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15 This section describes an approach for integrating risk management concepts into the process of managing IHS assets. Section 3.1 summarizes the broad concepts of risk management and proposes a categorization of risks facing transportation agencies. Section 3.2 provides a proposed approach to address- ing risks in development of an IHS ownerâs Interstate Asset Management Plan. Section 3.3 addresses the institutional commitment necessary to extend IHS management practices to accommodate risk. 3.1 Overview Risk management occurs with varying degrees of con- scious intent across the full spectrum of human endeavor, in both public and private organizations, and in everyday lives. Although the context and the degree of formality of the process varies, the fundamental elements of risk management are constant. These elements include: ⢠Establishment of risk tolerances; ⢠Identiï¬cation of threats/hazards; ⢠Assessment of impact or consequence; ⢠Identiï¬cation of potential mitigation strategies/counter- measures; ⢠Development of a mitigation/management plan; and ⢠Implementation of the plan. Risks faced by transportation agencies come from a variety of sources, and it is possible to categorize them in a number of different ways. The recommended categorization of risks for IHS assets emerged from the literature review described in Appendix A and through development of the Interstate Asset Management Framework. Figure 3.1 illustrates this cat- egorization. It distinguishes between programmatic risks and nonprogrammatic risks. These are deï¬ned as follows: ⢠Internal Programmatic Risks. These are risks that are in- ternalized in the day-to-day business process of a trans- portation agency. IHS owners face a broad range of internal programmatic risks in every part of their operations, from planning and programming, through project development and delivery, and on to maintenance and operations, and ï¬- nally system monitoring. For example, inaccurate forecasts of asset deterioration and revenues, inaccurate project cost estimates, and unforeseen ground conditions on construc- tion projects fall into this category. Although the frequency 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- portation system. ⢠External Nonprogrammatic Risks. These are risks that are addressed outside of a transportation agencyâs day-to-day business process, either because they are very unlikely, or because they are perceived as external risks over which an agency has little or no control. They tend to relate to the po- tential for system failure, and may be the result of either the natural environment or human actions. Earthquakes, terror- ist attacks, and vehicle/infrastructure collisions that cause the failure of a transportation infrastructure asset fall into this category. Although the frequency of these risks is low, their potential to cause one or more high-priority network links to fail in the event a risk is realized is high. The current study is focused on risk of system failure for IHS assets, which are in- cluded in this category. Given the distinction between programmatic and nonpro- grammatic risks, it is not surprising that over the past 20 or more years the focus has been on managing programmatic risks in developing management systems and processes. Much of this work is conï¬ned to handling risk at a subprogram level to enable budget optimization for annual project selection or contingency planning (i.e., planning for and dealing with the consequences of materialized threats/hazards). For example, Washington State Department of Transportation developed and uses a Cost Estimate Validation Process (CEVP) to miti- gate the risk of inaccurate cost estimates for large and complex C H A P T E R 3 Risk Management
projects. The CEVP is designed to identify the areas of a project that could be sources of increased costs, assess the likelihood of key risks materializing, and ultimately results in the speciï¬cation of project cost range as opposed to a point estimate to account for the risks identiï¬ed. Chapter 4 describes existing management systems and other analytical tools that can be used for managing programmatic risks. By contrast, the history approaches for addressing external nonprogrammatic risk is considerably shorter. Activity in this area was propelled by the terrorist attacks of September 11, 2001, and again more recently by a number of signiï¬cant nat- ural disasters. Despite recent focus, development of external risk management activities today lags behind that for internal risks. Appendix A summarizes the literature review conducted as part of this research. The review describes several promis- ing concepts and approaches that have been incorporated into the proposed methodology. Two particularly important re- sources include the AASHTO Guide to Highway Vulnerability Assessment (5) and the report for NCHRP Project 20-59(17) currently in draft format (6). In the context of the aging IHS, where the consequences of the failure of a system link are potentially enormous, it is im- portant that the Interstate Asset Management Framework provides for a robust analysis of risk of system failure. Such an analysis must produce more comprehensive mitigation schemes that take into account the asset/operations interde- pendencies, and signiï¬cantly increase agenciesâ ability to deal with âout-of-the-normâ threats/hazards. At the same time, it must be recognized that the resources required to manage these risks will no doubt compete with those needed to revital- ize and renew the aging IHS infrastructure to ensure safe and reliable operations for the coming generations. 