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2-3-1 CHAPTER 3 Risk Management Risk management programs are used by organizations to program at WSDOT. This office has developed a multi-step identify and prioritize risks and to develop strategies to deal process that is used to facilitate risk management at WSDOT. with those risks. Many different types of risks can impact an The risk management steps are as follows: agency’s ability to provide services and conduct business, 1. Risk management planning—systematic process of deciding including the ability to make PBRA decisions. how to approach, plan, and execute risks; Risk management programs provide a vital link between 2. Identification of risk events—determine which risks might data systems, planning and programming, and target-setting affect the project; in transportation agencies. Risk assessment is part of the risk 3. Qualitative risk analysis—assess likelihood of risks and management process. This assessment includes access to data, prioritize risks; which is used to develop performance measures and to perform 4. Quantitative risk analysis—numerically estimate proba- cost/benefit analysis. Ultimately, risk assessment supports the bility that a project will meet its costs and time objectives; link between data systems and planning, programming, and 5. Risk response planning—develop options to reduce threats target-setting as illustrated in Figure 2.3.1. to project objectives; and This relationship is an iterative one that requires continuous 6. Risk monitoring and control—track identified risks, evaluation of data and performance measures and a refine- monitor residual risks, identify new risks.10 ment and adjustment of risk priorities. This allows for adapting to changing strategic needs that support target-setting and WSDOT’s enterprise risk management program examines transportation planning and programming. the use of data, especially for developing performance measures, The next examples illustrate how risk management programs and evaluates its use for achieving agency strategic objectives. are used at two state transportation agencies in Washington This link between data and risk management is a critical and Minnesota. one, especially when data is needed to support planning and programming and target-setting, and the necessary information 3.1 Washington State Department may not be available because of intermittent network inter- of Transportation ruptions or catastrophic events. Risk management helps to identify when, where, and how these types of events may occur. The Washington State Department of Transportation This allows for the development of strategies to deal with any (WSDOT) uses risk management as part of project develop- potential risks to agency assets—including data program assets. ment in accordance with the following policy: As part of the risk management process at WSDOT, a prior- It is the policy of the Washington State Department of Trans- ity rating system is used. This includes performance measures portation (WSDOT) to conduct risk-based estimating workshops defined for such issues as crash frequencies, pavement ratings, for all projects over $10 million (total of preliminary engineering, and potential factors that impact risks to the infrastructure. right of way, and construction).9 The department uses a robust database with geometric and pavement conditions to define and assess performance meas- WSDOT has established an Enterprise Risk Management ures that rely on location data. Office that is responsible for coordinating the risk management 9 10 http://www.wsdot.wa.gov/publications/fulltext/cevp/1053policy.pdf http://www.wsdot.wa.gov/Design/SAEO

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2-3-2 • Go wide—Mn/DOT evaluates how the risk management process is used in each district. A risk profile was created for each district and a statewide meeting was held to examine the diversity of risks identified within each district. This process involves examining the relationship between per- formance measures and data, and how they are used in the districts. The data and performance measures are used as a means to judge and forecast risks. This includes assessing risks for the area of safety, and looking at assets that are not tangible (e.g., mobility). They are striving for consistency in the approach to risk management among districts. • Be accountable—This process includes tracking decisions Figure 2.3.1. Data, risk and risk-level impacts, district and statewide program risk management link to levels, and risk management at the project level. This is an planning and programming effort that is still evolving at Mn/DOT. and target-setting. In addition to assessing risks at the district level, there is To address safety issues, the risk analysis process includes also a corporate risk tolerance level defined for Mn/DOT’s prioritizing areas of the state (such as corridors or specific investment plan. The investment plan needs to be auditable, highways that have the potential for improvements) that can and must account for data, performance measures, and risks. result in reduced crashes and/or fatalities. It needs to answer the question: “are we doing everything we Additional risk analysis is performed by the region offices to can to manage risk?” This requires having the right type of data assess what types of solutions can be implemented to address to assess the risks. these issues. Potential solutions can then be incorporated into Mn/DOT has been proactive in developing a data business project plans. plan, including a framework (Figure 2.3.2) that helps the One of the critical steps of this risk assessment process department to ensure that they continue to maintain the data includes evaluating the costs of any proposed improvements. systems that are needed to meet business needs and assess This type of analysis is referred to as a cradle analysis. The risks to the agency due to loss of data from any of their core costs of improvements are compared with the ROI, which, in data systems. this case, includes evaluating whether the investment will Mn/DOT uses a risk management model that is similar in reduce crashes and/or save lives. many ways to the one used at WSDOT. The Mn/DOT risk management process includes the following steps: 3.2 Minnesota Department of Transportation 1. Create vision of success by documenting the issues and gathering background information. Mn/DOT, like WSDOT, has strong executive level support 2. Gather data and performance measures. for their risk management program. Mn/DOT’s Office of 3. Brainstorm the risks—this is the facilitation process. Policy Analysis, Research, and Innovation is responsible for 4. Evaluate the timeframe for seeing the vision implemented. coordinating risk management with Mn/DOT districts and for The longer the timeframe, the greater the risk. developing a corporate risk management model. The purpose 5. For each risk, look at what the likelihood is that this event of this office is to provide innovation for moving strategic will occur. initiatives forward faster. 6. Account for everyone’s interest and opinions (including The risk management program focuses on risk tolerance as stating that they do not know, or are not sure of how well as the level of decision-making, and asks questions such as likely it is that a particular event will occur). “how do you make tradeoffs with data and decision-making?” 7. Assess (based on scale of 1 to 5) how big an impact it will They want to build consistency in the definition of risk. have if an event occurs. The risk management approach involves a process of 8. Prioritize the risks and gain consensus on the list of risks. “go deep, go wide, and be accountable” for risk management, 9. Evaluate what to do about the risks. as follows: 10. Develop strategies to deal with the risks. • Go deep—The risk manager facilitates risk management 11. Evaluate how effective the strategy will be. Will it really help? This evaluation helps drive implementation plans plans for a variety of issues and conducts hands-on risk and policy plans. management workshops.

