Once qualitative information is transformed and standardized to isolate the various units of measure, it is combined in composite indices. The standardized indicators are multiplied by weights to create index scores. Weights may be selected by decision‐makers or determined by statistical methods. Subjective weighting should be based on deliberation with key stakeholders to reflect the relative importance of component indicators. The strength of this weighting approach is in structuring discussions on the relative importance of component indicators and policy goals. The risk, however, is in exposing the process to manipulation in pursuit of prevailing interests. As such, regardless of the weighting system employed, it is important that decision‐makers consider and decide the weighting, in advance of analysis, and record these decisions transparently.

In the cases of Vietnam and Panama, however, a statistical method, Principal Component Analysis (PCA) was used to determine the weights of each variable in the index’s additive function. One of the main characteristics of PCA is the ability to calculate coefficients based solely on the statistical relationship between variables. This is useful when there is an explicit preference to objectively assign weights and likelihood of redundancies in underlying data. In Vietnam, the Ministry of Planning and Investment expressed a desire to eliminate all subjectivity from the process, whereas the use PCA in Panama was practical and experimental, based on the desire to test the approach. Annex 6 includes more notes on PCA.

# _Social and Environmental Index (SEI)_

Infrastructure projects are meant to improve quality of life. A number of direct social and environmental benefits are associated with their implementation, including improved access to public services and job and income opportunities created during the construction and execution of investments. These benefits come at a cost, however. Engineering works frequently require clearing forested areas, polluting and endangering natural environments, and sometimes construction works involve the resettlement of families or communities. The IPF directly considers relevant social and environmental benefits and costs via the social and environmental index (SEI), whose sub‐components are dependent on the evaluating government’s selected criteria.

In Vietnam, the SEI consisted of five indicators: Direct Jobs Created (DJ); Number of Direct Beneficiaries (NB); People Affected by Repurposing of Land Use (PA); Cultural and Environmental Risks (CER), and Pollution, in terms of CO2 equivalent emissions (CO2). The data required to compute each variable were primarily sourced from existing project feasibility studies. Additional variables on projected indirect effects were estimated using data routinely gathered by the National Statistic Office of Vietnam (Marcelo, Mandri‐Perrott, & Haddon, 2015).<sup>13</sup> PCA was used to synthetize social and environmental variables into a composite social‐environmental index. Since many social and environmental data were

> 13. The information collected was used to populate a Microsoft Excel form, which in turn populated a database with embedded macros, programmed to transform the data using transformation functions and weights required to calculate the total SEI score for a project.

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