3.2 Risk Management for the Interstate Asset Management Framework This section outlines a proposed approach to augmenting transportation agenciesâ existing risk management activities with a process that helps assess risks of system failure for IHS assets. IHS owners could perform the risk assessment approach described here for their IHS assets and any other assets on what they deï¬ne to be on their highest priority network. The result of this approach is a set of priorities for risk mitigation. A descrip- tion of the assessment and its results should be included in the Interstate Asset Management Plan described in Section 2.0. In developing the proposed approach the research team has adhered to the following guiding principles: ⢠The entire IHS (or highest priority network) represents a collection of assets of vital importance to maintaining socio- economic growth and prosperity. A transportation agency should have an approach to managing programmatic risks for all of its assets. Particularly for the IHS assets it owns, an 16 External âNonprogrammaticâ Risks Internal âProgrammaticâ Risks Planning and Programming System Monitoring Project Development Project Delivery Operations and Maintenance Figure 3.1. Existing transportation agency risk environment.
agency also should consider external, nonprogrammatic risks to these assets that could result in system failure and determine what mitigation actions could best minimize risk. ⢠In evaluating risk, ideally one would use consequence mod- eling approaches which compute/impute risk (both materi- alized and avoided) in ï¬nancial terms. If possible, one should try to explicitly calculate the likelihood of a risk occurring, the impact of the risk in terms of mobility and safety measures, and the costs of mitigation. When quantitative modeling is not feasible, the most reasonable, but still performance- based, subjective method should be used for assessing risk and prioritizing risk mitigation. Subjective approaches are often required given the lack of necessary data for quantify- ing costs of a risk in ï¬nancial terms. For instance, for struc- tures there are many well-known but poorly quantiï¬ed risks, and there are few models available for calculating the relative likelihood of different risks to structures. ⢠Ideally risk management should be pursued at the pro- grammatic level within a transportation agency. It is an ac- tive function and its membership is drawn from all the stakeholders of interest within the governing agency and its intersecting stakeholder groups. ⢠Implementing risk management requires involvement of all levels of an organization. A basic requirement is that an organization has an organizational structure for identify- ing what risks should be managed. Section 3.3 discusses in- stitutional roles and responsibilities further. The following subsections describe how to determine what risks should be addressed in an Interstate Asset Management Plan, and present a step-by-step approach to risk assessment. Risks Addressed in the Interstate Asset Management Framework To help identify the categories of risk that should be ad- dressed, one should consider the universe of risk illustrated in Figure 3.2, and derived from the oft-used risk formula: The vertical axis of Figure 3.2 represents the probability (from low to high) of a particular threat/hazard materializing and the horizontal axis represents the consequence (from low to high) of the materialized threat/hazard. Any threat/hazard can be located in this risk universe. The proposed approach focuses on the right hand quad- rants shaded red and gold. Threats/hazards in these two quadrants have the greatest consequences in terms of: ⢠Human safety (injury and/or loss of life); ⢠Property damage; and ⢠System/mission disruption. Risk Probability of the occurrence of an ev= ent Consequence of an event ( ) à ( ) This is not to suggest that threats/hazards that fall into the other two quadrants are unimportant. However, it is the ex- perience of the industry that risks with high probability of oc- currence (e.g., minor incidents, winter operations, etc.) but that do not reach the threshold for any of the three conse- quence categories identiï¬ed above are usually dealt with pro- grammatically. Consistent with the draft NCHRP 20-59(17) report (6), the following taxonomy of threat/hazard types focuses in higher- consequence risks: ⢠Unintentional hazards. Unintentional hazards are usually created by human-induced trafï¬c incidents, due to insuf- ï¬cient skills or experience in design, operation, or enforce- ment of vehicles. ⢠Natural hazards. Natural hazards include major weather or geological events that might cause signiï¬cant loss of life, destruction of assets, or long-term interruption of agency mission. ⢠Intentional threats. Intentional hazards include terrorist attacks, crimes, and war. They are less frequent and less predictable and involve active countermeasure evasion by criminals and terrorists. ⢠Performance risks. Risk or underperformance of an asset due to design, materials, and construction defects coupled with lack of accurate condition inspection or forecasting capabilities cause more-than-expected wear and tear on assets or hindrances to operations. They could also be re- curring events with reasonable predictability (such as heavy snow fall accumulations, minor trafï¬c incidents, etc.). Note that performance risks are treated as programmatic risks described previously, and therefore handled in routine 17 Moderate Risk Low Risk Greatest Risk Significant Risk Increasing Consequence of Event In cr ea sin g P ro ba bil ity of E ve nt Source: Adapted from the draft NCHRP 20-59(17 ) Report (6). Figure 3.2. Universe of risk for HIS.
