the Portes) of Paris.
250
Brief Explanation of the CoBAYe Decision-Making which can be a private strategy as well as
Tool another public policy. Steps 2 and 3 should
This paragraph aims to describe briefly how the therefore be carried out simultaneously. Each
CoBAYe decision-making tool can be used for an ex- one of these is identified as a direct (DE), an
ante evaluation, following guidelines found in (Le Goff indirect (IE) or an induced effect (UE)
& Proag 2014a; Le Goff & Proag 2014b). according to the CoBAYe tool, as defined in
Error! Reference source not found..
4. For each effect are associated benefits and/or
costs, which accrue to the stakeholder
aforementioned. Indeed, in CBA and more
generally from a utilitarian perspective the
value of each benefit for each person counts
equally. But for decision making it may be of
importance who benefits to what extent, and
who loses to what extent (Van Wee 2012).
This step is still part of the description of the
consequences of the public policy and should
be written qualitatively.
5. Step 5 is the numbering part of CoBAYe. In
this step, the evaluator should provide when
possible a monetary value for every benefits
and costs that have just been identified.
Once the effects at time period Pi (say P0 at the

beginning) have been identified, we believe these effects
have an incidence on the economic and territorial
Figure 2: Step by step analysis of the CoBAYe decision- structure of the territory to which is applied the public
making tool at a fixed period policy (in this case: the City of Paris). Once the
economic structure is changed, all economic
CoBAYe proposes to evaluate a public policy through stakeholders are therefore in another time sequence,
the following steps. The first four steps aim is to gather called Pi+1, and the new economic structure provides the
information and identify the public policys effects, and conditions for new public policies and private strategies.
the last one is the tools part closest to giving It is important to keep in mind that this notion of time
recommendations (Figure 2): sequence (which characterizes an economic structures
1. We believe that the first step is to define both basic conditions) is different from the usual notion of
the geographical study perimeter (in this case: time (which is not directly linked with a change in the
the administrative borders of the City of Paris) production factors): the former is a tool to identify
and this defined territorys basic conditions, effects generated by the public policy, whereas the latter
as they are essential for the CoBAYe is important for the evaluation duration (notion of time
evaluation of a public policy. By basic horizon) as long as the frontier with radical uncertainty
conditions, we include topology, pollution, (Knight 1921) is not crossed.
infrastructures (transport, energy...), housing Finally, in every period, in order to find the effects of
basin, parking areas, delivery areas, work each stakeholder, we use the following definitions and
areas, attraction poles, number, location and typology of direct, indirect and induced effects (Figure
diversity of businesses, number and location of 3). All the effects identified can therefore be regrouped
schools, number of tourists, population (age, according to the nature of the concerned stakeholders
characteristics), trip purposes, vehicle for instance (public institutions, private companies, civil
possession rate, location of trips for business society) or even more detailed (French State, Ile-de-
and leisure purposes, governance, legislation, France region, City Council of Paris instead of public
or institutional layers for instance. institutions for instance). The effects found thanks to the
2. As these basic conditions are specific to the CoBAYe decision-making tool are periodized and quite
territory to which is applied the public policy, lengthy. We have however chosen to present a non-
they enable the evaluator to determine which exhaustive representation of some of the effects
economic stakeholders may choose to react to identified in both public policies in the next section
the public policy (for instance the City of Paris, (Figure 4 and Figure 5), before discussing these sets of
the French State, or some private companies). results in Section 5.
3. Each stakeholder identified can react to the
public policy by a behavior or an anticipation,
251
Figure 3: Typology of CoBAYe effects
COBAYE APPLIED TO BOTH POLICIES

AGAINST AIR POLLUTION
Figure 4: Some effects of CoBAYe evaluation of the implementation of a charging point infrastructure network in the City of Paris
(not exhaustive). Direct, indirect and induced effects are represented by bubbles which edges are respectively less dotted.
252
Figure 5: Some effects of CoBAYe evaluation of the implementation of a quick drop network for
a detachable battery organization in Paris (not exhaustive)
COMPARATIVE ANALYSIS OF BOTH SETS OF that the benefit for civil society increases progressively
RESULTS thanks to the improvement in health and noise gains if,
as in our scenarios, the policys targets are reached. We
On a broader approach, we propose to compare
also assume that improvement in health related to the
without underpining our arguments with quantitative
diffusion of electric vehicles (as taxi drivers spend 11
data the expected effects of implementing either the
hours daily in their vehicle, they are the first victims of
public policy consisting in deploying a network of
air pollution) have a more important impact than urban
electric charging points to be used for charging both
congestion and time wasted.
individuals and firms vehicles; or the public policy
consisting in implementing a battery pack exchange
Private Stakeholders
network to be used in priority by taxi fleets. Although
The situation of the private stakeholders is very different
CoBAYe also deliver monetized results, this paper will
from one case to another. Indeed, in the case of the
discuss both sets of results on a qualitative approach.
deployment of charging points, private stakeholders are
The discussion will be divided into three parts,
net (and absolute) beneficiaries of the public policy. The
corresponding to the nature of the concerned
main explanation is that they do not support any cost of
stakeholders.
implementation and only have to purchase electric
vehicles for which prices are low (thanks to State
Civil Society
subsidies) whereas, in the case of the deployment of
In both public policies, civil society already get benefits
quick drop stations, half of the cost of deployment (3
in the first years after the implementation of either
million Euros) is supported by BP2. On a longer period
policy. In the case of the deployment of charging points,
nevertheless, as new economic activities and a new
this gain is derived from the use of electric cars by
ecosystem are created (Moore 1996), it is assumed that
private companies and citizens, as a replacement of fuel-
private stakeholders are increasingly beneficiaries of the
driven vehicles. In the case of the deployment of battery
policies, in both cases. The benefits are due to three
pack exchange stations, the gain is linked to the taxi
different induced effects, which happen at different time
fleet service that performs better (environmentally
horizons:
(pollution, noise) and with a more regular frequency)
- Sale of electric vehicles for automotive
than in the reference case. On a longer period,
companies;
respectively in the second and third years, we estimate
253
- more turnover generated for taxi fleets than in Attali, J., 2013. Pour une conomie positive, Paris: Fayard: La
the reference case; Documentation Franaise.
- job creation thanks to a new ecosystem created Baine, J., 2013. Conditions dmergence et de diffusion de
lautomobile lectrique. Une analyse en termes de bien-
in electric mobility (which would not occur in
systme territorialis. Thse de Doctorat en sciences
the reference case). conomiques de lUniversit Paris 1 Panthon-
Sorbonne.
Public Stakeholders Conseil de Paris, 2013. Communication 2013 DVD 205 du
As far as public stakeholders (mostly French Maire de Paris au conseil municipal, sur le
government and City Council of Paris) are concerned, dveloppement et lexploitation d'un rseau public de
the results show that the public policy has net costs for bornes de recharges pour les vhicules hybrides et
those public stakeholders. For both policies, the greater lectriques, adopte le 14 novembre 2013.
part of costs are linked to the implementation, Darbra, R., 2008. Rapport Attali: les craintes des taxis
taient-elles fondes? Transport, (448), pp.8691.
respectively of charging points and of battery pack
Darbra, R., 2010. Taxicab regulation and urban residents use
exchange stations (direct effect which accrue to the City and perception of taxi services: a survey in eight cities.
of Paris), as well as the increase in the number of In Selected Proceedings of the 12th World Conference
subsidies given to electric vehicles buyers (indirect on Transport Research (WCTR). Lisbon, p. 15.
effect which accrue to the French government). It is to DellOro, J.-L., 2014. Ce quon ne dit pas sur la guerre entre
be noted that new taxi-driver licenses are given for free les taxis et les VTC. Challenges.
and do not increase the public part of the costs. In both Dupont-Calbo, J., 2014. On a parmi les meilleurs taxis du
cases, the costs are getting lower period after period as monde!. Le Monde, p.1.
we assume the birth of a club effect (Dupuy 1993; Dupuy, G., 2002. Cities and automobile dependence
revisit: les contrarits de la densit. Revue
Dupuy 2002) i.e. the growing interest of people for
dEconomie Rgionale & Urbaine, 1(fvrier), pp.141
purchasing an electric vehicle in order to be part of the 156.
same social status of their peers. Finally, those scenarios Dupuy, G., 1993. Gographie et conomie des rseaux.
consider that part of the costs are balanced by Espace gographique, 22(3), pp.193209.
opportunity benefits, i.e. the fact that for instance public GFK, 2007. Les nouvelles places du taxi,
stakeholders mainly the City of Paris do not have to Le Goff, R. & Proag, S.-L., 2014a. Comment et jusqu quand
implement a freight policy or a health policy. valuer? De lAnalyse Cots-Bnfices la mthode
CoBAYe. Economie Applique, p.( paratre).
CONCLUSIONS Le Goff, R. & Proag, S.-L., 2014b. Integrating Public Policy
and Private Strategy Interdependencies in Project
The last paragraphs discussed only serve as examples of Evaluation: From CBA to CoBAYe. In ICOPEV 2014:
CoBAYes outputs if the decision-making tool is used 2nd International Conference on Project Evaluation.
for policy evaluation and even for recommendations. Guimaraes, p. (to be published).
We however strongly recommend the use of CoBAYe as Knight, F., 1921. Risk, uncertainty and profit, Boston, MA:
Hart, Schaffner & Marx; Houghton Mifflin Co.
a tool to identify, describe and anticipate the private
LOI 2009-288, 2009. Loi de dveloppement et de
strategies and public policies which could be generated modernisation des services touristiques, Paris:
by the initial public policy implementation. The Assemble Nationale et Snat.
CoBAYe ex-ante evaluation will therefore help set-up LOI 82-1153, 1982. Loi dorientation des transports
the decision-maker towards adapting, changing or intrieurs (LOTI), Paris: Assemble Nationale et Snat.
pursuing with the modalities chosen for the policy Moore, J.F., 1996. The death of competition: leadership and
implementation. More precisely, it is the typology of strategy in the age of business ecosystems, New York
direct, indirect and above all induced effects each time (USA): Harvard Business.
Stif - DRIEA - Omnil, 2012. Enqute Globale Transports
the economic structure which enables the evaluator to
EGT 2010, Paris.
both identify public policies and private strategies, so Thvenoud, T., 2014. Un taxi pour lavenir des emplois pour
often intertwined, and to model them with figures la France, Paris.
related to each concerned stakeholder. Van Wee, B., 2012. How suitable is CBA for the ex-ante
evaluation of transport projects and policies? A
ACKNOWLEDGEMENTS discussion from the perspective of ethics. Transport
Policy, 19(1), pp.17.
Part of this work has been supported by the financial help of
the City Council of Paris and ADEME, the French
Environment and Energy Management Agency.
REFERENCES
Agenzia di Roma, 2008. Taxi, mobilit individuale e politiche
di regolazione, Roma.
Airparif, 2012. Rapport dactivit & Bilan de la qualit de
l'air, Paris.
254
HUMAN RESOURCES AND MANAGEMENT IN PROJECTS

1
* Corresponding author: [email protected], IPB, Campus de Santa Apolnia, Apartadao 1134, 5301-857 Bragana, Portugal
KEYWORDS management. Moutinho and Lopes (2011b) show the