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2-3-4 Table 2.3.1. Mn/DOT risk matrix. Risk Area Risk Statement -Try and Be Specific. Use Information, PROBABILITY - IMPACT on District Score Performance Indicators and Measures to Identify. Assume NO System, Public Trust (function, do Change, and 10 and Confidence, QOL not fill) years (1-5) Safety The District’s Safety approach is not effective or is not properly 95% 4 3.8 resourced for reducing fatalities and crashes, which results in an inability to manage behavior, and infrastructure problems. Other Infrastructure Other infrastructure, Culverts, Drainage, Signs, etc. are not being 95% 4 3.8 managed or maintained and are at the bottom of the investment list, and that results in catastrophic failures and safety concerns. Rest Areas Local Priorities The District is seen as not funding enough local priorities, which 95% 3.5 3.325 results in a negative relationship with our local partners/stakeholder’s and impacts overall programming in the form of earmarks and discretionary funding and outcry. Pavements Non-principals Pavements continue to exist at 20% "poor condition" in 75% 4 3 the District, which results in public trust and confidence issues and impacts to the public’s QOL. Travel Time Overall travel in segments on IRC in the District increases by 15% 75% 3 2.25 VMT in the next ten years on state highways, which results in travel time increases, trip reliability decreases and economic impacts. Pavements Principals Pavements continue to exist at 10% "poor condition" by 75% 3 2.25 2019 in the District, which results in public trust and confidence issues and impacts to the public’s QOL. Trip Predictability Trip predictability from incidents throughout IRC in the District is 62% 2 1.24 reduced, and results in further frustration and outside of the norm travel times. This also results in impacts to quality of life, safety, and impacts on the economy. Bridge A number of additional District bridges need to be addressed over a 40% 3 1.2 ten-year period that is not covered by Chapter 152, which results in percent of poor bridge increasing significantly from current levels. Source: Mn/DOT Office of Policy, Analysis, Research and Innovation, February 2011. System (TIS) at Mn/DOT. This example illustrates the relation- Mn/DOT used a risk assessment process to determine the ship between data systems and risk management. risks associated with the development and implementation of TIS is a complex mainframe system that was developed three alternatives for replacing the system. 30 years ago and is used to maintain roadway, traffic volume, These alternatives were identified as follows: and crash data. There were issues and differences of opinion • Iowa-ware, between the business units and the IT office regarding the • TIS completion, and best approach for replacing TIS. This included discussions of • Vendor alternative. the limitations of the current TIS mainframe. TIS could not Mn/DOT evaluated the risks associated with each of • Integrate with new information systems such as the Bridge these alternatives and identified strategies to minimize Management System; those risks. The risk management process was coordinated • Provide a user-friendly interface for access to TIS data; by Mn/DOT’s Office of Policy Analysis, Research, and • Support a full range of query, analysis, and reporting func- Innovation. tions; Risks were grouped similarly to the IT issues presented in • Keep track of history information for the roadway system; this primer, into groups of high-, medium-, and low-level • Provide multiple referencing systems for locating roadway risks. Figure 2.3.3 illustrates the risk scores of each alternative, changes and characteristics; based on the risk analysis process. • Interface with newer GIS mapping applications; and In addition to evaluating the risk scores, other risk factors • Allow for easy addition of new roadway features like ramps including costs and delivery of products in a timely manner also were closely compared. and bikeways.

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2-3-5 Source: TIS Risk Assessment Final Report, November 17, 2009. Figure 2.3.3. Mn/DOT TIS risk score. was ultimately made to proceed with a Request for Proposals The results of this risk assessment indicate that the TIS to implement a vendor solution. This example illustrates how completion option has the highest level of risk. Mn/DOT deter- a risk assessment process can be used to evaluate competing mined that a closer comparison of the vendor and Iowa-ware investments for all programs, including data programs.11 solutions was needed. After further analysis, including com- parative costs analysis, the vendor solution was determined to present less of a risk regarding development, implementation, 11 TIS Risk Assessment Final Report, November 17, 2009, Mn/DOT Office and maintenance, than the Iowa-ware option. The decision of Policy, Analysis, Research, and Innovation.