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15 CHAPTER 3 Risk Management This section describes an approach for integrating risk portation agency. IHS owners face a broad range of internal management concepts into the process of managing IHS assets. programmatic risks in every part of their operations, from Section 3.1 summarizes the broad concepts of risk management planning and programming, through project development and proposes a categorization of risks facing transportation and delivery, and on to maintenance and operations, and fi- agencies. Section 3.2 provides a proposed approach to address- nally system monitoring. For example, inaccurate forecasts ing risks in development of an IHS owner's Interstate Asset of asset deterioration and revenues, inaccurate project cost Management Plan. Section 3.3 addresses the institutional estimates, and unforeseen ground conditions on construc- commitment necessary to extend IHS management practices tion projects fall into this category. Although the frequency to accommodate risk. of these risks is high and the impact can be substantial, it is rare that they will cause the closure of a link in the trans- 3.1 Overview portation system. External Nonprogrammatic Risks. These are risks that are Risk management occurs with varying degrees of con- scious intent across the full spectrum of human endeavor, in addressed outside of a transportation agency's day-to-day both public and private organizations, and in everyday lives. business process, either because they are very unlikely, or Although the context and the degree of formality of the because they are perceived as external risks over which an process varies, the fundamental elements of risk management agency has little or no control. They tend to relate to the po- are constant. These elements include: tential for system failure, and may be the result of either the natural environment or human actions. Earthquakes, terror- Establishment of risk tolerances; ist attacks, and vehicle/infrastructure collisions that cause the Identification of threats/hazards; failure of a transportation infrastructure asset fall into this Assessment of impact or consequence; category. Although the frequency of these risks is low, their Identification of potential mitigation strategies/counter- potential to cause one or more high-priority network links to measures; fail in the event a risk is realized is high. The current study is Development of a mitigation/management plan; and focused on risk of system failure for IHS assets, which are in- Implementation of the plan. cluded in this category. Risks faced by transportation agencies come from a variety Given the distinction between programmatic and nonpro- of sources, and it is possible to categorize them in a number grammatic risks, it is not surprising that over the past 20 or of different ways. The recommended categorization of risks more years the focus has been on managing programmatic for IHS assets emerged from the literature review described risks in developing management systems and processes. Much in Appendix A and through development of the Interstate of this work is confined to handling risk at a subprogram level Asset Management Framework. Figure 3.1 illustrates this cat- to enable budget optimization for annual project selection or egorization. It distinguishes between programmatic risks and contingency planning (i.e., planning for and dealing with the nonprogrammatic risks. These are defined as follows: consequences of materialized threats/hazards). For example, Washington State Department of Transportation developed Internal Programmatic Risks. These are risks that are in- and uses a Cost Estimate Validation Process (CEVP) to miti- ternalized in the day-to-day business process of a trans- gate the risk of inaccurate cost estimates for large and complex