Project appraisal, Human resources analysis, importance that companies attribute to human resource
Management analysis (53,1%) and project management (69,8%) areas, which
are also pointed out as critical to the success of the
ABSTRACT projects.
The human resource function is one of the most crucial
When valuing an investment project, all the factors that elements in the success of an organization and has
affect its viability should be analysed. As such, not only gained much importance within the organizations,
financial aspects are important, but also non-financial claiming more and more its strategic role (Belout,
aspects. In effect, in project appraisal we should analyse 1998). In this way, the development of a human resource
the human resources and the role of the project manager plan should be closely linked with the strategic planning
and his personal characteristics and attributes. We of the project (Fabi and Pettersen, 1992). For Lopes and
support the idea that human resources and project Flavell (1998), a good organization without the right
manager areas have to be analysed when determining a people, as well as the right people in bad organizations,
projects viability. are not efficient. On the other hand, to Johns (1995) it is
the actions and behaviours of people and managers that
INTRODUCTION form the basis for the projects execution.
In project appraisal it is common for financial This paper intends to show the importance and
evaluation techniques to be the sole decision criterion. contributions that human resources and management
However, Mohamed and McCowan (2001) indicate that bring to the projects. As such, it includes a literature
traditional project appraisal techniques have limitations review of the importance of the matters for projects,
related to the fact that their parameters cannot be presenting some works that have approached these
determined with certainty and the fact that these issues.
techniques do not capture the importance of qualitative In the next chapter are the main aspects related to human
factors. resources, namely: personnel and their characteristics;
In fact, the investment decision-making process is teamwork; cultural issues; and personnel motivation.
complex and goes beyond the financial aspects. Many of Next the main risk factors related to human resources
the goals in a project tend to be qualitative and long are identified, followed by how to minimize them. In
term, as opposed to quantitative, easy to measure, short- chapter four, the role of the project manager is
term outcomes. Financial evaluation is only part of the identified, and then the main characteristics and
decision-making process and additional information is attributes of the project manager. In chapter six is an
necessary. Moutinho and Mouta (2013) present a brief analysis of the importance and role of the project leader
reflection over which are the main aspects to take into and the companys management in investment projects.
account in project appraisal: financial and non-financial Finally, there is a presentation of some of the studies
aspects, capital structure, agency problems, governance, that provide evidence of the importance of human
real options, stakeholders and other situations. Moutinho resources and management in investment projects.
and Lopes (2011b) note the importance that non-
financial aspects have in investment projects. Skitmore HUMAN RESOURCES
et al. (1989) present a list of factors that influence the As for personnel, Baccarini (1999), Johns (1995) and
success of construction projects, naming forty-four other Wateridge (1995) show the need for the clear
factors, apart from the financial aspects. Lopes and understanding, communication and agreement of the
Flavell (1998), Love et al. (2002) and PMI (2013) projects goals and demands in order for them to have a
provide evidence of the importance of studying, among positive impact on the projects outcome, whereas Lopes
others, aspects related to human resources and and Flavell (1998) refer the fact that the personnel
255
allocated to the project must possess adequate individual of the leader according to the stage of the project.
knowledge and skills. On the other hand, Fabi and Beyond these aspects, Loo (2003) also presents as
Pettersen (1992) show that the personnel assigned to the characteristics and factors to analyse in teams:
project should be in adequate number and have the participative security; vision; task orientation;
necessary abilities. innovation support; social desirability.
Zita-Viktorsson et al. (2003) list as the most important When planning the work of a team, Johns (1995)
individual work practices the commitment to the work, defends the use of five management tools: the goals
the autonomy to plan their own work, feedback, must be clear, measurable and agreed upon and the risks
psychological stress reactions and quantitative and must also be understood; the work should be controlled
qualitative work. Given that the nature of projects can (for example, through labour division), and the
vary greatly, workers with more creativity, problem- scheduling, costs and the existence of flaws verified;
solving skills and work capacity (with concepts and concerning the projects organization, each task should
ideas) are the most adequate. Kuprenas (2003), while be assigned to a team member; it is necessary to create
studying the matrix structure as a project organizational good communication within the team and to simplify the
structure, suggests that workers should possess strong schedule and its disclosure; concerning the performance
communication skills, the ability to work as part of a of the project in terms of the budget, the team members
team and adaptability to the possibility of change. should determine and indicate their resource demands
Taylor et al. (1995) add that the personnel should feel throughout the project.
comfortable working in environments with a certain To Lopes and Flavell (1998), it is the managers job to
degree of ambiguity. foster teamwork and a good work environment, to create
Gray (2001) and Lopes and Flavell (1998) present a positive work atmosphere, essential to the
experience, technical skills and positive personal implementation of a successful project. Apart from team
relationships, especially within a teamwork context, as spirit, reflecting the feeling of belonging, it is necessary
relevant factors. On the other hand, Belout (1998) to verify whether there is an exchange of ideas, a
considers that it is important to analyse the legal labour propensity to conflict, team cooperation and an open
restrictions and treat employees fairly, respecting work and mutual aid climate (Zita-Viktorsson et al., 2003).
contracts. He adds that it is essential to consider the Motivation is the driving force behind work behaviours
power of unions and negotiate agreements and working and determines their form, direction, intensity and
conditions with them. duration. Motivation in work fosters a good work
To Maurer (2001), young employees should be assigned environment between employees, which reduces
to the development of projects, specifically when new absenteeism, creates stability and positively influences
knowledge is necessary. On the other hand, Lopes and productivity.
Flavell (1998) indicate that the senior elements of the As for cultural aspects, they may be evaluated in terms
project should have a high coordination skill and past of voluntarism, perceived threat, control and care of
experience in similar situations, in order to make people. When a project is developed by a team, Gray
grounded decisions and immediately acknowledge and (2001) emphasizes that there tends to be an especially
assess risks. They also mention that it is important to positive atmosphere in projects, as well as a low level of
build a replacement plan for these elements in case of threat and a high care with people, when compared with
necessity, so as not to compromise the positive the company, which reflects positively in the results of
evolution of the project. the project.
Belout (1998), Johns (1995), Loo (2003) and Wateridge As for the threats to employees related with the
(1995) outline the importance of teamwork in projects. implications on their career, financial consequences,
A project team included members from various reputational effects and concerns with their own image,
functional areas in the company, with complementary Gray (2001) notes these factors have a negative
skills, aiming to share ideas and work toward common relationship with the projects results, that is, the larger
goals. Work teams should be highly interactive, with these threats, the lower the success of the project tends
trust between its members. Since members have to be since these threats are perceived as unfair. He also
different knowledge, the probability of solving a highlights the important and positive role in the projects
problem within the team as a whole increases (Johns, results of voluntarism, measured by free expression,
1995; Bishop, 1999; Fleming and Koppleman, 1997). In questioning, participation in defining the goals,
teamwork, it is important to ensure communication and innovation and intrinsic job satisfaction. For Lee-Kelley
interpersonal relationships between team members, et al. (2003), in a project, social interactions between
management and clients. On the other hand, it is members should be analysed in what respects cohesion,
necessary to attribute power as a way to motivate the shared values and beliefs, as well as goal sharing.
teams to fulfil their goals (Johns, 1995). Teamwork
allows the reduction of the life cycle and the costs of the
project, the increase cooperation, the minimization of
functional differences of interest and an adequate choice
256
HUMAN RESOURCE RISK FACTORS Job analysis is the process of obtaining information
about a job and can take two forms. One, the job
One of the concerns with human resources has to do
description, identifies the type of work to perform, the
with the possibility of repetition of tasks motivated by
methods, work conditions, obligations and
omissions, mistakes or misinterpretation of the work
responsibilities and also mentions the occasional
(Jonhs, 1995). This is one of the main factors that
variations in the job and relationships with other
contributes to the weak productivity and cost increase,
employees. The other, profile demands, contains the
with evident reflexes in performance.
human attributes necessary, previous experience,
Belout (1998) presents factors related to personnel that
training, level of responsibility and intellectual and
may adversely affect the project: unqualified personnel;
physical demands.
inadequate training; inexperienced management; and
The selection policy aims to choose the team members
lack of motivation. Lopes and Flavell (1998) point as
that best fit the characteristics and goals of the projects
one of the difficulties to overcome the impossibility to
and that allow improvement in performance and lower
make the necessary technological level compatible with
risks. Therefore, competent employees should be
the skills of the existing personnel.
recruited for the team that have good problem solving
Fabi and Pettersen (1992) present as problems in project
skills (Jiang et al., 1996).
management: the need for technical and management
The reception policy is related to the integration of new
qualifications; the inconsistency between authority and
employees in the project. Through the signature of the
responsibility of the project manager; the attribution of
contract and other documents, the companys statutes,
human resources to the project and the jurisdiction
visit to job locations, encounters with new colleagues,
conflicts resulting from it; the integration of employees
job description and presentation sessions, diverse
in new project teams; double authority (due to matrix
information is transmitted (about the project, the work
structures) the members of the teams may be subjected
and goals to achieve) to new members, allowing them to
to; and insecurity about careers.
become acquainted with the new reality.
Johns (1995) presents as risk factors: the difficulty to
The salary policy intends to reward employees,
incorporate the demands of all the functional
financially or otherwise, considering the legislation and
perspectives and work together; the lack of skill of some
the companys capacity for payment. Merit based
members to work in a cooperative team environment;
reward should be adopted so as to encourage the
the lack of management skills when leaders are technical
employees to maximize their performance. Kuehn et al.
(especially in initial stages); using a structure other that
(1996) shows that the reward system should be based on
the matrix structure, which originates inefficiencies in
group reward, rather than individual reward, as a way to
the use of resources; the need for project managers to
reduce possible conflicts.
perform tasks they do not enjoy; the inexistence of a
Through performance evaluation, it is intended to judge
function to return to after the project ends, with negative
the activities of the employees. Globerson (1983)
impacts in the morale of the team members.
presents five attributes to measure an employees
On the other hand, projects may cause stress in
performance: work discipline; professional knowledge
participants due to the deadline pressures, with impact
for the last period of the project; human relations;
on the motivation of employees and their perception of
production and performance quality; dedication to work
the work conditions. The appearance of incidents may
and responsibility.
be perceived as causing stress and may lead to feelings
The training policy refers to the learning activities
of inadequacy, lowered self-confidence and self-esteem
planned to provide the employees the acquisitions of
and cause adverse effects in the employees health
knowledge, skills and attitudes. Training should allow
(Gallstedt, 2003).
the development of technical, human, and business
knowledge skills so as to contribute to improved
MINIMIZATION OF HUMAN RESOURCE RISKS performance, cost reduction and increased employee
As a way to overcome the risks associated with Human satisfaction and motivation. Rusinko (1997) provides
Resources, Love et al. (2003) propose the monitoring of evidence that it is through intensive training that the
tasks attributed to employees, staff training, incentive to difficulties of teamwork are most easily overcome.
self-learning in individuals, collaboration with external Career planning shows how promotions will be handled
companies, internal and external benchmarking, based on past performances, so as to satisfy the needs of
continuous professional development, project review employees in improving their professional career.
and internal seminars. Loo (2003) emphasizes that a teams positive
Fabi e Pettersen (1992) emphasize the importance of behaviours should be reinforced in order to ensure its
building a project management plan directed to human continuity, while the existence of problems requires an
resources, based on the policies of: job analysis, intervention at the right moment to improve teamwork
selection, reception, salary, performance evaluation, over the remaining life of the project. For Fusco (1997)
training and career planning. the evaluation of the teams should emphasize collective
work aspects, rather than individual aspects.
257
Zita-Viktorsson et al. (2003) and Johns (1995) stress stakeholders in the project as an important part of the
that the information within the team and the project managers role.
development of joint activities such as the formulation The project manager is responsible for organizing,
of goals, decision-making and the development of ideas recruiting personnel, planning and controlling the
are important in improving the quality of work, in project. Meredith and Mantel (2000) point out as
favourably developing work practices and in increasing required characteristics of the project manager: the
the union of the group around the project, reflecting in acquisition of adequate resources; the ability to motivate
the improvement of its goals and results. the staff; the ability to deal with obstacles; an adequate
Employee motivation can be induced through the self- consideration for cost, time and performance goals; the
realization or satisfaction that the type of work causes, construction and maintenance of a solid information and
through the recognition of the work performed, the communication network; and negotiation skills. The
degree of autonomy and responsibility, the personal project manager should know why the project exists and
development, the progression in the career (Turner et be able to clearly identify of what determines the
al., 1998), the dissemination of information, the variety success of the project.
of tasks, the prestige, the work with new technologies, Pozner (1987) stresses that good project managers
the creation of opportunities of moving to other areas understand the critical problems they face and are
(Lopes e Flavell, 1998), the possibility of participation prepared to deal with them. As problems in project
and personal relationships, namely when teamwork is management the author presents the following:
important (Osterloh and Frey, 2000). The lack of inadequate resources; unrealistic deadlines; unclear
employee motivation may be associated with salaries, goals; changes in goals and resources; conflicts between
benefits or symbols of statute, interpersonal departments or functions.
relationships (Osterloh and Frey, 2000), inexistence of Munns and Bjeirmi (1996) present as functions of
good work conditions (Lopes and Flavell, 1998), the managers: commitment to complete the project;
authority, communication and external environment adequate definition of the project; correct planning of
(Turner et al., 1998). the projects activities; ability to ensure a correct and
Bewley (1999), in business environment, outlines the adequate flow of information; ability to promote
need to uphold a good morale among employees. This changes in activity to accommodate the projects
way, it is possible to obtain cooperation toward the dynamic; ability to make the personal goals of
goals outlined, enthusiasm for the job, happiness, employees compatible with their performance and
tolerance for unpleasant things, moral behaviour and reward.
mutual trust. In this climate, employees perform extra Turner and Muller (2005) show that the project manager
jobs without instruction, make suggestions for has an important role in the creation of an effective work
improvements and help each other. environment for the project team. The project manager
Baker e Scherer (1997) list the concern with workplace should create all the appropriate conditions for
security as a crucial factor. In this way, accidents and teamwork, so that the employees reach the intended
absenteeism are reduced, employee compensation costs performance, giving support, training, resources, time,
are lowered and the exposure to litigation is reduced, money and personal help and removing any obstacle. In
which conduces to lower costs, fewer repetition of tasks the same line of thinking, Bentley (1992) highlights that
and respect for deadlines. the intervention of the manager should not compromise
the individual justice, initiative and imagination. Those
ROLE OF THE PROJECT MANAGER authors also refer the importance of solving problems,
anticipating them and looking toward the future,
Shenhar et al. (1997) show that the project manager defining and evaluating priorities and making decisions.
cannot just analyse the project as the only factor to
consider in his decision. Managers must understand the
CHARACTERISTICS AND ATTRIBUTES OF
business environment and view their project as just a
THE PROJECT MANAGER
part of the companys effort to gain competitive
advantages and profit, analysing the benefits and the One of the main factors that leads to the success of the
creation of future opportunities and skills within the project lies in the adequate choice of a manager, that is,
company. the choice of the right person to lead it, considering they
To Turner and Muller (2003) the fundamental role of a should possess certain specific characteristics to perform
projects manager is in the formulation of goals and that job (Bentley, 1992). To Lee-Kelley et al. (2003) the
strategies for the project and in the relationship between perception of success depends on the style of leadership
these goals and strategies and those of the company of the project manager, as well as on his personal
promoting the project. Those authors also highlight the attributes and experiences, namely the knowledge and
importance of delegating work and interpreting plans interpersonal skills of the manager, his management and
and work reports. Wateridge (1998) emphasizes the leadership skills and his experience as a manager.
identification and good relationship with all the
258
According to Pozner (1987), good project management project (Lee-Kelley et al., 2003). Pettersen (1991)
requires a set of attributes and skills from the project mentions that the necessary qualifications for project
manager as a way to overcome, appropriately deal with managers vary according to the nature, complexity and
and manage the problems that may arise. This author dimension of the project, what stage in its life cycle it is
identifies as important personal characteristics of the at, and according to its organizational structure and
project manager the aggressiveness, trust, decision and hierarchical position occupied by the project manager.
entrepreneurship, versatility, multidisciplinarity and
quick thinking. He also stresses that a manager should PROJECT MANAGER VERSUS COMPANY
have adequate communication skills (namely the ability MANAGEMENT
to listen), organizational skills, leadership (the manager
should be energetic, visionary and positive) and When the companys management (principal) hires
technological skills. Note that it is not enough that the someone to manage the project (agent), delegating
project manager possesses such skills and attributes, power and decision authority, there may arise agency
they should be also perceived by others (Meredith and issues (Eisenhardt, 1989; Shleifer and Vishny, 1997;
Mantel, 2000). Thakor, 1993). On the one hand, the principal needs
Pettersen (1991) sums up the requirements of the project specific knowledge, appropriate skills, but on the other
manager into management knowledge (planning, hand, the contract between both cannot predict all future
organization, ability to follow through with work, situations (Jensen and Meckling, 1976). In this way, the
decision making, team supervision, human aspects), factors that maximize the utility function of both parties
personal characteristics (analytical skills, creativity, are not necessarily the same, giving rise to conflicts and
vivacity, flexibility, adaptation skills, stability, energy, causing costs or value losses.
persistence), global vision of the project and a According to Turner and Muller (2003), the companys
multidisciplinary orientation that encompasses various management (management) basically faces two
knowledge areas. problems in its relationship with the project manager
Thoms and Pinto (1999) explain that different time (manager): on the one hand, there is an asymmetry of
skills (aptitudes and capabilities related to time information given that the project manager has private
management necessary to the fulfilment of specific information; on the other hand, since the manager has
tasks) are necessary for different tasks and activities his own goals, he may have opportunistic behaviours,
accomplished by the project leaders. Therefore, it is which lead to conflicts of interest. Note that the
vital that the time orientation (orientation toward the decisions of the principal and agent differ because of
past, present or future a leader brings to an organization) their different risk perspectives, since the agent is more
of a project manager in a given situation meets the risk averse than the principal. Tan (2000) shows there
requirements of that situation. There should be harmony are differences in the agency problems, depending on
between the time skills of the project leader and the the dimension of the company. In small companies, the
nature of the tasks that leader must perform. This principal is able to closely monitor the project and
explains why it may be necessary for several project remain well informed about its evolution. The principal
managers to be in charge of a given project throughout is in a position to make the decisions which are in his
its life. best interest. In large companies, where the principal is
Kuprenas et al. (2000) indicate, as relevant attributes in too far from the project, the decision must be delegated
a project manager, the technical and management to the agent. In this case, the principal loses well-being
knowledge, the experience and technical expertise, when the agent does not share the same goals as the
strong leadership and communication and human principal, or when the principal is unable to monitor the
relationship skills, while Sotiriou and Wittmer (2001) actions of the agent (Harrison and Harrell, 1993).
point to technical knowledge, relational aspects with To minimize the agency problems, management needs to
employees, persuasion and negotiation skills, trust, attribute incentives to align the goals of the manager and
ability to influence the teams behaviour through the management and adopt control mechanisms to halt
appropriate exercise of authority, performance reward opportunism. Regarding incentives, Eisenhardt (1989)
and professional integrity. points to drafting contracts based on results as a way to
Hauschildt et al. (2000) highlight as important project co-align the performance of the agent with the goals of
manager characteristics, among others, aggressiveness, the principal. As an alternative, Farrell (2003) presents
ambition, balance, spontaneity and experience, and as also behaviour-based contracts, which are important
attributes the experience, decision-making skills, when there is consistency between the principals and
cooperation skills, ability to deal with conflicts and to the agents goals and when the principal has the skills to
integrate the visions of several different people. adequately monitor the agent. Incentive contracts may
The characteristics and knowledge of project managers also take the form of sharing ownership and stock
should be flexible and adaptable throughout the project, options (Jensen and Meckling, 1976; Fama, 1980). As
according to the stage it is at (Turner et al., 2000), and for control mechanisms, there should be improved
dependent on the type, dimension and duration of the dissemination of information, with the implementation
259
of a complete information system, a greater number of Moutinho and Lopes (2011,a) present the results of a
actions and results of the manager should be subjected detailed analysis of each of the areas of evaluation.
to monitoring (Turner and Muller, 2003) and there Concerning the human resource analysis, they find that
should be penalties for low performances, such as the companies attribute great importance to technical
dismissal and/or decreased reputation, which has a knowledge (83,3%), problem-solving skills (81,8%),
negative impact on future career opportunities for the ability to work as a team (80,3%), ability to work for
manager (Jensen, 1986). common goals (75,8%), trust between team members
Since the manager wishes to keep his job, and knowing (75,8%) and incentives to team spirit (72,7%).
that at the end of a given project he risks unemployment, As the main human risk factors are pointed the lack of
he may not give it his best effort and try to prolong the coordination between team members (73,1%) and the
project over an unnecessarily long period of time absence of motivation (70,1%). As a way to minimize
(Turner and Muller, 2003). One solution would be to these risks, companies choose the need to formulate
guarantee a (contingent) long-term contract for the a clear objectives for the project (70,1%), the correct
priori, to align his interests with those of the principal identification of the type, methods and conditions of the
(Shleifer and Vishny, 1997). work to be performed (61,2%), the capacity of workers
to develop technical skills (59,7%), the analysis of the
THE IMPORTANCE OF HUMAN RESOURCES employees education/qualification (56,7%) and the
AND MANAGEMENT ANALYSIS IN PROJECT analysis of the employees experience (50,7%).
APPRAISAL As for the project manager analysis, Moutinho and
Lopes (2011,a) conclude that the role of a project
Moutinho and Lopes (2011, b) observe that 69,8% of manager is mainly related with understanding the
the companies attribute a high importance to the project businesss environment (83%) and delegating and
manager aspects and 53,1% consider human resource attributing responsibilities (81,1%). Companies consider
analysis important in the project appraisal context. It that the main characteristics a project manager should
should also be noted that companies from the possess are management skills (92,5%), decision-
commercial industry and with long-duration projects making skills (90,6%) and leadership skills (90,6%).
attribute a greater importance to the human resource According to Moutinho and Mouta (2011), when the
analysis. On the other hand, CEOs with a lower level of project manager is experienced in managing projects
education attribute a greater importance to the project then the human resource analysis is more likely to be
manager analysis, whereas the younger the CEO and the performed, whereas project manager analysis is more
project manager, the greater importance is attributed to commonly found when the project manager is a part of
human resources. In this study, the area of project the companys management.
managers is also presented as one of those which most
contribute to more successful projects. Note, also, that
CONCLUSIONS
this work shows that the human resource analysis is one
of the most evaluated in project appraisal, since 69,8% The evaluation of investment projects should take into
of companies analyses these issues. On the other hand, consideration all relevant aspects, whether quantitative
nearly 55,2% of firms consider project manager aspects. or qualitative in nature. Even though it is easier to
Despite these results, the study concludes these areas analyse the financial aspects of a project, the analysis of
lose importance when attempting to verify their the human resources and manager assigned to the
influence in the economic value of the project and their project cannot be neglected. Lopes and Flavell (1998),
importance in the decision to implement the project. Datta and Mukherjee (2001), Love et al. (2002) and
Moutinho and Lopes (2011, b) identify the main critical Moutinho and Lopes (2011a; 2011b) show the
success factors in investment projects, concluding that importance that non-financial aspects have in project
the non-financial aspects are very important, with human appraisal.
resource aspects mentioned as one of the five most This work outlines the importance of the human
important critical areas. This work shows that not only is resource and project manager analysis for investment
higher success levels in projects related with higher projects. Even though they are areas of subjective
frequency in the evaluation of human resources and analysis, companies tend to analyse them as a way to
project manager aspects, but also in higher project maximize the financial resources used.
success companies consider the project manager area The project manager and human resources have a key
more important in projects valuation than companies role for projects success. Given that the decision-
with lower project success. It is also apparent that makers and implementers are employees, ignoring these
human resources aspects are present in successful areas of analysis may cause an unsuccessful project. It is
projects and that perceived success is higher when the good to remember that it is the actions and behaviours
project managers reward is entirely variable or goal- of people and managers that form the basis for the
based. execution of the project (Johns, 1995).
260
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262
ORGANIZATIONAL CONTEXT FOR LEARNING AND KNOWLEDGE

MANAGEMENT IN PROJECTS AN OVERVIEW
Antnio Amaral,1,2,3* M. Madalena Arajo2,3 and Cristina S. Rodrigues2,4

1
Faculty of Economics and Management, University Lusfona of Porto (ULP-FCESE)*
2
3
4
* Corresponding author: [email protected], University of Minho, Campus de Azurm, 4804 - 533 Guimares, Portugal
KEYWORDS exploiting their internal resources and capabilities

Knowledge Management; Organizational Learning; (Penrose, 1959). As Alvin Toffler (1990) long ago said,
Project Managers we are now living in a `knowledge-based society', where
knowledge is the source of the highest-quality power. In
ABSTRACT a world where markets, products, technology,
competitors, regulations and even societies change
There is an increasing recognition that the competitive rapidly, continuous innovation and the knowledge that
advantage of firms depends on their ability to create, enables such innovation have become important sources
transfer, utilize, develop and protect the Organizational of sustainable competitive advantage.
knowledge assets. Therefore the projects context should There is an evident necessity for developing systems and
be wisely used for properly foster the learning collection processes for promoting the organizational learning. As
through the lessons learned gathered during project life pointed by Williams (2004), the learning lessons from
cycle. However, organizations do not seem to learn from projects are determinant for the creation of the
their mistakes, rarely exploring the reasons for their corporative knowledge. As mentioned by several
projects success or failure, and very rarely applying authors, the absence or impracticability of the efficient
those lessons learned to the business management. In solutions presented for promoting the organizational
fact, there is little or no point in learning unless knowledge, enable the following scenarios: 1) the
management adapts its behavior accordingly. Usually predisposition for occurring the same problems and
top management does not give sufficient resources for failures (Pinto, 2009); 2) decreased ability for assessing
activities such as reflecting and learning. Another and deciding (Bolloju et al., 2002); 3) less ability to
recurrent problem is the timing for the lessons manage the organizational resources in processes as
identification, only at the end of a project, which is crucial as the planning, interaction with the market and
clearly insufficient. This research is focused on its players, logistics and operations, etc.; 4) decrease of
assessing the organizational environment in order to organizational results, and consequent delay in the
properly explore the factors and dependencies amongst process of differentiation from competitors; and 5) poor
the social demographic variables. The questions Organizational Maturity (Kerzner, 2000; Schlichter,
addressed intent to highlight the key determinants that 2011).
might foreseen a proper learning and knowledge Our research is focused on studying the organizational
management environment. context during the project development as being a
favorable habitat for observing the learning and
INTRODUCTION knowledge management through the perceptions and
The process of learning is emphasized in all experiences of the project managers. We thought that
organizations as a way to improve performance, to this will help us disclose key aspects to fully understand
manage projects, processes and activities more the underlying aspects of the learning creation, transfer
effectively, and thus, it is of extreme importance to the and combination with the aim of capitalizing knowledge
business in general. The companys performance and into organizational value. In the following sections it
capability to create value depends on the combination of will be presented a literature review about the topic;
different organizational assets (Grant, R.M. 1991; Roos, clarifications about the methodology adopted and
G. & Roos, J., 1997), and on its ability to implement characterization of the sample; presentation of the main
strategies that respond to market opportunities by
263
results achieved, as well as the conclusions and further tacit knowledge; 2) Externalization from tacit
developments perceived for this work. knowledge to explicit knowledge; 3) Combination from
explicit knowledge to explicit knowledge; and 4)
ORGANIZATIONAL LEARNING Internalization from explicit knowledge to tacit
ENVIRONMENT knowledge.
Knowledge needs a physical context if it is to be
In the late 1990s, the learning organization and the
created: `there is no creation without place'. Caseys
concept of organizational learning became
(1997, p. 16) `Ba' (which roughly means `place') offers
unavoidable for managers, consultants and researchers.
such a context. Projects play an important role in
For any business or organization, the ability to learn
achieving the learning that takes place within many
better and faster than its competitors became an essential
organizations (Arthur et al., 2001; Keegan and Turner,
core competency (Sugarman, 2001).
2001). Organizations also acquire new knowledge
The Human learning is constructed through continuous
through experience (Huber, 1991) or learning by doing.
reciprocal interactions between people and the
Through trial and error experimentation, organizations
environmental stimuli and context (Bandura, A., 1977;
can learn about new approaches to accomplish the work
Lave, J. and Wenger, E. 1991; Dodgson, M., 1993).
at hand (Levitt and March, 1988; Huber, 1991; Garvin,
Learning is profoundly linked to people and to their
1993). An organization can also learn from feedback on
actions, as well as to the conditions underlying its
the consequences of its actions, learning about projects
generation (Brown, J.S., and Duguid, P., 1991; Billett,
by feedback and experience, developing project work,
S., 2000). Regardless of type externalities, each
and transferring the lessons learned to other projects
organization seeks to sustain itself in competition and
(Suikki et al., 2006).
cooperation with other entities that rely on the same
A study conducted by McKinsey & Company and
finite pool of resources. The fundamental challenge is to
Darmstadt University of Technology (2000) revealed
manage and allocate accurately the organizational scarce
the complicated and dynamic nature of knowledge. After
resources (Carayannis et al., 2006). For that reason,
more than 400 personal interviews at 39 companies
there is a need to integrate organizational learning into
around the world (18 in Europe, 11 in North America
existing business processes. However, this is only
and 10 in Japan), they discovered that knowledge is an
possible and feasible when managers see it as
asset: 1) that means different things to different people;
manageable (Cavaleri and Fearon, 2000).
2) that can become outdated instantaneously; 3) that
The building of a learning organization begins with the
initially is often tacit, not codified; 4) the value of which
commitment and strong support of top management. The
increases when it is shared among people; 5) the
leaders of the organization have the responsibility to
generation of which cannot be planned scientifically;
create an appropriate environment for learning (Garvin,
and 6) that can be recycled independently of ownership
1993). To this end they must provide operational
of physical assets.
guidance (Garvin, 1993). Additionally, they must
Therefore, this article intends to explore the factors and
communicate explicit and credible learning agendas and
dependencies in the organizational context that could
support them regardless of short-term success or failure
favour the learning environment, as well as to identify
(Arthur et al., 2001).
the key determinants which might enhance the proper
Cooke-Davies (2002) points one key factor, which is the
habitat for managing the organizational knowledge.
combination of explicit knowledge with tacit knowledge
in project-oriented organizations, encouraging people to
learn and to be involved in the continuous process of METHODOLOGY AND SAMPLE
learning, since it constantly improves the processes and A structured questionnaire survey was developed based
practices used in the project management. on the literature studied, and its adoption was decided
Organizational knowledge creation is a continuous and since it is an appropriate method to collect attitudes and
dynamic interaction process between tacit and explicit perceptions on a significant scale. The target group
knowledge, the two main types of knowledge. Based on comprises Project managers from PMI chapters and
this interaction, the SECI (Socialization, National Associations related to IPMA among the
Externalization, Combination, Internalization) model for world. The questionnaire was available online during
organizational knowledge creation was built (Suikki et approximately 3 months. The implementation of the
al., 2006). questionnaire allowed a total of 167 valid answers.
Organizations create knowledge dynamically, Table 1 shows the demographic breakdown of the
interacting and converting the two types of knowledge sample: nationality, gender, age, academic
between each other. In the conversion process, tacit and qualifications, years of work experience, job position
explicit knowledge expand in both quality and quantity and years of experience in job position. Table 2 shows
(Nonaka (1990, 1991 and 1994), and Nonaka and the characterization of the employer organization
Takeuchi (1995)). The four modes of knowledge considering the number of employees and activity.
conversion are: 1) Socialization from tacit knowledge to
264
Table 1: Prole of the respondent (n=167)