asset management and operations planning. Several examples of these lower-consequence risks are listed in Table 3.1. These are grouped into a single category, as the focus of the present study is on risks of system failure. However, this category can be further expanded into a wide variety of different risks that fall within this category. Risk Assessment Process The fundamental objective of the proposed risk mitiga- tion process is to provide IHS owners with a practical ap- proach to augmenting their programmatic risk management activities with an approach for addressing risks of system failure for their IHS and any other critical assets. The result of the process is a set of risk mitigation priorities included in the Interstate Asset Management Plan, supplement other types of asset needs, and can be used as an input to the re- source allocation process. Figure 3.3 illustrates the risk man- agement philosophy that forms the basis for the proposed approach. The core elements of the philosophy are: ⢠It uses scenario-based methods for risk identiï¬cation; ⢠It considers IHS and related overall transportation system disruption for consequence analysis where feasible; ⢠It supports and encourages the use of direct and indirect economic losses resulting from realized threats/hazards as key focal points to drive investment decisions. However, it also provides a well established alternative that can be used in situations where there is insufï¬cient data to perform the calculations, which is quite often the case; ⢠It considers mitigation measures and their effectiveness as avoided losses in the cost stream; and ⢠It allows for the consideration of beneï¬t/cost analysis where practical and return on investment metrics to help identify risk mitigation priorities. Figure 3.4 presents the proposed step-by-step process for performing the risk assessment. The following paragraphs de- tail the steps in the process. 18 Table 3.1. Risk types and examples. Risk Type Example Likely Impact/Consequence Relative Frequency Influential Characteristics Unintentional Hazard Vehicular crashes Hazardous materials spill Oil spill Short-term road closure Loss of life Potential isolated structural failure High Skill, experience, enforcement , operation, etc. Intentional Threat Terrorist attack Crime War attack Short- or long-term road closure Loss of life Potential isolated structural failure Very low Access, security, exposure, design features, etc. Natural Hazards Heavy rain Strong wind Heavy snow and ice Earthquake Hurricanes Flood Mud/landslide Short- or long-term road closure Loss of life Potential structural failure â isolated or corridor-wide Low Structure type, location, etc. Performance Substandard design Construction defects Materials defects Unexpected heavy traffic Incorrect performance models Increased agency and user costs Increased work zone delay Reduced asset life High Skill, experience, design, etc.
