@ IRORIEH
Oooooh! Getting some turn based strategy level diplomacy here!
I think this is an excellent idea. However, I think one thing that could be expanded further. Is for the player to have a bias for what kind of citizens they would want for their settlements. For example, maybe the player would prefer to only work for the Minutemen, and only help people partial to their cause. You could go on missions with the Minutemen would probably reflect how the police and natural guard would work. Peace first, than lethal force as a last resort. Dealing with threats to settlements, conflicts and disturbances within them, and things that the old world would deal with.
Another example would be with the Nuka World DLC. They player could be biased toward the raiders, and not only have the power to conquer and capture settlements, but find other raider gangs who would be willing to join your own. You could go on raids with your fellow raiders, and go on missions where you could fight to get things that could really give your fellow raiders an edge. Like finding power armor, or old weapon caches.
The Brotherhood Of Steel would definitely have a more, militaristic approach to things. Instead of settlements, they'd probably be establishing bases across the wasteland. Of which would lead the player to go on missions with the Brotherhood to reclaim old technology, and go on missions where the Brotherhood deals with their enemies directly.
Now this might be a late game thing, but what if the institute wanted to expand out into the world, and start building settlements of their own? They could very easily create synths, and send them out in various parts of the wasteland, of which you would be leading them. You could do all sorts of dark and espionage quests for the institute.
Of course, we can't forget the Railroad. They would be able to build settlements that would contain both humans and synths. Focusing on allowing them to live in peace with each other. This would make the Railroad quests revolve around liberation, and dealing with their enemies or anyone dealing against their cause.
And then we've got Hancock and Goodneighbor. A city that's home to ghouls. I'm sure that Hancock would love to help ghouls around the wasteland. Establishing settlements across the wasteland, full of ghouls. Now, when it would come to how you would handle quests with this faction, it would often resort to brute force, because Hancock isn't afraid to get his hands dirty when it comes to serving justice, and he'll want how you deal with things to be no different.
What if Super Mutants could form and start factions? While most mutants are known to be hostile, and shoot on sight. It would add some quirky and interesting situations to deal with when it would come to a mutant settlement. Maybe they want you to gather some captives to eat. Or perhaps they want you to do something more humorous, like find a lost object that a mutant is attached too.
Plus, what if robots could generate factions too? Robots just seem so alive in Fallout 4, and I think it would be really cool to see some robots starting to take up residence in various settlements. Boy how hilarious would it be to have a Mr. Gutsy drill sergeant being the leader of a faction. Or a Robobrain being the "Brains," of a settlement. This would probably be a true neutral faction, since the robots would probably have no bias to how they deal with things.
Now, in fallout 3, you have a slaver faction called Paradise Falls. While it's not in Fallout 4, I think a slaver faction would be perfect too. It would be much more organized and civilized than the raider faction. But it would allow you to engage all sorts of settlements, and enslave people. It could also generate quests for the player to capture "priority targets," and even sell off slaves too.
Most of all, you could have a settlement run by children. Similar to how Little Lamp Light worked in Fallout 3. This would probably be the most unique faction to deal with. Since you never know what a child or a group of children might want you to do! Maybe Jimmy wants you to find his Teddy Bear, or Cindy wants you to find her a pet Dog?
Each and every faction that you would work on establishing settlements or bases for, would have their own beliefs, morals, and codes. Which will lead to how the player would engage in situations regarding diplomacy. Some factions might prefer dealing with things brute force, others might prefer diplomacy, and some might even resort to stealth and espionage.
I think what would further add to this, is if the game automatically generated settlements based on various factors. For example, maybe after you completed a series of events. The game will generate a raider faction. Or perhaps if you start doing quests for the institute, the railroad might generate a faction.
It would also be cool if non-player controlled settlements would dynamically change. For example, one moment, you come across a neutral settlement of wastelanders not allied with the minute men, the next, it could be a Brotherhood Of Steel Outpost. This would add some more diversity to the quests and events generated by this concept. Skyrim had a small system like this. Where old forts would change ownership frequently, one moment, it could be bandits, the next, it could be Stormcloaks, and after that, it could be Imperials.
Dynamic events could also lead to faction based events. For example, factions wars could break out. You could have a Railroad settlement trying to liberate an Institute settlement. You could have a Brotherhood Of Steel base engage a Goodneighbor settlement due to their intolerance of ghouls. A super mutant settlement could be attack a Minutemen settlement for captives too.
You could have other events too, perhaps you encounter some robots who are going to a certain location to start a settlement. Or perhaps there is a trade route established between two neutral non Minutemen factions. Now, there would be times the player could intervene. Say that there is a group of slavers heading toward one of your factions, and you happen to encounter them. You could wipe them out before they even get close to your settlement. Or let say there is a group of neutral Wastelanders on their way to establish a dynamic settlement. The player could offer to help them of which would turned them into a player owned faction.
The possibilities are endless! I apologize for this very long post IRORIEH. I'm a huge fan of games with depth like this, and I hope that you found this post wonderful. Thank you for taking the time to read it.