Percentage of respondents Percentage of respondents
Nationality Years of work experience
Portuguese nationality 72.14% Less than or equal to 7 years 25.6%
Brasilian nationality 13.17% Between 8 and 14 years 26.8%
Swedish nationality 2.40% Between 15 and 21 years 25.6%
Canadian nationality 2.40% Greater than or equal to 21 years 22.0%
Other nationalities 9.89% Job position
Gender Administrator 8.38%
Male 68.26% Executive board 10.18%
Female 31.74% Top manager 37.13%
Age Middle manager 22.75%
Less than or equal to 32 years 28.14% Office clerk 3.59%
Between 33 and 37 years 23.95% Others 17.96%
Between 38 and 45 years 25.15% Years of experience in job position
Greater than or equal to 46 years 22.75% Less than or equal to 3 years 34.73%
Academic qualifications Between 4 and 5 years 20.36%
High school education 1.80% Between 6 and 9 years 20.36%
Bachelor 8.38% Greater than or equal to 10 years 24.35%
Graduation 38.92%
Master's degree 29.34%
PhD 8.98%
Post graduate and other specializations 12.57%
Table 2: Prole of the respondent organization (n=167)

Percentage of respondents and the organization (number of employees and
activity).
Number of employees
Less than 10 employees 10.78% The first question points that the learning process is
Between 10 and 49 employees 8.98% emphasized in all organizations, as a way to improve
performance, make management more effective, and
between 50 and 249 employees 14.97%
thus capitalize the sustained development of the
Greater than or equal to 250 employees 65.27% organization. The respondents were asked to indicate the
Activity level of agreement with four different learning factors
Manufacturing industry 11.98% using a Likert scale, ranging from 1 (I totally disagree)
to 5 (I totally agree). Figure 1 illustrates the answer
Information and communication services 13.77% distribution.
Consultancy services 26.95% All statements registered a significant percentage of
Education 14.37% agreement, totaling more than 60% in the set of options
"I agree" and "I totally agree". Noteworthy is the
Others 32.93%
statement 3 (Your organization has process or any
method oriented to development of knowledge or
QUESTIONNAIRE AND RESULTS learning) with 81.9% of positive responses, and the
statement 2 (The environment and organizational
The organizational learning environment was accessed
culture foster the development of knowledge and
through seven different questions. In addition to the
learning, applying the lessons learned in the present ...)
descriptive analysis of the responses, the paper analyses
with 79.5%.
the existence of dependency relations by conducting chi-
square tests with variables that characterize the
respondent (gender, age, years of work experience, )
265
1. Do you consider that the resources p<0.10) and the size of the organization (X2(12)=
allocated to learning mechanisms are 18.665, p <0.10);
enough in your organization ... Statement 3 (Your organization has process or
any method oriented to development of
knowledge or learning) only depends on
30,4% 31,1%
23,0%
nationality (X2(4)= 8.094, p <0.10);
Statement 4 (Your organization stores the key
6,2%
9,3% information from previous projects in order to
sustain and support learning (i.e., avoid the
I totally I disagree I agree I agree I totally amnesia of projects)) depends on nationality
disagree fairly agree
(X2(4)= 8.136, p <0.10), years of work
2. The environment and organizational experience (X2(12)= 22.692, p <0.05), years of
culture foster the development of experience in job position (X2(12)= 19,668, p
knowledge and learning, applying the
<0.10) and organizations activity (X2(16)=
lessons learned in the present ...
26.006, p <0.10).
36,6%
32,3%
The second question of the organizational environment
16,1% assesses the degree of agreement of the respondent with
10,6%
4,3%
seven potential causes for learning errors (Likert scale
ranging from 1 (I totally disagree) to 5 (I totally agree):
I totally
disagree
I disagree I agree I agree
fairly
I totally
agree
Cause 1. The high pressure of time for
completion of the project and team dispersal to
3. Your organization has process or any new tasks
method oriented to development of
knowledge or learning.
Cause 2. Lack of human, technical and / or
technological resources
36,9%
Cause 3. Lack of a standard methodology for the
30,6% review of projects, activities and organizational
processes
13,8% 14,4% Cause 4. Lack of motivation and willingness to
4,4% learn from the mistakes of the people involved
Cause 5. Lack of communication of previous
I totally I disagree I agree I agree I totally
disagree fairly agree experiences between the project team due to
false modesty (with positive experiences) or
4. Your organization stores the key
information from previous projects in fear of negative sanctions ...
order to sustain and support learning Cause 6. Existence of a very vertical
(i.e., avoid the amnesia of projects) organizational structure in which the hierarchy is
very delimited, preventing the communication
33,5%
28,5% and the possibility of exchange of ideas...
Cause 7. Project teams with very different skills,
23,6%
10,5% lack of a common language and levels of

3,7%
training very heterogeneous
disagree fairly agree Figure 2 illustrates the distribution of positive responses.
Figure 1: Learning factors Interesting that all the causes given showed high
percentages of positive responses (all above 65%). Still,
it is possible to identify an order of perceived
Following the qui-square tests, several dependency importance (see Figure 2).
relationships were found for:
Statement 1 (Do you consider that the resources
allocated to learning mechanisms are enough in
your organization ...) only depends on
respondents nationality (X2(4)=14.628, p<0.01);
Statement 2 (The environment and
organizational culture foster the development of
knowledge and learning, applying the lessons
learned in the present ...) depends on the
nationality of the respondent (X2(4)= 8.593,
266
1. The high pressure of time for

95,18% 2. Values system
completion of the project and team 75,8%
5. Lack of communication of previous

87,27%
experiences between the project team
1. Cultural aspects 68,5%
3. Lack of a standard methodology for
84,94%
the review of projects, activities and
2. Lack of human, technical and / or 3. Linguistic differences 58,3%

77,71%
technological resources
4. Lack of motivation and willingness to 4. Emotional reactions (such as commitment,

77,11% 47,9%
learn from the mistakes of the people disappointment, irritability)
6. Existence of a very vertical 5. Manifestation of another type of feeling or

73,33%
organizational structure in which the expression, whether it be in-person interaction 46,1%
software, or even person-interface-person
7. Project teams with very different skills,
66,27%
lack of a "common language" and
Figure 3: Elements of the management system of
Figure 2: Potential causes for learning errors (in knowledge and learning - the perceived importance (in
descending order of % positive responses) descending order of positive responses)
Figure 2 identifies as the most important causes for The elements with higher perceived importance, are the
learning errors the time pressure (reason 1) with 95.18% system of values (element 2) with 75.8% of responses,
of positive responses, the lack of communication from the cultural aspects (element 1, with 68.5%), and the
previous experiences (reason 5) with 87.27% and lack linguistic differences (element 3, 58.3%).
of a methodology review (reason 3) with 84.94%.
Moreover, the causes perceived as less important are In the chi-square test only three dependency
those related to heterogeneous teams (reason 7) with relationships were found:
66.27% and the existence of a very hierarchical structure the value system (element 2) depends upon the
(reason 6 with 73.33%). years of professional experience (X2(12)=19.764,
p<0.10);
The chi-square tests identified the following dependency the linguistic differences (element 3) depend on
relations: the years of experience in job position
The cause 3 (lack of a methodology review) (X2(12)=18.573, p<0.10);
depends on the nationality of respondent the direct emotional reactions (element 4) depend
(X2(4)=12.924, p<0.05), and age on the years of professional experience
(X2(12)=23.380, p<0.05); (X2(12)=19.434, p<0.10).
The cause 4 (lack of motivation) depends on the
years of professional experience (X2(12)=21.764, The fourth question looks at the perceived importance of
p<0.05), and the size of the organization three factors in socialization, according to the SECI
(X2(12)=22.238, p<0.05); model, as an important step in the conversion and
The cause 6 (the existence of a very hierarchical transfer of tacit knowledge: 1) living spaces (physical or
structure) depends on the nationality of the virtual) for encounter and interaction between different
respondent (X2(4)=9.255, p<0.10) and the size of members of the project team, 2) provide extra-
the organization (X2(12)=22.228, p<0.05). organizational activities to create team spirit (team
building), and 3) provide technologies to foster
The third question related to the level of importance of a communication between members. The perceived
knowledge management system (KMS) and importance is measured with a scale with five levels, 1
organizational learning to incorporate some of the not important, 2-unimportant, 3fairly important,
following aspects, namely: 4-important, 5-very important. Figure 4 illustrates
1. Cultural aspects the descending percentage of more positive responses
2. Values system (i.e., the sum of responses 4very important and
3. Linguistic differences 5- very important).
4. Emotional reactions (such as commitment,
disappointment, irritability)
5. Manifestation of another type of feeling or 2. Provide extra activities of the organization to
create team spirit
75,9%
expression, whether it be in-person interaction

software, or even person-interface-person 1. The existence of a space, either physical
58,4%
(recreation room) or virtual ...
The level of importance was measured on a five levels 3. Provide technology as PDA's, laptops,
smartphones, to promote communication 48,8%
scale: 1-not important, 2-unimportant, 3-fairly between members ...
important, 4important and 5very important).

Figure 4: Socialization factors perceived importance
Figure 3 illustrates the descending percentage of more
(in descending order of positive responses)
positive responses (i.e., the sum of responses
4important and 5very important).
267
The factor identified as most important is the provision 1. Interaction and dialogue between
of extra activities (factor 2) with 75.9% of responses of members of the project team are a key
element in the creation and transfer of
high importance. The factor perceived with lesser knowledge
64,5%
importance is the availability of communication
technologies (factor 3) with 48.8% of responses of high
importance. The tests of chi-squared only confirmed the
31,3%
following links:
The importance of a physical space for
4,2%
socializing (factor 1) depends on the years of 0,0% 0,0%
experience in job position (X2(12)=21.965, I totally I disagree I agree I agree I totally

p<0.05);
The importance of offering extra activities (factor 2. Through dialogue and interaction,
knowledge of project members, experience
2) depends on the size of the organization and skills are converted into various
(X2(12)=19.458, p<0.10). concepts, terms or common methods (tacit
and explicit)
The fifth question examines the perceived project team 48,2%

effect into the knowledge creation. The question asks 37,3%
the level of agreement with three different statements
(Likert scale with five leves, ranging from 1-I totally 13,3%
disagree to 5-I totally agree). All statements recorded 0,0% 1,2%
high percentages of agreement (all higher than 98% I totally I disagree I agree I agree I totally
considering the sum of answers 4-I agree and 5-I
totally agree) (see Figure 5). The following dependency 3. An organizational environment that
fosters collective reflection among
relationships were identified: connoisseurs members of reality and
Interaction and dialogue as a key element imposed cultures, methods, can contribute
to the creation of knowledge "key" and
(statement 1) depends on the age of the incorporation of gains in the organization
respondent (X2(6)=12.400, p<0.10) and years of
professional experience (X2(6)=14.146, p<0.05); 42,2% 46,0%
Interaction and dialogue results into concepts,

terms or common methods (statement 2) depends 10,6%
0,0% 1,2%
on the nationality of the respondent
(X2(3)=8.674, p<0.05); disagree fairly agree
The contribution of a reflection environment Figure 5: the perceived project team effect into the
(statement 3) depends on the organizations knowledge creation
activity (X2(12)=19.168, p<0.10).
Table 3: Firm activity

The development of collaborative environments
utilizing information technology (...) can support and I totally I agree I totally
I disagree I agree
strengthen the process of extraction and knowledge disagree fairly agree
creation (...)
C - Manufacturing 0.00% 0.00% 45.00% 45.00% 10.00%
I - Information and communication activities 0.00% 8.70% 21.74% 34.78% 34.78%
M - Scientific consulting, technical and similar activities 0.00% 0.00% 23.26% 32.56% 44.19%
P - Education 0.00% 0.00% 21.74% 52.17% 26.09%
Other 0.00% 0.00% 38.89% 35.19% 25.93%
The sixth question analyzed the degree of agreement of dependency was found with the organizations activity
the respondents with the statement: Do you consider (X2(12)=24.781, p<0.05).
that the development of collaborative environments, Table 3 illustrates the distribution of responses obtained
using information technologies like online platforms, for this statement when considering the organization's
collaborative software, databases, can support and businesss area. Interesting to notice that:
strengthen the process of extraction and creation of Organizations within scientific consulting
information generated and analyzed in the activities had the highest percentage of
organization.. This statement has 98.8% of positive respondents I totally agree (44.19%);
responses and only one significant relationship of
268
Organizations within the activity education the high level of agreement between the
present significant percentage of respondents that affirmations regarding the number of resources
answered I agree fairly (52.17%); allocated to learning, the organizational culture,
Organizations within the activity the processes and methods used as well as the
manufacturing are equally divided into I storage of key information, is clear; despite that,
agree" and "I agree fairly", with 45% of a peculiar factor is presented by its level of
responses; dependency in the response pattern dealing with
Organizations from information and the variable nationality. It gives support to
communication activities are the only ones that previous literature mentioned, pointing out that
shown a percentage of negative responses (8.70% according to the nationality under consideration,
"I disagree"). knowledge could represent different things to
different people;
The seventh question assesses the transmission of
experience within the team considering three different there are several contextual constraints associated
statements (use a scale with five levels of importance). with learning, such as high pressure of time to
Figure 6 illustrates the percentage of positive responses projects completion; lack of communication
(sum of responses 4 important and 5 very among project members, lack of human,
important). technical, and technological resources;
commonly accepted by an expressive level of
2. The multidisciplinary of the team is important
agreement. The dependency tests indicate that the
and can contribute to achieving better
performances
85,0% lack of motivation to learn has a significant
dependency with the years of work experience
1.It is Important to provide the project teams
with members with various skills and different 84,9% and the size of the organization. It is an important
experiences to enable maximum interaction ...
clue to explore in future research. In turn, the
3. A team should be as heterogeneous as
65,9%
lack of a methodology review to learning
possible with members with diverse experiences
presents a significant dependency with the
Figure 6: The transmission of knowledge within the respondents age. This suggests the existence of
team - the perceived importance (in descending order of differences in the pattern of responses by age
positive responses) groups of project managers respondents, and
requires further research to explore it;
Respondents considered of high importance the
multidisciplinary within the team (statement 2, with the development of an organizational knowledge
85.0% of positive responses) and the multiple skills of management system (KMS) by embedding the
the team (statement 1, with 84.9% of positive value systems, the linguistic differences as well
responses). The lower perceived importance is related to as the emotional reactions presented a significant
the heterogeneity of the team (statement 3 with 65.9% of dependency with the level of work and job
positive responses). Only one significant dependence experience. It is possible that this level of
relation between heterogeneity of the team (statement 3) dependency could be related with the ability of
and the size of the organization (X2(12)=23.458, senior project managers to appreciate some
p<0.05) was found. characteristics like non-verbal expressions that
give them precious information during the project
execution, just by observing behaviours and
CONCLUSIONS AND FURTHER RESEARCH
expressions of theirs staff;
As mentioned by Roth and Kleiner (1998, p.58), Good
intentions are not enough to guarantee improvements the socialization process is seen as an important
commitment, support and skill are all essential. way to facilitate the knowledge conversion. The
Furthermore, a clear and shared understanding of the perceived importance of physical space for
organizations objectives is important if organizations socialization has a dependency with respondents
are to learn collectively and thereby reap the significant job experience. This dependency might suggest
benefits associated with collaborative reflection. that this feature is more relevant in the beginning
Many of the most valuable efforts to encourage of the job function where the level of confidence
knowledge creation and distribution have little to do and know how is lower and somehow dependent
with new technology, especially when the knowledge is of some references. The perceived importance of
complex and tacit, and therefore resists codification. outdoor socialization of teams with the purpose
The organizational context for enhancing learning and of gaining confidence and team spirit (team
knowledge management continues to present countless building) has a dependency with organizational
challenges and difficulties. Some of these were dimension. Results suggest that small
identified in our exploratory, namely: organizations regard this as highly important. In
269
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272
IMPLEMENTATION AND CASE STUDY APPLICATION OF A

CONCEPTUAL FRAMEWORK FOR EMBEDDING USEFUL PROJECT
MANAGEMENT IMPROVEMENT INITIATIVES
Gabriela Fernandes,1* Madalena Araujo1, Valter Henriques2

1
2
Shortcut, Portugal
* Corresponding author: [email protected], University of Minho, Campus de Azurm, 4800-058 Guimares, Portugal
KEYWORDS 2004; Venkatesh & Bala, 2008) to develop an

Project management, improving, embedding understanding of the embedding process of PMIIs.
Therefore, embedding PMIIs is studied as a process
ABSTRACT rather than an event, whereas the initiative
embeddedness into the organization is the result, i.e., a
This paper describes the steps for the application of a
PM practice that is strongly contextualized (customized
developed conceptual framework for embedding useful
or personalized) and integrated with other
project management improvement initiatives (PMIIs) in
contextualized management practices in the
organizations, and exemplifies its implementation in a
organization, and there is a sense of ownership
single case study of a small information and technology
facilitated by the staff involvement at all levels.
organization. In summary, the framework is
The framework gathers current knowledge on improving
conceptualized into two constructs: improving and
and embedding PM practice which can provide guidance
embedding. In the improving construct 15 key PMIIs are
to organizations interested in increasing their
identified that organizations might handle to improve
performance in the management of projects. The
their performance. In the embedding construct, it
framework highlights the need for organizations to focus
identifies 26 key factors contributing to the successful
on key PMIIs, beyond the specific PM tools and
embedment of these initiatives. An EXCEL template
techniques, giving some guidance on priority areas, such
was created to facilitate its application and it was
as the alignment of PM activities with the whole
subsequently improved throughout the development of
organizations activities (for example, the strategic
the case study. The framework proved to be a useful
planning of the organization should be tightly coupled
analytical tool and appeared able to improve and embed
with the project identification and prioritization), or the
project management practice in the company. However,
professionalization of the project managers role, i.e.,
the results of exploratory studies such as this require
project managers who dedicate almost 100% of his/her
replication in other case studies from different
work to PM activities.
organizational contexts.
The framework also lists a number of facilitating factors
that can lead the embedding of PMIIs. While adopter
INTRODUCTION
features are an important group of factors to consider,
While the literature on project management (PM) organizations should not neglect a broader perspective
provides some advice, organizations need guidance on which considers inner context-related factors, outer
which project management improvement initiatives context-related factors, communication and influence-
(PMIIs) they should concentrate their efforts (Shi, 2011; related factors, implementation-related factors, and
Thomas & Mullaly, 2008). A related issue is how to routinization-related factors. This expanded list of
facilitate the embedment of these initiatives in facilitating factors can act as levers that organizations
organizations, for which there is limited understanding can use in devising strategies to promote embedding of
(Cranefield & Yoong, 2009). In the scope of a PhD PMIIs into their systems. For example, in respect of
research study, a framework for embedding useful adopters, embedding can be promoted by:
PMIIs was developed. The research study adopted an educating adopters on the positive benefits of PMIIs
innovation lens perspective, using concepts of (e.g., its usefulness, ease of use and value);
diffusion, dissemination, implementation and influencing adopters motivation by providing
routinization, from other disciplines (Greenhalgh incentives (e.g., by emphasizing on positive career
(Greenhalgh, Robert, Macfarlane, Bate, & Kyriakidou,
273
consequences and availability of top management 4. What is the stage/degree/level of each PMII in the
support); case study?
informing adopters about the outer context (e.g., by 5. What actions might be involved in achieving
informing about interorganizational PM practices and different embedding factors in the particular case
the unstable economic environment which presses the study?
organization to become more competitive);
enhancing the absorptive capacity for new knowledge THE CONCEPTUAL FRAMEWORK
in the organization by developing a culture of learning DEVELOPMENT
(e.g., by establishing small group meeting rooms,
The framework for embedding useful PMIIs is
rewarding those who pursue learning and who teach
conceptualized into two constructs: improving and
others what they know); and
embedding PM, although the two concepts are linked
implementing initiatives to enhance the ability of their
since an organization engaged in embedding a PMII is
adopters in using PMIIs (e.g., by providing adequate
consequently improving PM. However, improving is
training, external collaboration support, piloting, etc.).
seen as the identification and selection of potentially
These actions form just one set of actions that
useful PMIIs which must then be embedded into the
organizations can pursue to facilitate the embedment of
organization to be effective. Therefore, with respect to
PMIIs using as guidance the key embedding factors set
the improving construct, it identifies the most useful
out in the framework.
PMIIs, particularly the key activities that would help to
PM is highly contingent on the organizational context,
improve PM practice, such as the standardization of PM
such as structure of business or industry sector, size, and
processes, tools and techniques. In respect of the
its environment (Besner & Hobbs, 2008; Cooke-Davies,
embedding construct, the framework identifies factors
Crawford, & Lechler, 2009; Hobbs, Aubry, & Thuillier,
contributing to the successful embedment of PMIIs. The
2008). The PhD research study also gives some
assumption is that if an organization is aware of these
guidance to practitioners on which PMIIs and
factors and addresses them during the stages of the
embedding factors should they focus on, more
embedding process of a PMII, then embedment is more
dependent on different organizational contexts, namely
likely to be achieved.
sector of activity, organizations size, geographic
Exploratory research was undertaken, based upon the
location and project types. For example, questionnaire
circumstances encountered in different organizations,
respondents in the sector of Industrial services did not
and a conceptual framework for embedding useful
perceive embedding factors under the theme
PMIIs was develop in four main steps:
communication and influence as important as did
1. An initial framework of key PMIIs and key
respondents in the sectors Information and Technology
embedding factors was derived from the literature and
and Business Services. This might be the case because,
the researchers professional experience. Based on a
in general, industrial organizations are much more
review of the normative literature a first attempt to
process oriented than people oriented (for more detailed
construct a conceptual framework drew largely from
information see (Fernandes, 2014).
three main theoretical foundations: (a) the Value Adding
After the development of the framework, one main
Path Map (VAPM) framework from Shi (2011) for the
concern was to describe the steps for its application in
improving construct; and (b) a conceptual model for the
organizations, and exemplifying its implementation in a
spread and sustainability of innovation in service
real case study, which is the main objective of this
delivery and organization from Greenhalgh et al. (2004);
paper.
and (c) the technology acceptance model3 (TAM3) from
The application of the framework through case studies
Venkatesh and Bala (2008) for the framework
will be also very valuable, namely in understanding the
embedding construct. The VAPM framework was
weight that different organizations (industry, size,
selected for several reasons, taking into account
strategy, geographic location, project types) place on
similitude of objectives, robustness, empirical evidence
different PMIIs and factors in promoting embedding PM
obtained, and a multitude of organizational contexts.
practice in organizations. Particularly, this paper seeks
The VAPM presents an important limitation in that it
to answer the following research questions:
makes a recommendation of the best path to
1. What are the steps suggested for the application of
implementing PM. However, the idea that PM practice
the framework for improving PM practice in the
varies from one organizational context to another is
organization?
widely accepted (Besner & Hobbs, 2013; Cooke-Davies
2. What are the steps suggested for the application of
et al., 2009; Shi, 2011; Thomas & Mullaly, 2008);
the framework to facilitate the embedding process of
therefore, a general indication of the best path might
a PMII in an organization?
be presumptuous. The conceptual model from
3. What are the suggested improvements on the steps
Greenhalgh et al. (2004) is the result of a systematic
initially defined for the application of the
review of the literature that was undertaken according to
framework?
an explicit, rigorous, and reproducible methodology of
274
empirical research studies, using the technique meta-

narrative review, in which all primary studies used were GUIDANCE ON THE APPLICATION OF THE
evaluated for their validity, in order to address the CONCEPTUAL FRAMEWORK
question posed by the UK Department of Health: How
An EXCEL template was created to develop practical
can we spread and sustain innovations in the health
guidance on how practitioners could make use of the
service delivery and organization? Although, this study
developed conceptual framework. In respect of the
had been used only by the healthcare sector e.g.,
improving construct, the idea is to use a weighting
(Carayon, 2010), the Greenhalgh et al. (2004) paper has
system in order to assess PM maturity level in terms of
been cited in almost 2,000 publications. TAM is the
the 15 PMIIs identified in the framework. The process
most widely applied model of user acceptance and
of identification of the PM maturity level is similar to
usage. TAM suggests that two specific beliefs,
other existent maturity models, such as the Berkeley PM
perceived ease of use and perceived usefulness,
process maturity model (Kwak & Ibbs, 2000), namely in
determine ones behavioral intention to use a
terms of the maturity assessment level. The main
technology. TAM3 is a development of TAM, which
difference is the variables assessed, which are the 15 key
presents a complete nomological network of the
PMIIs. Additionally, prioritize the initiatives regarding
determinants of individuals IT adoption and use
(Venkatesh & Bala, 2008).
In summary, the initial framework identified 15 key
PMIIs and 32 key factors for embedding.
2. A revised framework was constructed following an
exploratory study, consisting of thirty semi-structured
interviews of PM practitioners. Analysis of this
interview data: (a) identified three new key PMIIs and
ten key factors for embedding; (b) confirmed twelve key
PMIIs and sixteen embedding factors; (c) merged into
other PMIIs three key initiatives and five embedding
factors; and (d) discredited eleven embedding factors,
resulting in a modified total of 15 key PMIIs and 26
embedding factors. More detailed information on the
development of the revised framework from the
interviews data analysis (new, confirmed, merged and
discredited factors) can be found in paper (Fernandes,
Ward, & Arajo, 2013a).
3. 793 responses from a worldwide web-based
questionnaire were analysed to test the revised
framework and produce a refined framework. The
questionnaire survey confirmed all the PMIIs and
embedding factors presented in the revised framework.
However, some of these initiatives and embedding
factors were re-categorized into different themes based
on the survey data analysis. More detailed information
on the development of the refined framework from the
questionnaire survey data analysis can be found in the
paper (Fernandes, Ward, & Arajo, 2014).
4. The final proposed framework, see Figure 1, derived
from the consolidation of interviews data analysis and
questionnaire survey data analysis. The consolidation of
the findings was a straightforward process because the
questionnaire survey confirmed most of the
conceptualization resulting from the interview analysis.
Principal Component Analysis confirmed that the 15 key
PMIIs can be reduced to three improving themes:
processes, tools, and techniques, people and
organizational learning and general management
system. The 26 embedding factors can be reduced to
six main embedding themes: adopter, inner context,
outer context communication and influence (diffusion/
dissemination), implementation, and routinization. Figure 1: Proposed framework for embedding useful
275
PMIIs This approach has some limitations, namely the

subjectivity of the weighting system, and because of that
their state and the organizational context, and plan a set
it is suggested that this process should be conducted by
of actions in order to embed the PMIIs in the
a group of stakeholders.
organization. In respect of the embedding construct, the
main idea is to use a weighting system to identify a score
of readiness for embedding or stage of preparation to Embedding Construct
make the things work, and plan a set of actions, Answering the research question number two: what are
involving people to think about what actions can be the steps suggested for the application of the framework
taken to bring about the various embedding factors. to facilitate the embedding process of a PMII in an
organization? the following steps are suggested with a
Improving Construct group of stakeholders involved in the embedding
Answering the research question number one: what are process of PMIIs. Embedding is a process rather than an
the steps suggested for the application of the framework event, with different concerns being dominant at
for improving PM practice in the organization? The different stages of the process (diffusion/ dissemination,
following steps are suggested to be followed with a implementation and routinization) (Larsen & Myers,
group of stakeholders involved in improving PM 1999).
practice: 1st step: Acknowledge stakeholders involved in the
1st step: Acknowledge stakeholders involved in the embedding process of all the key embedding factors in
improving process of all the key PMIIs in the the framework that can potentially influence the
framework, which would improve PM practice. embedding process of a particular PMII. This could be
2nd step: Using the 5-Likert scale: facilitated, for example, through a training course on the
Level 1 (Ad-hoc stage) The key PMII is not use of the conceptual proposed framework for
available in the organization. embedding useful PMIIs.
Level 2 (Defined stage) The key PMII is informally 2nd step: Using the 5-Likert scale (5 Very high; 4
defined and used. High; 3 Medium; 2 Low; 1 Very low ) score the
Level 3 (Managed stage) The key PMII is formally framework embedding factors that have influence during
managed. the dissemination process of an initiative, under the
Level 4 (Integrated stage) The key PMII is themes: adopter, inner context, outer context and
integrated. Data are quantitatively analysed, measured communication and influence.
and stored. Answer the questions: Can these embedding factors be
Level 5 (Embedded stage) The key PMII is operationalized? If yes, answer the question: How can
continuously improved. The key PMII is fully we enhance the effect of these factors in the
understood. The key initiative is strongly dissemination process of this particular PMII? Identify
contextualized and integrated with other appropriate actions.
contextualized management practices in the 3rd step: In seeking the dissemination of a particular
organization and there is a sense of ownership PMII, prioritize the relevance of the embedding factors,
facilitated by the staff involvement at all levels. giving each one a weight between 0-100%.
Score all key PMIIs, in order to get an overall position 4th step: Using the 5-Likert scale, score (or re-score) the
of the actual maturity of the organization in relation to framework embedding factors that have influence during
the 15 key initiatives (the improving construct of the the implementation process of an initiative. That is,
framework could work as a PM maturity model). relating to the themes: adopter, inner context, outer
3rd step: Assess the relevance of the PMIIs for the context, communication and influence, and
organization, giving each one a weight between 0- implementation.
100%. Answer the questions: Can these embedding factors be
4th step: Select the PMIIs your organization will handle operationalized? If yes, answer the question: How can
and prioritize. Note that a gradual implementation of we enhance the effect of these factors in the
initiatives is important in order to better manage the implementation process of this particular PMII? Identify
expectations and benefits of each initiative. appropriate actions.
Additionally, answer the question: what are the main 5th step: In seeking the implementation of a particular
actions for operating these PMIIs in your organization? initiative, prioritize the relevance of the embedding
Define actions. factors, giving each one a weight between 0-100%.
5th step: Depending of the assessment period established 6th step: Using a 5-Likert scale, score (or re-score) the
(3, 6 or 12 months) re-score each PMII and go back to framework embedding factors that have influence during
step 4th. The organization should stop this process when the routinization process of a PMII. That is, score the
the organization subjectively perceived that reached embedding factors, relating to the themes: adopter,
their established PM maturity level. inner context, outer context, communication and
influence, implementation, and routinization.
276
Answer the questions: Can these embedding factors be is regarded as one of the most important flags of the
operationalized? If yes, answer the question: How can organization. In order to accomplish this objective, the
we enhance the effect of these factors in the company tries to embed PM practices into their
routinization process of this particular PMII? Identify business.
appropriate actions. In the last five years the company has made efforts to
7th step: In seeking the routinization of a particular improve their PM practices, namely they invested: (1) in
initiative, prioritize the relevance of the embedding external training and Project Management Professional
factors, giving each one a weight between 0-100%. (PMP) certification of three employees; (2) in the
Periodically monitor the actions taken to enhance the implementation of a PM software the Microsoft
effect of each embedding factor in each stage of the Enterprise Project Management (EPM) ; (3) a certain
embedment process. For example perceived usefulness amount of money to a consultancy PM service to help
of an initiative, may be scored low at the beginning of them to settle the PM processes, methods, techniques
the embedding process but after actions taken, could be and tools, such as templates for the project charter, the
scored high, indicating that no more actions that have progress reports and the project change requests, to
direct impact on perceived usefulness are needed or parameterize the PM software according to their
would have impact on the embedment of the PMII. processes, and to give some coaching to employees on
how to operate the software; (4) in a supported
RESEARCH METHODOLOGY infrastructure of the type Project Management Office,
for the continuous improvement of the PM system, as
The findings of this article are based on a single case-
well as, for its dissemination through the company, for
study, which occurred in 2014.
the support of its use by the project managers, and
Only one method of data collection has been applied -
finally to assure the quality of the PM process applied in
focus group.
the companys projects; (5) in the ISO 9000:2008
Two focus groups were conducted composed by the
certification, in order to improve their quality
researcher, the companys General Director and a
management system which enhanced the standardization
Project Manager, which has the additional role of
and regularity of general management; and (6) in the NP
Project Manager Officer, that is responsible for
4457:2007 certification, in order to improve their
improving the PM practices in the organization.
innovation management system. However, after five
One focus group was conducted for the application of
years, they found that there existed many problems in
the framework improving construct and only another
the management of their projects. Projects are managed
one for the application of the framework embedding
in a chaotic manner. Most projects do not follow the
construct. The focus groups were supported by the
standardized PM process named P3. Some projects
initial steps guides for the application of the conceptual
completely follow different approaches than those
framework. The two focus groups were recorded, in
defined in the process, namely more close to agile
order the researcher could recall all the information and
methodologies.
compare inputs across the two informants.
In fact, the organization suffers from the same illness
It was not possible, at this stage of the research study, to
of many other organizations, they implemented several
assess the effect of the embedding actions on the
PMIIs during the last years, however, none is fully
process of embedding the PMII selected, because it is
embedded in the organization, i.e., strongly
necessary at least six months to one year to evaluate the
contextualized and integrated with other contextualized
effect of the actions taken.
management practices in the organization and there is no
sense of ownership facilitated by the staff involvement
CASE STUDY
at all levels.
General Background
Analysis of the Frameworks Improving Construct
A company in the Information and Technology sector
Application
has been chosen to show the application of the
conceptual framework, named SHORTCUT. The Before the interview all participants had received by
company was found in 2001. The total number of email a document named Introducing a study on the
employees is around 30. It operates in three distinct but implementation and case study application of a
complementary areas: (1) development and exploration conceptual framework for embedding useful PMIIs,
of own products; (2) development of customized which clarified namely, the purpose of the study, and the
solutions; and (3) outsourcing of Information and research steps that would be followed. The first focus
Technology professionals. The market of this company group conducted for the application of the framework
covers all regions in Portugal, which is its main focus; improving construct followed the steps initially
however it makes sporadic sales to United Kingdom, suggested for its application, and had duration of
France and United States of America. Delivering approximately three hours. Firstly, the researcher started
product on time, within budget and in a quality manner to give a brief explanation to the two participants in the
277
focus group of the 15 key PMIIs in the framework. contributes to the business growth and the good
Secondly, the researcher asked them to separately operation of the company through training actions.
assess, using the 5 Likert scale, each of the 15 key Here there was no consensus who should direct this
PMIIs. After they concluded their own assessment, they training. The General Director argued that this
were asked to discuss their evaluations and converge to should be directed by internal staff and the Project
a consolidated assessment. Thirdly, they assessed the Manager argued the importance of the participation
relevance of the PMIIs for the organization, giving each of external trainers.
one a weight between 0- 100%. For an easier assessment 4. Integrate the PM system with the general
it was suggested the use of the scale 25% - 50% - 75% management system. The main action is to integrate
and 100%. The two participants had difficulty in the project actual cost with the general management
agreeing in the values attributed; therefore the average performance indicators.
of both assessments was used. As a result of these two
assessments it was possible to achieve a subjectively Analysis of the Frameworks Embedding Construct
quantitative number of 2.6 for the maturity of the Application
company in a scale of 1 to 5. Table 1 shows this result,
The second focus group conducted for the application of
and answers the research question number four: what is
the framework embedding construct also followed the
the stage/degree/level of each PMII in the case study?
steps initially suggested for its application, and had
Table 1: Results of the application of the frameworks duration of two hours and half. But, beforehand, the
improving construct researcher asked the participants to select only one of
Theme Project Management Improvement Initiatives S core (15) Weight the four initiatives selected, to conduct the embedding
Corporate standardisation and tailoring of PM processes 3 75% process for this case study, since for each PMII the
Process, Tools
Techniques
Corporate standardisation and tailoring PM tools

conduction of the embedding process should be made
and
3 100%
andtechniques
Corporate standardisation and tailoring PM information
4 100% individually.
system
Provide PM training 2 88%
The initiative selected was establish PM practices as
M anage PM competences 1 75% internal standards - through the reviewed PM process,
Organisational
named P3. The process P3 is implemented in the

People and
Learning
Develop a culture of learning 4 88%

Benchmarking to PM assess and continuous improvement 2 63%
organization since 2009. However, unfortunately, it is
Develop a basic understanding of organisational PM
practices among all project stakeholders
3 100%
not embedded in the organization. The objective is to
Develop awareness of PM value among all staff 2 88% make a revision on the process and make efforts in order
Integrate the PM system with the general management
3 75% to establish the PM process P3, as an internal
General Management
system
Develop supported infrastructure 2 88% requirement in the company. Therefore, firstly, the
System
Develop a project sympathetic organisation structure 3 75% researcher started to give a brief explanation to the two
PM professionalisation 1 50% participants in the focus group of the 26 key embedding
Establish PM career path for all PM roles 1 50% factors. Secondly, the researcher asked them to
Establish PM practices as internal standards 3 50%
separately assess, using a 5 Likert scale established,
TOTAL S CORE 2.6
each embedding factor that have influence during the
routinization process of a PMII. That is, score the
Fourthly, they were asked to select the PMIIs that the
embedding factors, relating to the themes: adopter,
company will handle and prioritize them. Additionally,
inner context, outer context, communication and
they were asked to answer the question: what are the
influence, implementation, and routinization, i.e.,
main actions for operating these PMIIs in the
the total 26 embedding factors relatively to the initiative
organization?
selected. For example, what is the actual perceived
Four initiatives were selected:
usefulness of adopters of the PM process P3? After
1. Establish PM practices as internal standards. The
they concluded their own assessment, they were to
main action is to define the basic requirements in the
discuss their evaluations and converge for a
PM process, named P3, for the management of
consolidated assessment. Additionally, they were asked
projects and imposes its use. Presently, the company
to answer the following questions: Can these embedding
is very flexible with the PM team in the PM
factors be operationalized? If yes, answer the question:
practices they apply to manage their projects.
How can we enhance the effect of these factors in the
2. Corporate standardization and tailoring PM tools
routinization process of this particular PMII? Identify
and techniques. The main actions to be taken are
appropriate actions. This second step in fact correspond
the reduction to the minimum of the project
to the 6th step on the guidance for the application of the
documents/ templates, and the implementation of the
framework, because this particular PMII is at the
requirements management system and quality tests in
routinization stage of the embedding process (as
their tool named Workspace.
mentioned before, the PM process P3 is already
3. Develop awareness of PM value among all staff.
implemented). Thirdly, assess the relevance of each key
The main action to be taken is to raise awareness of
embedding factor for the embedding process of the
the employees why PM is important, and how PM
278
initiative selected in the company, giving each one a Impose the use of the PM process P3, and with the
weight between 0- 100%. For an easier assessment it involvement of the human resources department
was suggested the use of the scale 25% - 50% - 75% and reward those who comply with the rules established in
100% (corresponding to the 7th step). In this case, the process, and penalize those who breach the rules.
although the two participants had some divergences in Communicate periodically the impacts of the
the assessment of some embedding factors, at the end of systematic use of the process to all parties involved.
the discussion they were able to reach an agreement (see Gather feedback from all users of the PM process
Table 2). As a result of these two assessments it was P3, for its continuous improvement.
possible to achieve a subjective quantitative number of
2.8 readiness for embedding the initiative selected. DISCUSSION
A positive answer for the question: can these embedding
factors be operationalized? was obtained for 16 of the Answering the research question three, the major issues
26 embedding factors (61% of the embedding factors and suggested improvements on the steps initially
signaled in the last column of Table 2). defined for the application of the framework are:
Before the participants in the focus group tried to set a
Table 2: Results of the application of the frameworks consensus of what score (1 to 5) to attribute to each
embedding construct key PMII and embedding factor, it would be better
firstly to conduct an individual assessment with each
Theme Embedding Factor S core (1...5) Weight Action
participant, in order to reduce the influence of other
Perceived usefulness 2 100% X participants in their own assessment. Therefore,
Adopter
Perceived ease of use 2 100% X

instead of the research method focus group for data
Adopter motivation 2 100% X
Predisposition for change 3 100% X
collection it would be to use the Delphi method.
Resources to support change 4 100% Instead of weighting each PMII and embedding factor
Inner Context
Sponsorship 3 100% X in a scale of 25% - 50% - 75% and 100%, as defined

Project management maturity 2 100%
Tension for change 4 90%
in the initial guidance of the framework, it seems
Absorptive capacity for new knowledge 5 50% better to score, within each improving and embedding
Interorganisational PM practices 2 30% theme, the importance in decrease order of each PMII
Context
Outer
External stakeholder requirement 3 100% X

and embedding factor, and after convert the weights in
Unstable economic environment 5 80%
Environmental culture 4 40%
percentage. For example, the improving theme people
Demonstrating the project management initiative and organizational learning has six key PMIIs, so
Communica
Influence
2 90% X
tion and
value
Stakeholders involvement 4 90%
each would be scored from 1 to 6, in which 6
Opinion leaders and key facilitators support 2 90% X corresponds to the higher importance of each PMII in
Piloting 4 100% X the theme; similarly score 1 to 6, the six PMIIs in the
Implementation
Gradual implementation 4 80%

theme general management system score, and 1 to 3,
Specific training 2 100% X
Adaptation/ re-invention 4 100% X the PMIIS in the improving theme process, tools and
Integration with the existent practices 3 70% techniques. Finally, distribute the percentage of 0-
External collaboration 2 90% X 100% for the three improving themes. For example,
Feedback on PM improvement impacts 2 70% X one participant attributed a percentage of 35% for the
Routinization
PM quality assurance process 3 100% X

improving theme processes, tools and techniques;
Adopter accountability 1 90% X
Nature of adoption decision- mandatory 1 100% X 40% for the theme people and organizational
TOTAL S CORE 2.8 learning; and 25% for the theme general management
system.
Answering the research question number five, the In the case study the initial proposed weighting system
actions defined to enhance the effect of these embedding was applied, as well as the proposed above by the two
factors in the routinization process of the particular participants. The results were very similar. However,
PMII selected, can be summarized as follows: no conclusion can be drawn about a better suitability
Training to raise awareness of staff at all levels on the of either system, based only in this case study. At this
value of the PM process P3 for the company. stage we can propose both weighting systems and
Training the project managers and team members for a leave to the organization the decision on which to
good understanding of the PM process P3. choose as more comfortable. Ideally, the running of
Demonstrate that the top management makes use of both and subsequent comparison will add more
the outputs generated by the PM process P3. evidence in order to attain a more informed future
Use of pilot projects for the revision of the PM prior selection.
process P3, in particular the project PeoplePortal. Ideally, the focus group should be composed by
Engage external professionals in training courses and participants across all PM roles in the organization. In
consultancy actions in order to improve the process. this particular case study, only two participants
Implementation of a quality process to guarantee the participated in the focus group, the companys General
systematic use of the PM process P3. Director and a Project Manager, which accumulated
279
also the role of Project Manager Officer (responsible Therefore, it will be very valuable for future work,
for the continuous improvement of the PM practices in namely understanding the weight that different
the company and support the Project Managers in its organizations (industry, size, strategy, geographic
application). The company is a small organization, and location, project types) place on different PMIIs and
has a very limited number of resources available. factors in promoting the embedment of PM practice. For
However, it was clear the importance of the this particular case study, it would be also useful the re-
participation of at least one more element that assessment of the application of the conceptual
represented the Team Member role. Since the framework in the company after 6 months.
beginning of this research study, the researchers
believed that different organizations (industry, size, ACKNOWLEDGEMENTS
strategy, geographic location, project types) place
This research is sponsored by the FCT - Fundao para
different relevance on different PMIIs and factors in
a Cincia e a Tecnologia (SFRH / BD / 65423 / 2009).
promoting the embedment of PM practice in
The authors gratefully acknowledge the contributions of
organizations. However, this case study showed
the participants in the case study.
different relevancies attributed to the key PMIIs and
embedding factors identified in the framework from
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282
PR-INOVA: PROJECT TO IMPLEMENT INNOVATION MANAGEMENT

IN INDUSTRIALS SMEs RIO GRANDE DO NORTE, BRAZIL
Jernimo Santos,1,2 * Karla Motta,1,3 Mnica Luna,3 Ana Gergia Barbosa,1

Edjanio Brito,1 Mariana Nunes1 and Fernando Romero2
1
Ncleo de Inovao Tecnolgica, Instituto Federal de Educao, Cincia e Tecnologia do Rio Grande do Norte, Brasil
2
Departamento de Produo e Sistemas, Escola de Engenharia, Universidade do Minho, Portugal
3
Departamento de Engenharia de Produo, Universidade Federal de Santa Catarina, Brasil
* Corresponding author: [email protected], IFRN, Rua Nilo Bezerra Ramalho, 1692, Tirol, CEP: 59015-300 Natal/RN, Brasil
KEYWORDS in the contemporary debate that seeks to comprehend

Competitiveness, Industrial SMEs, Innovation current globalization process (Cassiolato & Lastres,
2000). The growing competition and the need to
ABSTRACT efficiently introduce the technological breakthroughs in
the productive processes have been driving the
This article aims to contribute with the learning and enterprises to focus their strategies in the development
difusion of the organizational innovation, presenting an of innovative capacity, a factor that marks the current
experience of the Pr-Inova project in the Rio Grande stage of the capitalism. In this context, the innovation
do Norte state, located in Brazils Northeastern region, emerges as an essential element to leverage the
conducted between 2012 and 2014. The project was competitive potential of enterprises. An example of the
promoted by the Financiadora de Estudos e Projetos importance of this factor for the economy is pointed out
(FINEP) [Studies and Projects Funder] and developed in the report of the Instituto de Pesquisa Econmica
nationaly, aiming to motivate, mobilize and capacitate Aplicada (De Negri, Salerno, & Castro, 2005) [Applied
entrepreneurs; perform diagnostic and elaborate plans Economy Research Institute], whose data demonstrate
and projects of enterprise innovation management. In that the productive scale of innovative enterprises is
order to reach this goal, the case here analyzed adopted significantly bigger than the other categories. According
the action research methodology (Coughlan & Coghlan, to the study, the innovative enterprises annual earnings
2002), splited in (1) data gathering, (2) data feedback is five times bigger than the ones of the enterprises
and (3) data analysis, (4) action planning, (5) specialized in standardized products. These data indicate
implementation, (6) evaluation and (7) monitoring of the that the innovation is a way for the enterprises to reach
actions. As results, it has been identified the innovation competitiveness and its implementation must be
practices there are in the project participants industries, planned, since it requires financial, human and
and it has been realized actions towards the technological resources to be continually and
development of this management culture, being systematically articulated by leaders capable of
implanted 88 innovating initiatives in the industries, integrating the innovative attitudes of the team. This
with 117 new practices in the implementation stage. The way, the innovation becomes part of the strategic
performed study stimulates the researchers to think positioning and the management model adopted by the
about the innovation management by consolidating the enterprise, linked to the planner role.
results of a practical experience, accomplished with a According to the Oslo Manual (OCDE, 2005),
scientific approach, that can be expanded over the other innovation is the implementation of a product, be it a
project participants industries in the state and in the good or service, new or significantly improved, or a
country, providing a larger amplitude and deepening to process, or a new marketing method, or a new
the subject in question, as well as replicated in another organizational method in the business practices,
projects. workplace organization or external relationships. The
aforementioned manual defines four types of innovation:
INTRODUCTION Product Innovation: introduction of a new or
The fact that innovation and knowledge are the main significantly improved, regarding its features or intended
factors that define the competitiveness and the use, good or service. This includes improvements in
development of nations, regions, enterprises, sectors and technical specifications, incorporated components or
even individuals is one of the few consensus established software, ease of use or other functional features.
283
Process Innovation: execution of new production to motivate, mobilize and capacitate entrepreneurs;
methods or distribution of significantly improved others. perform diagnostic and elaborate plans and projects of
This process includes changes in techniques, equipments enterprise innovation management. This article reports
and/or software. the development of the Pr-Inova in a region of the Rio
Organizational Innovation: execution of a new Grande do Norte state, located in the Northeastern
organizational method in business practices of the Brazil.
enterprise, in the workplace organization or in the
external relationships. METHODOLOGY
Marketing Innovation: execution of a new marketing The Pr-Inova project oficial announcement Center of
method covering significative changes in the conception Support for Innovation Management 11/2010 has been
or packaging of the product, in the positioning of the launched aiming to motivate, mobilize and capacitate
product, in the promotion of the product or in the entrepreneurs; perform diagnostic and elaborate plans
formation of the prices. and projects of enterprise innovation management. In
In this same line of thought, Dauscha (Dauscha, 2010) order to accomplish Pr-Inovas goals, it has been
asserts that innovation is the accomplishment of a new chosen to adopt the action research methodology (AR),
or significantly improved product, which can be a good because it is an research action that aims to the creation
or a service, or even a process effectively introduced in of the knowledge or theory about the action (Coughlan
a market or enterprise where it did not exist before, & Coghlan, 2002).
being this the minimal requisite, not necessarily needing According to Westbrook (Westbrook, 1995), the AR has
to be original to be classified as innovative. a practical, interactive and interventionist nature,
The understanding of this author (Dauscha, 2010) refers applicable to situations in which several variables can
to classification of the OCDEs Oslo Manual regarding not emerge at once. According to Gummesson (2000,
the innovation ranks, that concern the intensity of the apud Coghlan & Brannick, 2005), the AR has ten main
created diferences in relation to the previous reality, characteristics, which also corroborate to its choice as
being classified as radical or incremental. the methodology adopted by the Pr-Inova in Rio
Radical innovation refers to the development of Grande do Norte:
significant changes of features, attributes or use forms of (1) Researchers-action perform the action, actively
a product or process, either by creating radically new working to make it happen.
technologies or by the combination of existent (2) It always involves two goals: solve a problem and
technologies for new utilizations. contribute to the science.
For the incremental innovation, it corresponds to the (3) It is interactive, requiring the cooperation between
reconfiguration of an already created technology to the researchers and the target audience, and the
match new purposes. continuous adjustment of new informations and new
It can be seen that the innovation, in the daily routine of events.
industrial enterprises, is showing itself as an essential (4) Aims to develop the holistic comprehension during a
component to maintain the competitiveness. For the Project and recognize its complexity.
innovational practices to be present in the daily routine (5) It is fundamentaly applicable to the comprehension,
of these enterprises, it is necessary the adoption of planning and implementation of changes in enterprises
routines and procedures of innovation management, and organizations.
what can be done through the technology transference. (6) It requires the comprehension of the ethical
Regarding the participants of the technology structure, values and standards used in each particular
transference process, the inclusion of governmental context.
agencies in the interactions of the universities and (7) It can include all the data gathering methods.
technological centers with the enterprises is a (8) It requires a large preliminary comprehension of the
phenomenon that has been consolidating itself through corporative environment, the business conditions,
the third millennium. It can be highlighted the structure and dynamic of the operation system and the
government role in the interconnected and global theoretical foundations of such systems.
environment that mark the current time, in which are (9) It must be conducted in real time, although it can be
required: integration instead of command, convincing done in retrospective as well.
instead of control, and the possibility of acting in (10) It requires its own quality criterias.
partnership instead of isolated execution (Abonyi & Van This way, the aforementioned methodology has been
Slyke, 2010; Mintzberg, 2004). adopted due to the progressive and interactive character
Based on this context, the Financiadora de Estudos e required in the implantation of a new entrepreneurial
Projetos (FINEP) [Studies and Projects Funder] and the management process, as the Pr-Inova is characterized.
Conselho Nacional de Desenvolvimento Cientfico e The Figure 1 shows the action research cycle, composed
Tecnolgico (CNPq) [National Council of Scientific and by a sequence of seven activities, developed as from the
Technological Development] promoted the realization
of the Pr-Inova project between 2012 and 2014, aiming
284
preliminary phase of contextualization of the work urbanism, foreign market, law, ecology, innovation
purposes application and definition. management, logistics and marketing.
A relevant component of the ARs data gathering stage, The prepare of the infrastructure and human resources
applied to the project in question, is the realization of (Tahmooresnejad, Shafia, & Salami, 2011) are factors
the initial diagnostics of the existence of innovation that were detected, in the literature, as critical for the
management practices (IM) in the participant success of a technology transference process, refering to
enterprises. the emitter, the transference agents and to the receiver of
the transferred technology. As the Pr-Inova case fits
this profile, for 8 months the scholarship students of the
Serid Core gathered with the managers scholarship
students of the remaining cores and with the state
governance of the project, elaborating materials,
standardizing the conceptual base to be adopted,
contacting and picking entrepreneurs to be part of the
initiative, as well as planning the required infrastructure.
Once the team of each core were composed, it has
started the detailing of the innovation management
technology transfer process itself, according to the AR
cycle. In the planning stage, the activities to be done
were detailed in order to participant enterprises to
Figure 1 Action Research Methodology. develop the culture of the innovation management. The
Source: (Coughlan & Coghlan, 2002). Pr-Inova official announcement stablished the
performance of diagnostics, capacitation and counseling
In order to perform the refered evaluation, it has been for the enterprises taking part in the project.
used a research instrument developed from (Bachmann,
2010), which was expanded in order to align with the Identification of innovation practices already
requirements specified in the Pr-Inova official existent in the industries
announcement. It was kept the 40 questions concerning In March 2013, there was the data gathering stage, in
the 13 dimensions of innovation proposed by which were identified innovation management practices
(Bachmann, 2010): (1) Offer, (2) Technological already existent in the enterprises that took part in the
Platform, (3) Brand, (4) Clients, (5) Solutions, (6) project before its beginning. The activity were
Relationship, (7) Value Aggregation, (8) Processes, (9) performed by means of individual interviews realized by
Organization, (10) Supply Chain, (11) Presence, (12) the Pr-Inovas scholarship students, in order to apply a
Network and (13) Environment Innovation. Ten questionnaire for each enterprise. The gathered data was
complementary questions were included in the tabbed and consolidated by innovation dimension
questionnary, concerning the points whose identification (Bachmann, 2010) and by enterprise, generating the
was required in the official announcement, resulting in a individual and colective reports of the initial situation.
total of 50 points of verification. The identified profiles The innovation management profile was collectively
were pontuated according to the Likert scale (Likert, presented to the participants, while the individual
Roslow, & Murphy, 1993), being presented togheter in a situations were passed forward individually, keeping the
radar graphic (Figure 2), aiming to visually verify the secrecy required by the AR process.
evolution level of each analyzed perspective.
Innovation practices existent in the industries before
DEVELOPMENT OF THE PROJECT the beginning of the project
The Pr-Inova Project started its activities in 2012, The data feedback was presented to the entrepreneurs in
being operationalized in the Rio Grande do Norte state a report containing the individual situation of each ones
by Higher Education Institutions in 4 regional cores. industry and the consolidated panorama of the group
The Serid Region Core, which by the end of its (Figure 2).
activities encompassed 18 industries characterized as
small and microbusiness enterprises (SME), was
conducted by the Instituto Federal de Educao,
Cincia e Tecnologia do Rio Grande do Norte (IFRN)
[Federal Institute of Education, Science and
Technology], being operationalized by a group of
CNPqs scholarship students with a multidisciplinary
formation in the fields of management, architecture and
285
the adaptation of the knowledge there is in the emitter in

response to the reality of the receptor.
With the support of this theoretical base, in the
entrepreneurial counseling meetings was oriented the
implantation and performed the monitoring of actions
linked to the reality of each enterprise, aiming to the
development of the innovation management culture.
The meetings subject and the respective implantations
oriented in the counselings followed the following script
(Subject: counseling):
(1) Innovation Strategic Planning: creation of the
innovation center in the enterprise, composed by
Figure 2 Pr-Inova Serid Region/RN: professionals responsible for the dissemination of the
Initial collective diagnosis of innovation management. innovation management culture among the others
Source: Own elaboration as from (Bachmann, 2010). collaborators. The representatives of this center were the
people that interacted with the scholarship students in
This approach was selected because it allows the the counselings, being mandatory the participation of the
analysis and verification of the individual and collective enterprises owner.
innovation stage, aiming to configure a benchmarking (2) Human Resources (HR) Structuration for the
process. Innovation Management: elaboration of the incremental
According to the results of the initial evaluation, the innovation plan to be implemented in the enterprise, at
Technological Platform was the dimension in which the short-term, in attendance to a need of the HR area
innovation most received attention by the firms before identified by the innovation center.
the beginning of the project, indicating that the (3) Methodologies and Evaluation Tools and
producting systems of these SMEs suited more than two Development of Product and Process: elaboration of the
products families and that the same product or service incremental innovation plan to be implemented in the
was offered in more than two versions in order to reach enterprise, at short-term, in attendance to a need of the
different markets or niches. productive area identified by the innovation center.
Presence and Brand were the dimensions in which the (4) Methodologies and New Business Development
innovation was most critical, due to the fact that the Tools: elaboration of a business model according to the
participant enterprises have not sought to develop new CANVAS methodology (Osterwalder & Pigneur, 2010),
market or selling channels in the past 3 years before the to be detailed during the Pr-Inova Project, to later fund
performance of the diagnostics, as well as not possessing raising and implementation.
their own brand or having not registed it. Based on these (5) Methodologies and Competitive Intelligence
results, actions were planned to be advised for the Systems: application in the enterprise of a systematic to
enterprises, in alignment with the subjects approached in gather the data necessary to the development and
each meeting, according to the specification in the implementation of the innovative idea according to the
FINEPs official announcement. CANVAS, composed by several research forms.
(6) Learning Process Structuration: identification of the
Capacitation and counseling towards the required competences for the implementation of the new
development of the innovation management culture business model.
(7) Innovative Environment Structuration: identification
During the Pr-Inova Project, the capacitation occurred of the presence of practices that characterize an
in 12 innovation meetings, and the counseling in 12 innovative environment and planning of the
visits to each enterprise, dealing with subjects indicated implementation of new actions that strengthen the
in the official announcement. The internal environment innovative culture of the enterprise.
of the organizations that aim to be innovative is highly (8) Structuration of Information Systems for Innovation
relevant to the effectiveness of the implantation process (public policies and innovation support programs):
of the new management model, since it is in it that the orientation for systematic follow-up of innovation
new practice will become effective. When the receptor support programs by the enterprise, with indications of
is a SME, it is essential the adoption of strategies and which programs to adopt.
approaches that take in account the characteristics (9) Innovative Marketing System: identification of a
inherent to the type of enterprise (Nunes, Annansingh, marketing strategy that suits the business, the client and
Eaglestone, & Wakefield, 2006) since the preparatory the product of the enterprise.
stage of the process (Will, 2008). According to (Fernie, (10) Technological Prospection and Intelectual Property
Green, Weller, & Newcombe, 2003), it is proposed a Management Actions: orientation towards verification
methodology for cooperative development, guided by and registration of brands and patents.
286
(11) Innovation Monitoring and Evaluation Systems diversification of the business field, market change,
(development and implantation of indicators): product change, value aggregation to the developed
verification of the management and innovation products, restructuration of the organizational
indicators adopted by the enterprise and orientation infrastructure with the acquisition of their own
towards the use of the gathered data and extension of the headquarters with integrated layout of the processes and
identified scope. sellings through the world wide web (Internet).
(12) Systematic of Informations about financing for
innovation (venture capital and credit lines for fostering, Project management - practices, opportunities and
research and innovation): orientation for the challenges
enterpreneurs towards the elaboration of Pitch of
innovative project developed in the program; The Pr-Inova Project faced some obstacles to achieve
presentation of the project to potential funders and the sought results. It can be highlighted, among the
supporters. challenges, ignorance of the entrepreneurs about the
subject and the low incidence of innovation management
Achieved Results practices in the participant enterprises, what limited the
expansion potential of the competitiveness of these
The counseling and learning stage proposed by the Pr- organizations.
Inova Project was concluded, in the participant The main identified opportunity was the opening of the
enterprises of the Serid Core, in March 2014, after one entrepreneurs to acquire knowledge and to implement
meeting to sensitize the group, 12 colective meetings of new practices in their enterprises, what was reinforced
the enterpreneurs with specialists and 234 technical by the results of the initial diagnostics of innovation
counseling visits, individual and personalized, totalizing management. The observation of this behavior by the
1.196 hours dedicated to the orientation and support to SME entrepreneurs corroborates with (Caputo,
the adoption of innovative practices by the enterprises Cucchiella, Fratocchi, Pelagagge, & Scacchia, 2004), to
whom the genuine effort of the SME entrepreneurs in
staffs.
the technology reception can be motivated by the
As ending results achieved, 88 innovative iniatiatives
observance of significative profits for the enterprise, low
were implanted in the 18 industries and 117 new cost or the possibility to finance the process, agility and
practices were under implementation in the last ease in the implementation, features present in the
counseling. approach used by the Pr-Inova Project.
The activity (1) creation of a innovation management The actions monitoring stage was structured in order to
center, was implanted by all participants, since it is stimulate the participation of the enterpreneurs during
essential to the realization of the personalized all the initiative. Of the starting 20 enterprises, 18
counselings. The enterprises were oriented to keep the concluded the project. As a way to reach this, it was
meetings of the innovation center after the conclusion of structured a Pr-Inovas execution management system,
the project, as a way to keep alive the adopted practices aiming to keep alive the interest of the participants.
and continue the future innovations. The innovation meetings were conducted by distincts
professionals, allowing to the enterpreneurs access to
Among the oriented practices, the activity (3)
many repertoires of enriching experiences, composed by
incremental innovation plan for the productive area,
cases of success and failure.
scored the second place, alongside the activity (4) By the other side, the scholarship students responsible
CANVAS methodology, both of them adopted by 11 for the counseling activities remained always dedicated
enterprises. The practices with less incidence were (10) to the same enterprises, allowing the stablishment of
brand and patents registration and (8) systematic follow- trust relationship with the components of the innovation
up of innovative programs by the enterprise, adopted by center.
2 enterprises. Assignments and routines were specified for coordinator
These results allow to infer the interest of the scolarship students and for the counseling scolarship
participants in initiatives towards the productive process students, which were fulfilled in the stages that came
and new business ideas, as well as the need to strengthen before and after the meetings, as well as in the
the consciousness about the importance of the interaction moments in class and in the counselings. A
strong feature of this systematic was the intense
intellectual property and about the knowledge
communication with the participants, done by e-mails,
concerning innovation support programs.
phone calls and messages, as well as intense dialogue in
A total of 18 innovation management programs were the presencial meetings.
elaborated, describing in details the implementation The subjects to be approached in the counselings were
process of the recommend practices in each enterprise. continually reviewed and the planning of their execution
The innovative projects elaborated during the Pr-Inova debated by the group, allowing the exchange of
contemplate the stablishment of horizontal partnership, experiences between the executors and the
287
personalization of the activities to the reality of each Caputo, A. C., Cucchiella, F., Fratocchi, L., Pelagagge, P. M.,
enterprise. & Scacchia, F. (2004). Analysis and evaluation of e-
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288
KNOWLEDGE IMPLICATIONS FOR THE NITEC PROGRAM: A

PRELIMINARY ANALYSIS OF AN INNOVATION PROGRAM DIRECTED
AT BUILDING INNOVATION CAPABILITIES IN SMES
Dorota Silva,1* Fernando Romero1 and Filipa Vieira2
1 Department of Industrial Engineering, University Minho, Portugal
* [email protected], University Minho, Azurm, Portugal
KEYWORDS
Knowledge management; innovation program; indirect
impacts INTRODUCTION
Innovation programs are an integral part of the national
ABSTRACT innovation systems in the form of technological
innovation management actions, knowledge
Economists and others scientists have demonstrated that
management practices and organizational change
R&D activities generate widespread benefits enjoyed by
operations (Lundvall and Borrs, 2005; Borrs and
consumers and society at large. As a result, the overall
Fagerberg, 2011). These complex and uncertain
economic value of R&D to society often exceeds the
processes require specific management, and continuous
economic benefits enjoyed by the innovators as a result
improvements and investments. Consequently,
of their efforts. Economists describe this phenomena as
evaluation tools and methods are required to properly
a positive externality or spillover (Jaffe, 1996)
assess these processes and to have a reliable ground on
(European Commission, 2005) (Cohen & Levinthal,
which to make decisions (Papaconstantinou and Polt,
2000) (Richard Gray and Stavroula Malla, 2007).
1997; Georghiou and Roessner, 2000; Smith, 2006).
Similarly, one can say that the intended results of
However, in some EU countries, such as Portugal,
specific innovation programs directed at SME are
innovation program assessment and measurement is still
usually complemented by results that were not
a relatively novel activity. Moreover, even in regions
specifically aimed at. The first type of results, which are
with a track record in innovation policy, the evaluation
the specified objectives of the program, are called direct
of innovation is far from being straightforward
impacts, and the second type of results are called the
(European Commission, 2005). Innovation is a dynamic
indirect impacts of the innovation program.
and constantly evolving system which is adapting itself
This paper identifies and analyses the indirect impacts of
to a range of internal and external factors (Georghiou,
an innovation program, implemented and financed by
Rigby and Cameron, 2002; Zahra and George, 2000;
the Portuguese state under the aegis of the 6th
Borrs, Fagerberg and Edquist, 2011). It is difficult to
Portuguese Framework Program, and directed at SMEs.
know the inherent elements included in the indirect
The program, called NITEC, aimed to foster and
impacts of innovation, but they exist and cannot be
support the creation of R&D structures inside SMEs, by
neglected when evaluated. There are feedbacks between
providing financial support to hire research personnel
policies and other innovation related agents that are
and acquire research equipment.
difficult to measure. Encouraging innovation can
This program was conceived to address a key problem
stimulate only the direction and intensity of the results,
in the National Innovation System (NIS) in Portugal: the
but generally does not produce by itself impacts initially
low level of in-house technology and innovation
planned.
capabilities in Portuguese firms. This specific program
The indirect impacts are defined as all types of results
was selected because of its features: 1) the funds are
implicit on the project. Indirect impacts can be related to
governmental; 2) promotes activities related to R&D; 3)
the same activity generated by the project, provided that
the people involved are expert in the working and
they have escaped its initial scope. In this study, only
research area; 4) the project-base has a limited period of
these were considered in the evaluation study of the
time (maximum five years); 5) each company has its
acquisition of knowledge and transformation processes.
own project. These features are essential to identify
Thus, the concept of spillover only refers to the
knowledge acquisition in the firms which participated in
application of new knowledge generated by the project
the program, as a main topic being evaluated in the
results.
289
in a different activity in terms of technology or sector, enhance such competencies; (2) to support company
initially unforeseen in the objectives of the project. efforts aimed at improving design and process
Evaluating a program that is transformative of capabilities as well as the endogenisation of foreign
knowledge offers the unprecedented opportunity to technological knowledge; and (3) to promote company
explore the process of building-up of that process. capabilities to develop technologically innovative
Describing the context and implementation of a broad products and solutions. More specifically, the key
set of factors is critical, yet inherently challenging, as is objective was the creation (or formalisation) of small
assessing their effectiveness. This paper focuses on three R&D groups in companies which had already shown a
characteristics of evaluation activities: 1) the importance proclivity to engage into R&D activities or which were
of context; 2) the complexity of the interventions; and 3) undertaking R&D activities on an informal basis. The
the identification of the indirect impacts. existence of a dedicated R&D group was expected to
Attempts to provide empirical evidence for the existence make companies more aware of the opportunities
of such knowledge spanning mechanisms is made in the stemming from carrying out R&D activities, therefore
present study. The goal and the method was to leading to a steady development of in-house R&D
investigate technological learning patterns in terms of capabilities.
knowledge interaction mechanisms through an NITECs would contribute to enhance companies
interview-based exploratory study. absorptive capabilities as well as their product and
The study presented here is structured as follows. The process design and adaptation competencies. They were
following section describes the innovation programme also envisaged as an instrument to develop and
that was considered in this study. The conceptual strengthen internal and external linkages. From this
framework that guides the interpretation of the case perspective, NITECs were not just an instrument of
studies is reviewed in section three. Section four technological but also of organisational innovation.
develops the hypotheses. Subsequent sections report the Overall, the NITEC initiative was positively evaluated.
results which correspond to a dialogue between ideas It was recognised that the support to the creation of the
and the evidence grounded on the case evaluation. The small R&D teams was justified in terms of public policy,
last section presents the main conclusions, limitations insofar as it had significantly contributed towards a
and questions for future research. change in Portuguese companies commitment towards
R&D and innovation. It was considered that besides the
NITEC PROGRAM effect of generating a new managerial perspective with
regard to the continued and systematic carrying out of
The launching of the NITEC (NITEC is an acronym for in-house R&D activities, according to NITECs
Research and Technological Development Nuclei in coordinator, it contributed towards an increased
Companies) program is aimed to address a key problem capability of companies to cooperate with S&T
in the National Innovation System (NIS) in Portugal: the organisations.
low level of in-house technology and innovation Figures 1 and 2 show the business activity and the
capabilities of Portuguese firms. regional distribution of firms that received support from
An additional problem was the weakness of the linkages this program. There were a total of 169 SME from
among the various players in the NIS. Companies with different sectors that implemented the NITEC program.
low in-house R&D capabilities had been identified in
various policy analyses as an important hindrance to a
stronger cooperation among the various actors, namely
between Universities and Scientific and Technological
(S&T) organisations, on the one hand, and Industry, on
the other.
A NITEC was defined as a small, permanent team of
people fully dedicated to technology endogenisation and
development activities, according to a project-based
action plan. Those activities were expected to lead to the
design of new products, processes and/or systems or to
the introduction of significant improvements in existing
ones (Portaria n.o 441/2003, 2003; Godinho and Simes,
2013). For financial support purposes, a NITEC should
have a maximum of three elements, although companies
might establish, at their own expenses, a NITEC with
more staff.
The main objectives are the following: (1) to support the Figure 1: Distribution of companies by business
creation of in-house R&D competencies in Portuguese activities
companies as well as to encourage companies to
290
firms in the Lisbon area compared to service firms in

other regions of the country. On the other hand, firms
from the ICT sector are predominantly from the North
and Lisbon area, reflecting similar trajectories of these
companies that are active in a relatively new industrial
sector.
SPILLOVER IN THE CONTEXT OF THE

ABSORPTIVE CAPACITY
The concept of absorptive capacity emphasized the
crucial role that knowledge plays in business
competitiveness. It emerged as a significant concept in
Figure 2: Distribution of companies by business the 1980s, in the field of organizational learning. Cohen
activities and by region in Portugal and Levinthal (1990) were the first authors to determine
a proposal for a definition to build a general theoretical
The figures represent the firms that received support framework around its characteristics in business
under the NITEC program, and they include firms from application. These authors define absorptive capacity as
the information and communication technology, the ability to identify, assimilate, and apply knowledge
construction industry, services and processing industry. from external sources for commercial purpose.
The services sector represents the commerce and From this perspective, we can derive the implication that
consultancy activities and the processing industry sector the incentive of firms to invest increases with the
consists in the wood, food, energy, metal-mechanic, perception of improvement in the capacity for
plastics and electric/electronic activities. absorption (Levinthal and Cohen, 1990). Kedia and
As can be observed in Figure 1, the majority of Bhagat (1988) used the term in the context of
companies that adhered to the NITEC program were technology transfer among nations, and related it to
form the information and communication technologies firms receptions to technological change. It requires a
sector. Next, came the processing industry sector, then business to evaluate, assimilate and apply knowledge
the services sector and the finally the construction transmitted from another (Lane and Lubatkin, 1998).
industry. An internal audit of NITEC showed that the The capacity to absorb largely depends on technological
projects in the information and communication abilities, but varies with the sectors in which the
technologies sector were generally in line with the receptor firms operate (Zahra and George, 2000;
overall philosophy of the NITEC, which was Hamida, 2013; Camisn and Fors, 2010). It is for this
intrinsically more close to these technologies. As a reason that companies in certain sectors are more
consequence, this sector was also the more open to susceptible to developing abilities, to knowledge flows,
absorb the main objectives of NITEC. technological advances and, consequently, the capacity
In terms of regional distribution, the northern part of for absorption, and that may depend, among other
Portugal contributed with 53% of the construction factors, upon the degree of concentration in the sector
industry firms that participated in the programme and (Kedia and Bhagat, 1988; Newey and Shulman, 2004).
with 44% of the information and communication Zahra and George (2000) performed a review and
technologies sector firms that participated in NITEC. reconceptualization of the concept of absorptive
The Lisbon region (LVT) contributed with 47% of the capacity that differed from the traditional concept of
service firms that participated in the programme, and Cohen and Levinthal. According to the authors,
with 37% of the information and communication absorptive capacity is a dynamic capacity embedded in a
technologies sector firms that participated in NITEC. firms routine and processes, which promotes
The central region of the country contributed with 46% organizational change and evolution. The authors also
of the processing sector firms that participated in argued that established absorptive capacity had four
NITEC, and with 28% of the service sector firms that dimensions, which they grouped in two main categories:
participated in NITEC. The southern region accounts for 1) potential capacities, which may be translated in
4% of the supported firms in the processing industry and knowledge acquisition and assimilation and, 2) realized
2% of the firm supported in the ICT and service sectors. capacities, which represent transformation and
This distribution may somehow reflect the relative exploitation of knowledge.
weaknesses of some regions in terms of industrial R&D, The concept takes into account a new determinant and a
the North being relatively weaker in terms of the new perspective regarding the development of corporate
endogenisation of R&D activities in the construction competitiveness. It stresses knowledge, which is
and processing industry, and the centre relatively weaker equivalent to a firms experience, and it is important for
in the processing industry. The greater participation of developing absorptive capacity, but the authors highlight
service firms from the Lisbon area may reflect a other points, and argue that external knowledge sources
relatively more mature stance from the part of these
291
and complementary external knowledge are equally stakeholders and funding agents, and it provides a sense
important. of context and richness of detail that exceeds virtually
In other words, if for a firm scientific and industrial every other approach to analysis (Eisenhardt 1989;
knowledge is important for driving technological Bozeman and Klein, 1999; Youtie et al. 1999; Yin
change, then the firm needs to be able to develop both 2013).
types of capacities. Probably, a firm with a good level of As part of each company case study, we compiled a
scientific absorptive capacity will be better able to detailed background analysis, through a semi-structured
exploit the knowledge from other firm agents. interview guide. The evaluation conducted nine face-to-
This paper intends to contribute to the debate on face interviews with executives of enterprises that
innovation policies, assessing the indirect impacts of an participated in the NITEC program. The data was
important program, the NITEC program. This program collected during the end of 2012 and the beginning of
is a Portuguese initiative in innovation for the SME and, 2013, and involved interviews to the Head Manager of
at the same time, initiates a new modality of public Innovation of the enterprise.
intervention, supported by international partnerships. The interview guide was produced on the basis of the
BETA evaluation methodology (Bach, 2002). It was
HYPOTHESES elaborated to capture the impacts of NITEC, and
according to the following variables: 1. Network
The above discussion supports the formulation of two capacity in R&D; 2. Business affairs; 3. Organizational
hypotheses concerning the nature of knowledge on capacity; 4. Exchange capacity; 5. Capacity building in
innovation programs directed at Portuguese SMEs. In S&T; 6. Human resources and capacity building.
general, the NITEC program achieved its main Considering the nature of the program and as an ex post
objectives and it exceeded earlier expectations of the evaluation, we consider that there was a minimum time
project. Knowledge transfer can be the basis for the lag for the effects to take place, which was at least five
generation of new products and knowledge confirming to six years. This is so because after this period, a new
the argument by Zahra and George (2000) about and more complete perspective concerning the
absorptive capacity. knowledge impact of the project would probably have
The previous assumptions are the fundaments for the emerged. It reflects the relevance of evaluating the
proposed model and produced two hypotheses: program after a long time.
Hypotheses 1: The objectives of an innovation program
may not be achieved, but they may cause unexpected RESULTS
results that are important for the increase in innovation
capacity of the targeted agents. The high degree of positive externalities is related to
Hypotheses 2: The increase in absorptive capacity of NITEC vocation to be a technological capability
the agent can produce impacts that are more important program with an important inducement potential inside
than the programmed innovation itself. and outside enterprises. The empirical observation that
Our hypotheses were used in a two phased approach. indirect impacts exists ratifies criticism of the linear
First, we focus on the conditions that the NITEC model of innovation, since this model does not consider
program influenced previously in order to orient the and not allow for those effects (Borrs and Fagerberg,
firms. Second, we addressed the conditions associated 2011). This model gives theoretical support to most of
with absorptive capacity that depends on the knowledge the ex ante evaluation analysis done by firms and
transfer variable. laboratories (Georghiou, 1998). In this case, the effects
are expected to result from the projects initial
objectives. However, the indirect impacts, i.e.
METHODOLOGY knowledge acquisition and networking are much more
In order to empirically analyse how companies are frequent as a result in this program, which means that
changing their innovation activities, in this study we there are results that were not expected from the
chose a multiple case study approach, as this is projects initial objectives. All the enterprises of the
particularly appropriate for studying complex sample have strong indirect impacts. Table 1 shows the
acquisition knowledge (Eisenhardt, 1989; Yin 2013). relationship between the variables that were addressed
The case study methodology responds to the need to and operationalized in the interview guide.
explore a complex reality and the partners behavioural In Table 1 the row labels are the variables that are
patterns in the process of building the partnership. categorized in five broad groups: transfer capacity,
There are considerable instances in the use of case study capacities in S&T, networking capacity in R&D,
to determine the impact of technology development organizational capacity and visibility in commercial
programs (Bozeman and Klein 1999). These studies can relations. The five groups were divided into others
give an indication not only of the extent of program subgroups, which reveals or measures the interpretation
success or failure but the reasons for success or failure. of the impacts of the NITEC program.
A case study can also serve to document success to
292
The percentages refer to the frequency of responses. The Table 1: Summary of the descriptive of the variables
responses were inferred from the analysis of the used in the study.
interviews. The answers were classified according to the
nature and subjective or perceived importance of the
impact of the program on the relevant variable. In Table
1 there are three possible answers. Not means that the
variable was not influenced when the firm introduced
the project supported by NITEC. Yes means that the
variable was influenced when the firm introduced the
project supported by NITEC. Doesnt know means
that the influence on the variable cannot be linked to the
NITEC programme.
According to Table 1, the variables that involves
transfer capacity (learning, codified knowledge,
dedication to reading, knowledge transfer, and codified
knowledge transfer) were considered by 100% of all
interviewee responses as being influenced by the
programme. Overall, 82% of the answers confirm that
Knowledge Transfer Capacity was influenced by the
program. Other variables were also considered as being
highly impacted by the programme. They include
Visibility in Commercial Relations with 68% of answers
acknowledging direct influence of the NITEC
programme, Networking Capacity in R&D, with 83% of
answers reporting influence directly to the NITEC, and
Organizational Capacity, with 77% of answers asserting
influence of the program.
This reinforces the idea argued above (Levinthal and
Cohen, 1990; Lane and Lubatkin, 1998) that absorptive
capacity is a key process in understanding practices
among companies and their partners.
All firms and practitioners responded very positively,
considering that the development phase of the project The most frequent indirect impact is on Transfer
and the learning that occurred generated knowledge at Capacity, a proxy for knowledge transfer, revealing its
the organizational level that increased the absorptive importance for program evaluation and policy-making.
capacity of the organization, and the consequence of that All the evaluated enterprises had this kind of impact.
process was not limited to the internal aspects of the The concentration of technological transfer effects for
firm, but it was reflected in the partnerships that the firm enterprises indicates that it was by means of a free and
established at the technological, academic and informal process of transfer of product and process
commercial levels, thus establishing the grounds on technology to suppliers that it appropriated the gains of
which the network was formed. innovation. The external actors (academic, commercial
It was expected that patent licensing, know-how or and technological) capitalized these gains by launching
technical assistance contracts would transfer new new products or new services into the market, and in the
knowledge created by the project. However, this was not form of scientific publications. The technological
a very frequent form of technological transfer between transfer procedure is known as spill-over in the
enterprises and theirs partners. Most of it happened economic literature.
outside these contractual arrangements. It means that the These results validate and confirm the hypotheses 2,
indirect impacts exceeded the border area provided in which argues that the increase in absorptive capacity can
the NITEC. make an impact more important than the programmed
innovation itself. According to the authors Zahra and
George (2000) what occurs within the firm is also
important for the economy as a whole and recognize that
the fundamental knowledge necessary to the firm's
growth exists in its tacit form and is learned by
experience, and this interaction forms the concept of
absorption capacity.
Pavitt (2000) complements this idea arguing that the
firm is an organization and the resources that it manages
293
are the factors driving their growth. Management In table 2, we emphasize the commercial effects, which
resources are specific and on them are deposited the were very important, especially for the Information
knowledge and the experience, with emphasis on Technology sector. They occur because the execution of
information, on the network, on the tacit knowledge and the project allowed better knowledge on commercial
the know-how. partners and increased competition. In general, these
Hypotheses 1 cannot be totally validated, since the main effects arose from modifications introduced in some
objectives of the program were achieved. On the other high technology equipment or the implantation of a
hand, the program created results that exceeded its Quality Management System to standardize the service.
objectives, meaning that there was an involuntary In this case, the NITEC contributed to increase the
transfer of ideas and techniques. This occurred because commercial partnership. The commercial effects were an
the program assumed a central role in endogenous important outcome. They were related to the interactive
processes, although this aspect was a main objective of learning that happened with suppliers even when they
NITEC. In any case, the NITEC program contributed to were not directly involved in the project.
increase the focus on technology development
capabilities, even if innovation actually did not, or
CONCLUSIONS
would not, materialize. The main purpose of the
program was to create the ability to deal with them. The NITEC was a very large program that ended six
Table 2 presents a second set of results concerning the years before the beginning of this evaluation study,
above mentioned variables that attempt to measure the namely in 2006. The assessment of the indirect impacts
intensity of the indirect impacts of innovation of NITEC involved a great methodological challenge
programmes. Table 2 focus the attention on the new and required a considerable effort for in terms of
partners and the technology transfer specifically conceptualization and data collection.
concerned to exploit the knowledge generated by The results offer valuable information regarding the
NITEC. innovation process in Portugal at the time. The study
gave a real idea of what indirect outcomes of a large
Table 2: New partners and technology transfer to technological program are, a relatively under researched
specifically exploit the knowledge generated by the and previously unknown terrain, and confirms the
programme NITEC. magnitude of the importance of indirect impacts, in
particular those related to knowledge transfer, and the
need to consider them in future evaluations. This first
study offers the opportunity of providing inputs to
similar evaluation studies of other large technological
programs in Portugal, enlarging the knowledge base
about the efficiency of these public policy tools.
The study case methodology gave the opportunity of
recognizing more accurately the nature of knowledge
acquisition in the context of NITEC. We identified
clearly the importance to have a fully dedicated team to
technological and other innovation activities inside the
enterprise that contribute meaningfully to the total
effects of the innovation process within the firm. It
confirmed our hypotheses that the increase in absorptive
capacity had more impact than the innovation project
In this table there are five possible answers: Increased itself.
means that the capability to be on networks increased The second observation is in relation to the hypotheses 2
after the termination of the NITEC program. and highlights the relevance of the learning process
Indifferent means that the capability to be integrated accomplished during the project. The resulting effects
in networks neither increased nor decreased after the are not usually quantified or identified by traditional
termination of the NITEC program. Indirect 1 means evaluation methodologies. The case study enabled to
that the relationships between partners that already identify a special commercial effect originating in the
existed prior to the NITEC program have strengthened relationship with suppliers.
due to indirect impacts from NITEC. Indirect 2 Our study also revealed that national and international
indicates instances where the partners were the biggest universities and technological institutes were important
beneficiaries of the impacts. Indirect 3 means that the partners in the program, and they provided significant
impact was not directly related to the NITEC impacts, displaying a positive and articulate capability to
programme, but it contributed to the development of help the Portuguese enterprises.
other tools and operations. The study revealed that the NITEC program generated
important externalities. It was relevant to clarify the link
294
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296
SMALL CONDOMINIUM FOR GENERATION OF BIOENERGY AND

FERTILIZER: A CASE STUDY WITHIN RIO GRANDE DO SUL, BRAZIL
Rodrigo Barichello1, Nelson Casarotto Filho1, Ronaldo Hoffmann1 and Paula Ferreira2
1
Department of Production and Systems, Federal University of Santa Catarina, Brazil
Corresponding author: [email protected], Federal University of Santa Catarina, Brazil
KEYWORDS New models of production and consumption of energy

are being developed relying on renewable energy
Small condominium; bioenergy; fertilizer; renewable sources (RES), either through wind power, biomass,
energy. solar, tides, among others. These green and sustainable
technologies are increasing their level of importance,
ABSTRACT being an important solution to the energy problem
worldwide.
Energy sources have become the focus of legal and However, environments tailored to traditional forms of
ethical debate, mainly due to increased environmental energy have to face huge challenges. These challenges
challenges and socio-economic change. Non-renewable come not only from the technological point of view,
energy sources are thus increasingly being replaced by requiring changes on the infrastructure through the
renewable ones. The agriculture sector is also targeting entire value chain, but also from the long human
less polluting technologies for ensuring sustainability convenience with existing facilities creating then
aiming to harness equitable, viable solutions for both difficulties of adaptation to new technologies and
agricultural businesses and the world within which they projects. These can be extremely difficult aspect to
operate.. This study analyses a case of waste to energy, overcome (Oliveira et al, 2011). Also, as observed by
within the State of Rio Grande do Sul, Brazil, where two Nagel and Meyer (1999) any possible alternatives for
small rural pig farmers assessed production cycles and the solution of problems related to the environment will
waste generated in order to exploit new opportunities for be heavily weighted in the economic factor.
organizational cost reduction and energy self- The use of biomass as an energy source has been
sufficiency. Pig waste acts as biomass for each digester growing in Brazil, taking advantage of both its economic
installed in the farming properties. These digesters and environmental benefits. It may be cited, alcohol,
produce enough power to maintain a central biogas biodiesel, biogas, thermoelectric power from sugar cane
generation unit, and thus providing animals heating and bagasse, among others (Oliveira et al, 2011). In this
drying of the grain produced in the respective properties. scenario, swine breed activity configures an important
Biofertilizer produced by digesters can, furthermore, source of biomass generation, with considerable
help fertilize corn crops and cattle grazing. The findings environmental liability. The technical implementation
of our study demonstrate that investment into such a of swine manure treatment is the major challenge for the
project can provide an excellent return, with savings up sustainability of this activity, since small territorial areas
to 50% in electric energy and 50 % in fertilizer. Cost concentrate large numbers of animals (Angonese et al.,
saving was also recorded in the overall production. 2006). The technology of anaerobic digestion in
digesters is one of the possibilities to minimize pollution
INTRODUCTION generated by this activity and at the same time, adds
The energy crisis and environmental problems arising value to rural properties (Vivan et al, 2010).
from the use of non-renewable and polluting sources of The Brazilian countryside has undergone intense
energy have changed the global scenario on the subject, technological revolution over the past decades that
leading the search for sustainable solutions in three culminated in considerable increase in productivity in
areas: economic, social and environmental. The change the field. In contrast, agricultural operations have proved
stems from the intensive use of energy sources that to be major waste generators worldwide (Tsai et al,
generate emissions of greenhouse gases and the 2004;. Min et al, 2005;. Wagner et al, 2009.).
instability of fossil fuel markets worldwide. Particularly in relation to Brazilian pork production,
297
waste products are usually released untreated into rivers energy are biomass energy, obtained from animal or
and springs (Angonese et al., 2006) which demonstrates vegetable matter, or produced from organic waste and
great potential polluter, because this material contains garbage, wind energy obtained from wind, hydropower,
feces, urine, food scraps not ingested, germs and produced from water power, solar energy, obtained
bacteria that accompany them (Arvanitoyannis ; Ladas, directly from the sun and geothermal energy, i.e., those
2008). arising from the internal heat of the earth (Ipcc, 2011).
The use of digesters has received significant attention The current energy model is largely centered on the
due to aspects of sanitation and energy potential, in consumption of fossil fuels, which are linked to two
addition to encouraging nutrients recycling (Walter problems: firstly, the environment, since they contribute
Borges de Oliveira et al, 2004). In the 70s and 80s there to increased emissions of greenhouse gases, secondly,
were investments in Brazil in digesters, especially in the fossil energy sources are finite, i.e., exhaustible. The
northeastern region of the country, but eventually lost ongoing debate on the impacts caused by dependence on
strength and installed digesters are decaying. Due to the fossil fuels, contributes decisively to the global interest
possibility of selling carbon credits related to the Kyoto in sustainable solutions by means of generating energy
Protocol, these devices have gained strength again from clean and renewable sources and environmentally
(Lucas and Melo, 2011). friendly (Bermann, 2008). The technologies based on
The use of byproducts of the digestion (biogas and bio RES are attractive not only because of the
fertilizer) process, allows the valuation of the manure on environmental benefits, but also due to the social ones.
the properties, brining opportunities for environmental The possibility of creating decentralized sources of
liabilities, since the energy item affects considerably the supply and in small scale is crucial to sustainable
final cost of production. In the case of swine breed development in both developed countries and
activity, is a factor that deserves to be worked, because developing countries. (Souza, Pereira et al., 2004)
the price fluctuations of the product reduces the However, Demirbas and Demirbas (2007) pointed out
competitiveness of the sector. that while RES has gained attention in many countries
This is precisely the focus of this paper, presenting a on a global scale, represents less than 15 % of the total
case study of the deployment of a small agro-energy primary energy supply. In Brazil, according to the
condo in Brazil. In this condo a gas pipeline connecting Ministry of Mines and Energy - MME (2013), 43.8 % of
the gas generated in two mid-sized properties was built, the energy matrix comes from RES, much of this
giving rise to a common small electricity generation composition is due to the intensive use of wood and
center and allowing for the production and use of bio hydropower. However, other types of energy represent
fertilizer. The economic and environmental feasibility of only a small fraction of the global energy supply (eg,
this system is demonstrated. solar, wind, biomass).
The remainder of the paper is as follows: Section 2
overviews the conceptual background addressing in Biogas Generation from Biomass
particular biogas in Brazilian agro condominiums. Biogas is a mixture of approximately 3:1 methane (CH4)
Section 3 describes the methodology followed in the and carbon dioxide (CO2). It is then characterized as a
research. Section 4 focus on the case study. Finally, "clean" fuel since the late 19th century. But a great
section 5 summarizes conclusions and points directions resurgence of interest in biogas capture has occurred in
for future work. recent years due the increasing growing concern about
global warming (CH4 is 21 times more aggressive to the
CONCEPTUAL BACKGROUND atmosphere in the case of the greenhouse effect than
CO2). Thus, the double advantage of methane capture
Energy is one of the most important resources for the
and burning- power generation, while minimizing global
development of a country. The new world order is
warming - have surfaced (Abbasi Tauseef et al, 2012.).
focused on the search for self-sufficiency in power
As Pipatmanomai et al. (2009) state, biogas can be
generation, combined with a diversification of energy
generated from household waste, sewage, landfills,
sources, i.e., searching for different alternative energy
animal waste and wastewater. Methane emissions in the
sources that meet the internal demand of the country in
atmosphere originates from several sources, anaerobic
case of a shortage of fossil fuels (Pacheco, 2006). At the
biodegradation: as digestion of ruminants, biomass
end of the 1970 RES began to be considered an
burning, etc. The same authors underlines that natural
alternative to traditional energy sources, both for its
sources account for 40 % of total methane emissions,
present and future availability guaranteed (unlike fossil
while anthropogenic sources account for 60 %.
fuels that require thousands of years for its formation)
The biogas formation process involves decomposition
and its low environmental impact (Tsai and Lin, 2009).
of organic matter by microorganisms, the processes can
RES are the ones originating from natural sources that
be divided into aerobic, anaerobic and facultative
have the capacity for renewal, i.e. it does no exhaust.
decomposition. Digestion in the presence or absence of
Renewable energies are obtained by repetitive flows
oxygen, will define the set of microorganisms that act on
(continuous) of energy occurring in the natural
the decomposition of organic matter. In the anaerobic
environment. The main representatives of renewable
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degradation, main focus of the present study, the oxygen Grzybek et al, 2011.). Also, biogas use brings positive
is toxic to microorganisms. The wet biomass is fed into impacts to the economy with the potential for electricity
a closed digestion tank, called reactor or digester where and heat production and the associated carbon credits of
the anaerobic reactions occur (Lim & Sims, 2003). The these projects.
biodigester is a device widely used for the treatment of Besides offering financial returns as a source of energy
liquid swine manure, formed by a stone coated tank, and the byproducts of digestion, biogas is also directly
masonry or PVC geomembrane and covered with a tarp aligned with the environmental laws and regulation for
that allows it to expand to store gases (Dalmazo; Bazi ; the agriculture and cattle and swine creation. These
Oliveira, 2009). Microorganisms (methanogens) that act activities lead in general to water pollution from manure
in the absence of oxygen attack the structure of complex (high organic load and the presence of fecal coliforms),
organic materials, producing simple compounds such as which causes serious environmental problems to local
methane (CH4) and carbon dioxide (CO2) (Bitton, populations (Belli Filho et al, 2001;. Kunz, Higarashi et
2005). A typical composition of the biogas is about 60 al, 2005; Holm-Nielsen et al, 2009; Vivan, Kunz et al,
% methane, 35% carbon dioxide and 5% of a mixture of 2010.). As such, either being implemented in isolated
hydrogen, nitrogen, ammonia, hydrogen sulfide, carbon rural areas without energy access or just aiming to
monoxide, etc. This biogas has a high energetic value reduce energy related production costs, the biogas
and a cubic meter of biogas is equivalent, for example to process implementation represents a business
0.613 liters of gasoline (Barrera, 1993, p.10). opportunity that should be evaluated for its economic
For the fermentation of organic matter to occur, the returns to the investors, for the contribution to follow the
microorganisms need a supportive environment environmental liabilities and above all for the possible
(appropriate temperature) for their growth and improvement in local people's lives.
development. Studies such as Axaopoulos and Oliveira et al (2011) also emphasize, among the benefits
Panagakis (2013) in Greece, demonstrate the possibility already mentioned the possibility of selling carbon
of installing solar panels on the roof of the digesters to credits. In Brazil, there are already several projects of
contribute to the maintenance of an average temperature the Clean Development Mechanism (CDM), which was
of 35 degrees within the decomposition chamber. created by the Conference of Parties to the UN
The treatment of pig manure by anaerobic digestion, Framework Convention on Climate Change as a way to
according to Sanchez et al. (2005) have many help countries meet the targets of the Kyoto Protocol
advantages, such as: ability to stabilize large volumes of (Article 12). The proposed CDM consists of an
dilute organic waste with a low cost and low biomass implementation of a project in a developing country
production, the destruction of pathogenic organisms and aiming both emissions reduction of greenhouse gases
parasites, methane generation that can be used as an (GHGs) and contribution to local sustainable
energy source and biofertilizer production that can be development. Each ton of CO2 or equivalent not released
used as organic fertilizer in agriculture, aquaculture or sequestering from the atmosphere turns into a carbon
and/or as foliar fertilizer. The bio fertilizer can be used credit unit, called Certified Emission Reductions
as organic fertilizer together with chemicals in a variety (CERs), which can be traded on the world market.
of vegetable crops fertilizers, providing a yield Because of these possibilities for the Brazilian swine
comparable with the exclusive use of chemical fertilizer creation sector, a large agribusiness company, located in
efficiency while reducing the cost of the production the states of Rio Grande do Sul, Santa Catarina and
process. Paran, have invested in setting up approximately 3,500
Methane gas can be used as an energy source in many digesters and with this small and medium sized
types of equipment such as stoves, generators, lighting, producers had the opportunity to access the carbon
heaters, combustion on burners, or used as fuel for credit market. The program established that the swine
engine / generator sets for power generation, or even producer received the devices on loan and subdued
improved quality biogas (natural gas) by removing investment by generating their carbon credits, which
carbon dioxide and hydrogen sulfide (Tsai and Lin, would be negotiated by the own agribusiness.
2009). Therefore, anaerobic digestion of animal waste is Bley Junior (2009) supports that biogas, as a product of
a promising way to ensure the treatment of these the agro activity and as a RES, can be exploited in
effluents and simultaneously can reduce GHG emissions cooperative systems or condominium (condo). For this,
(Bacenetti, Negri et al., 2013). the digesters can be interconnected by rural gas pipeline
The production of biogas in rural areas offers several with association management, setting up plans that also
benefits as electricity and heat are can be produced from contribute to the territorial planning. They are very
RES. As such, biogas can in fact generate valuable much popular because they offer an interesting
tangible economic results through the entire value chain. opportunity for the economic exploration of biogas for
This includes for example suppliers of components and small farmers. It is possible to set up a condominium by
specialized services essential to settle and operate interconnecting different farmers pipelines with one
engines, generators, controls, digesters, filters, pipes and central power generator, providing economies of large-
other parts (Amon and Boxberger, 2010; Raslavicius, scale for participants and bringing important
299
environmental, energy and economic results. This handled in isolate way and must be considered together.
arrangement has the perspective of biogas co-operative According to Bruyne (1997) case study brings together
model but is independent of the producers binding to information as detailed as possible, in order to grasp the
other cooperatives or integrations for their main totality of the situation.
activities. In this paper it was decided to study a single case,
In this perspective, the bioenergy condo can be seen as because this phenomenon is relatively recent in Brazil.
a set of agro-energy chains that interact and find The research was conducted within the State of Rio
synergies lowering production costs. This interaction at Grande do Sul (RS), Brazil, in two farms that constituted
different levels of integration the bioenergy the bio-energy condo. The protagonists of these study
condominium can be persued on-grid, connecting the properties are configured as Piglets Production Unit -
biogas power plant to the national or regional grid or, PPU. Through this research, we tried to determine
off-grid, configuring then an auto-consumption project "how" and " why" the changes in the properties were
(Rural Evolution 2012). implemented , and to make an assessment of the
Power generation system, historically, developed in advantages gained from the investment.
large technical systems and this can be observed in Latin Yin (2005) suggests that six sources of evidence should
America, with large power plants frequently located be used as far as possible, to get a good case study,
distantly from consumption centers (Peppermans et al., namely (1) documentation (2) archival records, (3)
2005). This has been the dominant paradigm along the interviews (4) direct comments , (5) participants
years. However, it has been changing to more flexible observations, and (6) physical artifacts.
energy systems that can be developed at the community Documentation used in this study consisted of reports
level and involving users actively also in production and submitted by the owners. Files as budgets of the
energy management. This configures the so called micro facilities were analyzed. The main data for the study
or smart decentralized power systems. The rural were collected through semi-structured interviews,
electrification cooperatives, who find difficult to join which were conducted at the study site. Direct
electricity generation activities by legal or economic observations of the different activities and processes at
restrictions, tend to see the association in condominiums the study site were performed, which provided a more
as an interesting economical solution. detailed view of objects and safe search.
Within the context of rural decentralized energy The theoretical basis for the research was the case study
production, a key role is being played by Itaipu of national and international bibliographic sources. The
Binacional/ in the state of Paran in Brazil (it is a environmental and social variables were analyzed
binational hydroelectric plant which is in the Paran qualitatively and quantitative analyses were used to
River on the border between Brazil and Paraguay evaluate the economic variables.
countries). The Itaipu Binacional has been dedicated to
the study and demonstration of the technical and CASE STUDY
economic feasibility of generating electricity through
The case study was conducted in the municipality of
biogas and environmental sanitation in large scales of
Tucunduva in RS in two mid-sized farms that have
production, deploying through its Coordination of
swine breeding as the main activity. Besides the
Renewable Energy a open air laboratory in the western
production of animals each property has 15 ha for cereal
region of Paran / PR. Prototype units have been
crops (corn, soybeans) and cattle for their own
designed and are being built in the region, allowing
consumption.
several studies development on biogas generated from
Both properties began swine breed activity in the mid
organic waste and effluents, as economic feasibility
90s. Earlier, production was small, with few production
study of distributed or decentralized electrical, thermal,
techniques and with a few animals. The trade of animals
vehicle power generation. Besides the studies on CDM
was carried out in their own properties to neighbors,
to obtain carbon credits. These initiatives come to
other producers. There was no waste treatment, and the
support the idea that decentralized energy production
entire volume generated was easily absorbed in the
can successfully contribute to regional development and
growing of cereals. Over the years there has been a
cohesion by providing income sources and creating job
production expansion, which led to a significant
opportunities (Bley Jr, 2009;. Benedek, Cristea et al,
increase in the volume of waste, causing problems with
2013).
the environment, as well as complaints from neighbors
due to odors and emergence of flies. The areas of cereal
METHODOLOGY
cultivation started producing basically a monoculture
The research was based on the case study method (corn), for the food production to the animals in the
because it investigated a phenomenon within its real farm.
context, in which the contextual conditions refer to the One of the properties uses the PPU 8kg cycle, with a
object being studied. Yin (2005) comments that the herd of 400 mothers and an estimated 18 cubic meters
choice of case study methodology is due to the fact of daily volume of waste. For a better understanding, the
being a research technique of behaviors that cannot be PPU up to 8kg is the creative process that basically
300
involves the stages of reproduction and the final product In 2007, the digesters were installed. By mid of 2011,
are piglets with average weight of 06-08 kg and only 20 the biogas generated in the digesters was just burned in
days old on average. After weaning, they are referred to Flaire (equipment that burns the biogas at high
another center for growing and finishing. The other temperatures) for the accreditation of carbon credits, and
property is configured as a PPU 23kg, with a herd of 550 was not used otherwise in the property. In this period,
mothers and an estimated 25 cubic meters daily volume the Agribusiness company was sold to another business
of waste. In this, the production process basically group, which did not continue the program of carbon
involves the steps of reproduction, and has as its final credits, and passed the biodigester (already installed) to
product are piglets with an average weight of 18 to 23 the properties. The digester had already been paid with
kg, and 50 to 60 days of age. This property has a growth the revenues obtained between 2007 and mid 2011. With
phase in which the weaning piglets remain until referral the objective of viewing other opportunities, a few
to another establishment for the finishing phase studies were conducted from the owners to analyze other
(fattening). forms of biogas exploitation. Then during the process,
With the production increase of these farms, the costs of the possibility of power generation alone arose.
energy sources for activity exploration have also Both technical and economic feasibility studies were
increased considerably including feed mill, heating performed. It was then concluded that the junction of
animal and employees houses. This, substantially biogas production of the two properties was necessary
justified the initiative of considering the possibility of for the feasibility of the process, giving rise to the small
waste to energy recovery. With the help of skilled bioenergy condo design in 2011.
professionals, assessment began to be performed in
search for possible elimination of problems, especially Processing pig manure in the properties: biogas and
environmental and particularly to developing the use of bio fertilizer
production waste. The most commonly used digester in the properties of
In 2002, the two farms entered into an agreement with South region of Brazil, where the case study is located,
the large agribusiness company mentioned in section is the Canadian model (Figure 01, left), which consists
2.1, in what is a very common partnership system in of an inbox, to where the wastes are channeled from the
Brazil. Bonett and Monticelli (1998) describe the breeding site; an underground fermentation chamber
partnership system, explaining that it is executed coated with waterproofing material; top hood
through contracts that have specific requirements such constructed with plastic tarp for biogas retention; an
as to the origin of the genetic, specifications, technical inbox, through which the wastewater is led to a dunghill;
management and withdrawal of medicines and provision a record for biogas output. For security reasons the
of technical assistance and transportation. The contracts digester should be fenced and their surroundings clean,
include formal guarantees of buying and selling to thus providing a lower risk of holes in the tarp (Pereira
related agricultural industries, including the volume and et al., 2009).
terms specifications, the uniqueness requirement, a
reference price and compensation criteria depending on
the performance and uniformity of the product.
The installation of digesters in the properties

In 2004, a program (gives agribusiness company) was
created for large initiative for sustainable swine breed
activity. The goal was to bring small and medium
farmers in to the sophisticated market of carbon credits Figure 01 Canadian Model Biodigester and optional
and ensure a major source of revenue for the pig farmers, pond. Source: Search
through partnership arrangements.
The project design began with the possibility of The device with PVC tarp cover, has been the most used
generating carbon credits with eucalyptus forests of the equipment compared to other models, due to lower costs
company to supply biomass, the industrial process of of installation and easiness of deployment (Lindemeyer,
steam generation. This led to Agribusiness company 2008; Haack, 2009; Karqudio, 2009). With greater
start, in 2003, studies of the CDM. The conclusion was depth than width, it has a large area of sun exposure,
that the most promising project was in swine breed which in warm climates contributes to the production of
activity and this led to the inclusion of this new activity biogas by raising the temperature (Brown & Arruda,
in this project. The program established that the swine 2008). This model is suitable for large volumes of waste
producer should receive the required equipment on loan and represents a more affordable option to implement.
and repay the investment by generating their carbon However, in the South, due to the the rigours of winter ,
credits, which would be negotiated by Agribusiness. The in the cold season, biogas production decreases for this
properties studied the joint project and decided to type of equipment.
proceed to install digesters in their production systems.
301
In these digesters models of continuous type, the raw When properly operated, the system produces biogas
material is continuously placed and goes almost always with up to 70 % methane. The biogas has in its
straight to the digestion chamber. As such, the composition residues of corrosive gases and sulfur. To
production of biogas and bio fertilizer occur reduce the ingress of gases to the engine generator, one
uninterruptedly. The bio fertilizer originating process is type of purifier was installed in the form of a cylinder,
filed in open ponds next to the digesters (as figure 01, in which the biogas contact with iron filings, eliminating
right). It should be noted that there is no odor around the some impurities, besides the filters coupled together in
digester and the pond where the bio fertilizer is stored. the engine/ generator set.
In laboratory tests carried out on the fertilizer produced
in the properties, the object of the study indicated the
following concentrations: 0.5 to 4.0 % nitrogen, 0.5 to
5.0 % phosphorus, 0.5 to 3.0 % of potassium and about
90 to 95 % water, which is in accordance to the results
presented by Angonese et al (2006) study. The bio
fertilizer is used in cornfields and pasture fertilization
and also traded with other neighboring properties. In
testing areas, the cornfields, the exclusive use of bio
fertilizers was insufficient to provide the necessary Figure 03: Engine-Generator set and Biogas
nutrients in order to maintain the level of production Consumption Meter
achieved only with the use of chemical fertilizer
nutrients. In this case, 35% of fertilizer necessary for The use of biogas (Figure 03, right) varies between 10
planting is from the bio fertilizer, being completed with and 15 cubic meters/hour in the engine generator set,
the remaining chemical fertilizers. depending on the electrical power generated. The
All biogas produced in the digesters of the two generation of electricity by the engine generator set, will
properties is directed to a receiving central and referred depend on the energy consumption of the property, i.e.,
to as the storage balloon (Figure 02, right) located in one the engine runs at the speed required to meet electricity
of the properties. To make this possible a pipeline needs with no surplus production. The system shutdown
linking the two properties was built (Figure 02, left), for maintenance is scheduled for moment when the
giving shape to a small bioenergy condo. The pipeline power consumption is lower.
has 470 meters of distance between the two properties Monitoring the generation of electricity for technical
and biogas is transported by means of rigid PVC evaluation of the system showed that the electricity
pipeline with 100 mm in diameter. generated feeds the internal electricity distribution grid
at low voltage 220/380 VAC and the voltage drop
observed never exceeds 1.2%.
Discussion
The activities of the properties are illustrated
schematically in Figure 04, indicating the waste
generated and its exploitation.
Figure 02: View of Gas pipeline and storage balloon
The biogas, stored in the balloon is sent then

through a 50mm PVC pipeline to the Joint
Engine/Generator (Figure 03, left) installed on one of
the properties. This consists of an internal combustion
engine adapted for the use of biogas as fuel, coupled to
the three phase electricity generator generating power
for one of the properties in a internal and isolated Figure 04. Scheme of properties
distribution system. There is a control panel, where the
operator can select to use electricity coming the grid or The energy generated is used in one of the properties, 95
coming from the biogas engine-generator. % for facilities lighting, heating system for animals,
The electricity produced is used in one of the properties, running a feed mill, operating a central grain drying and
supplying 100 % of its electricity needs. The other a central production of swine semen used in both
propriety is not yet being supplied with this electricity, properties. In this sense, there was both a electricity and
but benefits from the biofertilizer use and shares the production cost reduction. Costs related to grain
drying facilities of the first property. transportation and storage in the cooperative where the
cereals were previously dried were avoided. To install
302
the system, the owners decided to invest an amount of investment is still economically viable. In this case, the
capital to maintain the digesters (since they were return on investment would be 36 months.
donated), pipeline construction (purchase of materials), Another important factor to be considered, linked to the
and the construction of two grain silos dryers, masonry location of the property, is the occurrence of large
armed. numbers of climatic events (heavy rain with strong
In the drying process of the grain, there is a cost winds), which leads to many interruptions of power
reduction of about 20 % of total production in the transmission by the local utility, apart from interruptions
property. In masonry silo, drying takes place by forced occurring in the transmission network for maintenance.
air passing with electric fans. Those non- heated air Analyzing the reports of periods of failure of power
removes moisture from grains less aggressively, supply, from the year 2011 to the year 2014 this value
avoiding loss of quality during the process. Thus, in one increased by 266.6 %. On 2011 the grid disruptions were
structure, drying and storage is conducted ensuring equivalent to 3 hours / month increasing to 8 hours /
monitor, interfering, and fixing problems when month in 2014. On could days, the heating system of the
necessary by means of aeration of the grains. The energy rooms of the birth of piglets is critical to maintain a level
used for maintenance of the process comes from the of production and before the existence of this biogas
isolated electricity generation system. electricity generator, the heating was ensured with wood
Although the actions taken to date result in economic, and gas burning during the grid fails. The engine
environmental and social benefits, there are still generator is then a fundamental equipment in order to
untapped opportunities, such as the installation of the minimize the effects of this grid fails and avoiding the
transmission channel of the energy produced for other use of more expensive options. As such, the economic
property and the use of solar energy to heat the digesters return of the investment comes not only from the
or other purposes. According to the author Axaopoulos avoided electricity purchase from the grid but also from
and Panagakis (2003), a system for heating the digesters the increase of productivity and avoidance of use of
can be used to increase efficiency. To this end, more expensive options for heating.
feasibility studies of these alternatives are required, and
it should be considered different aspects of cost-benefit. Environmental Benefits
The major contribution in this regard is the contribution
Economic Benefits of this project to minimize the potential pollution of the
In economic terms, to design the bio energy soil, since the agricultural residues undergo a process of
condominium project, it was invested R $ 80,000.00, effluent treatment system, ensuring the compliance with
considering the time elapsed since the implementation the environmental laws and regulations. This is
of a condominium system in September 2011, savings particularly important because these properties, are
of R $ 3,700.00 a month were achieved (Three thousand located in the coverage area of Guarani Aquifer, which
seven hundred reais). These savings include only the is the largest source of freshwater transfrontier
reduction of electricity consumption from the grid and groundwater in the world.
the use of bio fertilizers as fertilizer for farming.
In the calculations made, the cash flow of the Social Benefits
investment, adjusted to current value with a return of R The process of waste treatment contributes to social
$ 187,847.95, and a rate of return (IRR) of 4.58 % per welfare, avoiding human contact with waste and
month. It appears that is far superior to many types of proliferation of pests and other diseases correlated to
investments in the Brazilian financial market. For lack of sanitation. Producers reported a reduction of
example, assuming that in September 2011 the property odor in the neighborhoods where the activity is located,
had invested R $ 80,000.00 (the same value that the bringing a better quality of life to people involved, and
investment project) in the Brazil government bonds, the especially in relation to neighboring properties, as prior
Selic taxes, according to Central Bank (2013) which was to deployment of the system complained of odors were
12.5 % a year, the income of this investment, adjusted to frequent. The production and consumption of energy
current value, represent approximately R $ 107,391.84. proposed at the local level and in cooperative leads to
Looking at the period of time necessary for the company different energy production other than standard systems:
to recuperate their initial investment in the project and small-scale, specific site installation, with maximized
taking into account the present value of cash inflows, results in social aspect, i.e., centered on community
return on investment occurred in 24.3 months. benefits and not only for the project investors.
Whereas, to make this investment, the properties needed
to avail a loan of R $ 80,000.00, an interest rate of 8 % CONCLUSIONS
an year, the results achieved through the project would
The properties analyzed in this paper are considered to
still be a higher cash flow. In this case, the project would
have been able to build a sustainable ago business with
present a current value of R $ 116,892.24, indicating that
economic, environmental and social gains. as In fact,
even with the use of third-party source of funds, this
the investment in the project yielded a satisfactory
return, providing electricity saving and the production of
303
fertilizers, as well as, improving environmental quality Banco Central - BC. 2013. Descrio da Taxa Selic.
and improving the life quality of people from property Disponvel em: <
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306
IMPROVING COMPETITIVENESS USING LEAN PRINCIPLES

THE IRISH EXPERIENCE
Richard Keegan1
1
Manager Competitiveness Department, Enterprise Ireland, aa Professor Business School, Trinity
College, the Dublin University, Ph. D, CEng, FIEI
ABSTRACT the downturn and decided that the State could

help our clients to weather the storm if we
Ireland is a small island nation, located on the
could scale up our existing competitiveness
Western periphery of Europe. Our closest
offer. The then existing offer was delivered by
neighbour and largest trading partner is the
Enterprise Ireland staff in a cluster format to a
United Kingdom. Our economy is based on an
group of 30 client companies. The developed
Open business model where we have
offer became known as the Enterprise Ireland
organised ourselves to be export led. Per capita
Lean Business Offer (LBO).
of population Ireland is one of the leading
global export economies. This openness is
The Lean Business Offer
generally seen as a good thing for our country,
One of the most notable features of change
but, it also means that we are very sensitive to
programmes is that many of them fail (Kotter,
negative changes in the global economy. This
2007). The Lean Business Offer is designed to
paper deals with an aspect of the efforts of
address many of the factors that usually lead to
Enterprise Ireland to help indigenous
failure or reduced success with change
manufacturers software and service companies
programmes. The thinking behind the Lean
deal with the consequences of the 2008-2013
Business Offer (LBO) is also guided by the
global downturn, through helping companies
work of Prof Chris Voss (London Business
address their competitiveness issues.
School), who identified the link between
Practice and Performance. Voss found that
INTRODUCTION: WHAT IS
good practice drives good performance and
ENTERPRISE IRELAND?
identified the important role that government
Enterprise Ireland (EI) is the State body agencies can play in driving performance
charged with the support and development of improvement particularly in SMEs. (Voss,
indigenous industry and businesses and Multi 1994). The LBO was formulated to drive the
National Corporations using natural resources. adoption of improved practice by Enterprise
EI has offices across the globe in leading Ireland clients. The LBO was also designed to
markets for Irish companies and also in up and meet the spectrum of needs of our clients. As
coming markets. These overseas offices was stated earlier they have very different
support Irish exporters to enter markets and needs and are at different stages in their
help overseas buyers identify potential suitable maturity levels. The LBO was based on the
suppliers in Ireland. In Ireland, EI supports authors academic research (Improving SME
innovation in existing companies and Operational Performance using Benchmarking
Innovative Start Up companies as well as and World Class Networks, Ph. D. dissertation,
companies already exporting and those with National University of Ireland-Galway, 2000),
the potential to do so. Enterprise Ireland and pilot level continuous improvement efforts
employs about 800 staff. It works with a wide carried out subsequently within Enterprise
range spectrum of client companies from Ireland for its clients.
innovative start-ups to global players such as The first key point of note is that the Offer is a
Kerry Foods, Diageo, Glanbia, Dawn Farm Business and not a Manufacturing offer.
Foods, Combilift, Keenans and McHale. The The Offer was designed from the outset to help
needs of this wide range of clients are very companies improve their performance and
varied. Details of Enterprise Ireland and the competitiveness across all areas of the business
full range of supports available to our client using Lean Principles. The author co-wrote
base are available on www.enterprise- Applied Benchmarking for Competitiveness
ireland.com. with Prof Eddie OKelly, Oak Tree Press,
In 2008, the then Chief Executive, working 2004. This text gives a basis for the second key
with his analysts, identified the beginning of point of the LBO it is based on the principles
307
of Lean, but, has the flexibility to absorb key companies, indigenous and MNC, consultants,
elements of improvement from other change academics, representative associations and
initiatives such as Six Sigma, Total Quality state organisations (NSAI, 2013).
Management, Total Productive Maintenance Additionally, Enterprise Ireland has started to
and Management, Business Process Re- develop a directory of Lean education
Engineering and others. In other words the providers with information on the availability
Enterprise Ireland Lean Business Offer uses in Ireland of diploma, certificate and degree
Lean principles as a guide and not as a dogma. level courses, and thereby further moving to
The third key point of the LBO is that the professionalise the Lean effort in Ireland.
services offered to clients are offered at three
distinct levels of intensity: The Lean Business Offer Method
Enterprise Ireland client companies work with
Lean Start 7 day interaction, over 1-2 their designated EI client relationship staff
months, member to identify their suitability for the
Lean Plus 3-6 months of activity, LBO and at what level, Lean Start, Lean Plus
Lean Transform Over 2 years activity. or Lean Transform. Clients are then
encouraged to interview and select a suitable
The offer is explained graphically as a Spiral consultant from the directory. For the Lean
of Improvement as opposed to the more Transform cases a multi skilled core team from
traditional way of describing continuous EI typically engage with the leadership team in
improvement as Circles of Plan-Do-Check- the client company to achieve a consensus on
Act circles (PDCA). The spiral of the scope and the focus of their proposed Lean
improvement represents progress, upwards and Transform activity, before they interview and
outwards as companies develop the capability select their consultants. It is believe that this
and capacity of their people and processes. The scoping and consensus before consultant
tools and techniques used by companies engagement helps ensure that the topics and
change and develop as companies move up areas chosen for improvement activities are the
the spiral, as represented in Figure 1. central issues and challenges for the business.
Level 3
Process Total Overall
The Irish State assists the client companies
Benchmarki The Five Ss Productive Equipment Six Sigma
ng
Business
Excellence
Value
Analysis
Maintenanc
e
Lean
Production
Efficiency
Target Cost
Managemen
financially on their Lean journeys, through the
&Managem t
Level 2
ent
LBO, and receives impact reports on their
Facilitated
Assessment
Benchmarking
Physical&Proce
ss Flow in the
Office
Physical&Proce
ss
Development
Production
Control
Systems
efforts and results.
Saving Time in Practical Team Building
the Workplace Maintenance Quality Tools & Culture
Sales and Financial Supply Chain & Innovation&
Lean Business Offer Results

Growing them Management Logistics Design
Implementatio
Business n
Strategy
Level 1
Self Set Up Time
The LBO was launched as a Pilot in 2009 and
Assessment Physical Flow Process Flow Reduction
Benchmarking
Check Sheets
Run Chart People &
Basic
Maintenance
roll-out started in 2010. To date over 550 Lean
Teams
projects have been supported across all

established client sectors. The innovative start-
Figure 1: Spiral of Improvement and up companies are not supported under the
associated tools programme as they have bespoke funding
mechanisms. The traditional sectors for Lean
The fourth key point of the LBO is that the such as engineering have heavily engaged with
programme is delivered by a cohort of Lean LBO, as has the food sector. Many of the
consultants, both national and international. countrys leading food companies have
These consultants are made available to EI engaged with LBO in a very positive way. Not
client companies through a publicly available surprisingly, the service and software sectors
directory. have been slower to engage, but, some early
The fifth key element of the LBO is that adopter companies have taken on the concept
Enterprise Ireland manages the directory. and have achieved significant results. These
Consultants have to show they have experience early adopters led us to produce Becoming a
and expertise with Lean implementation before Lean Service Business, available through Oak
they are accepted on to the directory. Also, EI Tree Press.Our initial internal management
convene Spring and Autumn Fora where the analysis of some data from concluded projects
progress of the programme is discussed with has indicated that the simple savings achieved
the consultants and where issues and from the Lean Start projects are of the order of
opportunities are considered. an average of 45,000, from the Lean Plus
The Lean Business Offer is further supported projects of the order on average of 130,000
through the co-development of a National and from the Lean Transform projects in the
Guide to Lean in conjunction with the National order of hundreds of thousands to millions of
Standards Authority of Ireland and a group of
308
euro. The results for Lean Start and Lean Plus

are presented in Figure 2.
Savings Reported from Lean Start Projects

Figure 3: Employment impacts for Lean
600 Transform projects
500 At a National level, Ireland has identified the

Thousand Euro (k)
need for Operational Excellence as a key

400
element for our national recovery and future
300
development. Forfas, the national strategy
body identified the need for widespread
200 adoption of Lean (Forfas, 2013), and has
developed the concept of a National Step
100 Change in Manufacturing performance. This
Step Change has been translated into becoming
0 a key element of the three essential reforms for
1 5 9 13 17 21 25 29 33 37 41 45 49 53 57
the country as embodied in the Irish
Governments Action Plan for Jobs (DJEI
LeanPlus Reported Savings 2014), where Innovation, Internationalisation
and the National Step change in Manufacturing
500 are outlined.
450
400 Lessons Learned
350 This paper is not written as a definitive
Savings (K)
300 document on the Lean activities in Ireland as

250 our efforts are continuing and evolving.
200 However, a number of lessons have been
150 learned from our experience to date and are
100 now shared.
50
0 Need for a client centric approach. Clients are
1 2 3 4 5 6 7 8 9 10 11 12 at different stages in their evolution and have
different needs, wants and experiences and
histories. Any effort to help them address their
Figure 2: Interim results from Lean Start and competitiveness issues needs to be aligned to
Lean Plus projects meet their needs, now, and as they evolve.
One of the basic premises of encouraging Need to provide a support structure for
companies to adopt Lean Principles was the companies over time. This longitudinal support
belief that it would drive their competitiveness. and external challenge helps management and
This was believed to be a leading indicator. It staff move from initial enthusiasm for Lean
was believed that the lagging indicator would and initiative and set into a systemic change
be an increase in employment as the more process where continuous improvement
competitive companies would be able to sell becomes the norm.
more and would need more staff to service
their customers. Our early analysis leads us to Need for resources. The development and roll
believe that this is in fact the case, see Figure out of a National or regional program require
3, where many companies involved in the Lean significant resources. The White paper on
Transform projects have increased their Competitiveness and Growth (European
employee numbers. Commission 1994) identified SMEs as most
needing support and also as most likely not to
seek it. A subsequent study, carried out across
Percentage change in employment for companies
engaged in Lean Transform Projects
five member states in which Enterprise Ireland
80.0%
participated, was designed to identify why this
60.0%
was the case. The key findings of this research
may be summarized as follows:
% Change in Employment
40.0%
20.0%
0.0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
-20.0%
-40.0%
-60.0%
Company 309
a. SMEs didnt/couldnt know who is a the process and be the champion to make it all
good or a bad consultant, happen.
b. SMEs didnt want to be sold old rope
or the consultants favourite solution. CONCLUSIONS AND NEEDS FOR
They wanted their real issues to be FURTHER RESEARCH
addressed,
It is clear that this paper is presented at an
c. SMEs wanted local support, typically
early stage in the roll-out of the Lean Business
within an 80 km radius.
Offer in Ireland and at a very early stage in the
academic research of the impact of the
The development of the Lean Service program.
Providers Directory was designed to address A clear, focused academic analysis of the
points 1 and 3. above. The production of program is required to study the method and
Becoming Lean/ Applied Benchmarking for the impacts of the program. The insights to be
Competitiveness/ Becoming a Lean Service gained from this research have the potential to
Business and the development of the National be of significant interest to regions and
Guide to Lean were efforts to address point 2, countries that are challenged by improving the
by developing a coherent understanding of competitiveness of SMEs in their regions and
what the Lean process is, for all people making a positive contribution to their
involved in the improvement process, i.e., for economic development. There is also the
shop floor personnel, management, potential to research the applicability of the
consultants, academics and state agencies. approach to the development of larger
companies spanning different geographic
People like to hear success stories from their regions and with numerous staff.
peers. They like to meet staff from other
companies who have made progress with REFERENCES
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Leading Change: Why Transformation
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Enterprise Ireland have organized and all, 1994
supported many Best Practice sharing events, Improving SME Operational Performance
site visits both local and international and have using Benchmarking and World Class Networks,
also published a number of case studies and Phd dissertation, National University of Ireland-
presentations made by companies on the lean Galway, 2000, R Keegan
journey. Making it in Ireland, Manufacturing 2020,
Forfas, 2013
Action Plan for Jobs. Department of
Need a base structure of a cohort of people Enterprise, Jobs and Innovation, Irish Government,
who accept the challenge to try to support 2014
companies, day after day, who want to National Standards Authority of Ireland,
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1-5 people. EU White Paper on Competitiveness and
Growth, 1994
Applied Benchmarking for
Need the energy to drive and want to drive the Competitiveness, R Keegan, E OKelly, Oak Tree
process. Someone needs to take ownership of Press 2004.
310
ICOPEV 2014
School of Engineering
University of Minho
Guimares, Portugal
Scientific Committee
Madalena Arajo, University of Minho, Portugal
(Scientific Committee Chair)
M. E. J. OKelly, National University of Galway

Richard Keegan, Enterprise, Ireland
Lgia Pinto, University of Minho, Portugal
Isabel Soares, University of Porto, Portugal
Andrs Faa, University of Corua, Spain
Enrique Arez, University of Vigo, Spain
Paula Ferreira, University of Minho, Portugal
Antnio Paisana, University of Minho,Portugal
Benny Tjahjono, Cranfield University, UK
Paulo Afonso, University of Minho, Portugal
Manuel Lopes Nunes, University of Minho, Portugal
Jorge Cunha, University of Minho, Portugal
Filipa Vieira, University of Minho, Portugal
Patrcia Pereira da Silva, University of Coimbra, Portugal
Nivalde de Castro, Federal University of Rio de Janeiro, Brazil
Luz Osrio, IBMEC, Brazil
Fernando Romero, University of Minho, Portugal
Anabela Tereso, University of Minho, Portugal
Henk G. Sol, University of Groningen, The Netherlands
Paul Benneworth, University of Twente, The Netherlands
Jos Soares da Fonseca, University of Coimbra, Portugal
Carlos Lozano-Moncada, Universidad del Valle, Colombia
Roberto Schaeffer, Federal University of Rio de Janeiro, Brazil
David OSullivan, National University of Ireland Galway, Ireland
Joaquim Borges Gouveia, Universidade de Aveiro, Portugal
Diego Duque, Universidad del Valle, Colombia
Nelson Casarotto, Universidade Federal de Santa Catarina, Brasil
Silvia Prez, Universidade Estadual de Campinas, Brasil
Local Organizing Committee
Madalena Arajo, University of Minho, Department of

Production and Systems
(Local Organizing Committee Chair)
Paulo Afonso, Jorge Cunha, Paula Ferreira, Manuel Lopes

Nunes, Fernando Romero, Anabela Tereso, Filipa Vieira
ISBN 978-989-97050-3-6

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2nd International Conference on

Message from the

We would like to welcome you to come to the 2nd International Conference

It is also an opportunity to visit Guimares, a magnificent city of medieval

We are looking forward to meeting you again in the third ICOPEV.

Madalena Arajo, University of Minho, Department of Production and

M. E. J. OKelly, National University of Galway, Ireland

Richard Keegan, Enterprise, Ireland

Lgia Pinto, University of Minho, School of Economics and Management,

Isabel Soares, Faculty of Economics of Porto, University of Porto, Portugal

Andrs Faa, Department of Economic Analysis, University of Corua,

Enrique Arez, Escola Tcnica Superior de Enxeeiros Industriais,

Paula Ferreira, University of Minho, Department of Production and

Antnio Paisana, University of Minho, Department of Production and

Benny Tjahjono, School of Applied Sciences, Cranfield University, UK

Paulo Afonso, University of Minho, Department of Production and

Manuel Lopes Nunes, University of Minho, Department of Production and

Jorge Cunha, University of Minho, Department of Production and Systems,

Filipa Vieira, University of Minho, Department of Production and Systems,

Patrcia Pereira da Silva, Faculty of Economics, University of Coimbra

Nivalde de Castro, Federal University of Rio de Janeiro (Gesel), Brazil

Luz Osrio, IBMEC, Brazil

Fernando Romero, University of Minho, Department of Production and

Anabela Tereso, University of Minho, Department of Production and

Henk G. Sol, Faculty of Economics and Business, University of Groningen,

Paul Benneworth, CHEPS, University of Twente, the Netherlands

Jos Soares da Fonseca, Faculty of Economics, University of Coimbra,

Carlos Lozano-Moncada, Escuela de Ingeniera Elctrica y Electrnica,

Roberto Schaeffer, Federal University of Rio de Janeiro, Brazil

David OSullivan, National University of Ireland Galway, Ireland

Joaquim Borges Gouveia, Universidade de Aveiro, Portugal

Diego Fernando Manotas Duque, Escuela de Ingeniera Industrial,

Nelson Casarotto, Universidade Federal de Santa Catarina, Brasil

Silvia Nebra de Prez, Ncleo Interd. de Planej. Energtico, Universidade

Local Organizing Committee

Manuel Lopes Nunes,

Guimares is located in northwestern Portugal, approximately 350 km north

Guimares is a city with a glorious historical past, whose history is linked to

This unique site, which UNESCO classified on 13 December 2001, is the

For further information about Guimares please visit

The International Conference on Project Evaluation will take place at the

Scope and Objectives

The project evaluation and selection is recognized as an interdisciplinary

The main goal of this Conference is to join together academics and

Decision support systems

Economic impact studies

Energy decision making

Evaluation of strategic projects

Externalities in manufacturing industry and services

Innovation and technology management

Multi-criteria for project evaluation

New product development

Social and environmental impact assessment

Sustainable new business models

Robert W. Grubbstrm has been Professor of Production Economics at

He is Editor-in-Chief of the International Journal of Production Economics

His current educational interests include modern information technology

On the True Value of Resource Consumption, When Using Energy in

In this lecture I will attempt to provide a partial answer to the question of