Step 1.a. Identify Hazards/Threats. The process begins with the identiï¬cation of threats and hazards of relevance, as well as their respective magnitudes, probabilities, and spatial distribution across the jurisdictional area based on actuarial data, experience, or judgment. Hazards/threats identiï¬ed in this step should include, at a minimum, any natural or man- made disasters for which mitigation is feasible that have been encountered on IHS assets in an IHS ownerâs geographic re- gion. For instance, it is important to consider the potential for hurricane/flood damage in coastal regions prone to ï¬ooding. IHS owners on the Paciï¬c Coast and in other seis- mically active regions should consider potential for damage from earthquakes. IHS owners nationwide should consider potential risks to bridges, particularly bridges that have no reasonable detour available, are fracture critical and/or sus- ceptible to scour. Step 1.b. Identify Critical Infrastructure Elements. Con- currently with Step 1.a, an IHS owner must make a set of policy-level decisions to identify critical asset groups and in- dividual assets for analysis. Bridges and tunnels should be identiï¬ed, at a minimum, but an IHS owner may wish to in- clude other asset types, depending on the types of risks identi- ï¬ed and available data. Step 2. Develop Threat/Hazard Scenarios. Combining the results of Steps 1.a and 1.b, the IHS owner should next de- velop a set of threat/hazard scenarios. Each scenario should have an associated magnitude, probability, and location. Step 3. Estimate Scenario Consequences. The scenario- based analysis considers each asset or asset grouping (i.e., groups of assets with similar characteristics) and determines the consequences of exposing them to each of the threats or hazards identiï¬ed. Consequences are measured in terms of safety and mobility metrics, e.g., human safety, property damage, and system/mission disruption. There are two approaches to performing the consequence analysis. The ï¬rst, consequence modeling, is more objective and results in the computation/imputation of a ï¬nancial cost that will result from each scenario under consideration. The consequence modeling approach requires a larger input data set to support the analysis and is more rigorous. In return, it provides a more quantiï¬ed estimate of consequences for ma- terialized threats/hazards. This provides an economic beneï¬t value, which in conjunction with estimates of countermea- sure costs, makes the option of establishing risk mitigation priorities (Step 5) on a beneï¬t/cost basis possible. Moreover, consequence modeling can be used to study the impact of materialized threats/hazards on the disruption of network ef- ï¬ciencies cutting across transportation and other related eco- nomic sectors. The alternative, more subjective approach, uses the conse- quence threshold technique proposed in the draft NCHRP 20-59(17) report. This approach involves identifying the lev- els of certain transportation asset characteristics, at and above which the agency should consider taking action speciï¬cally to mitigate one or more catastrophic risks. Examples of the types 19 Economic Losses ⢠Direct âRepair or Replacement Costs ⢠Indirect âLost Production, Sales, Other Mitigation Measures ⢠Maintenance Strengthening ⢠Security ⢠Move or Add Routes ⢠Other Drives Increases Creates Creates Reduces Creates Transportation System Capacities ⢠Impacted IHS Route ⢠Alternative IHS Routes ⢠Alternative Non-IHS Routes ⢠Rail ⢠Marine ⢠Air Threat/Hazard Scenarios ⢠Natural Hazards ⢠Unintentional Hazards ⢠Intentional Hazards Interstate Highway System (IHS) Disruption Overall Transportation System Disruption Cost Estimate Regional Economic Model ⢠Economic Sectors ⢠Inputs/Outputs ⢠Response to Disruption Figure 3.3. Overall risk management philosophy.
of characteristics that must be considered in each of the three areas are: ⢠Human SafetyâNumbers of people killed or injured by a particular event; ⢠Property DamageâReplacement cost of the asset(s) de- stroyed; and ⢠System/Mission DisruptionâThe product of ADT, per- cent trucks, detour distance and duration of outage. These values must be estimated or calculated for each of the critical assets or groups of assets identiï¬ed in Step 1.b to see which ones should be the focus of Step 4, during which risk mitigation strategies and countermeasures will be identiï¬ed. Appendix A describes several example applications of the consequence modeling approach. An example of the conse- quence threshold approach (also referred to as âthresholdingâ) is the New York State Department of Transportationâs Bridge Vulnerability Rating described in Appendix B of NCHRP Report 590 (7). This process, developed during the 1990s, de- termines each structureâs vulnerability by combining the like- lihood and consequences associated with different events, and uses the vulnerability rating as the basis for prioritization. Step 4. Identify Risk Mitigation Strategies and Counter- measures. The next step in the process is the identiï¬cation of effective risk mitigation strategies or countermeasures for each combination of initiating event (i.e., threat/hazard of a 20 ⢠Unintentional Hazards ⢠Natural Hazards ⢠Intentional Hazards Step 1.a âID Hazards/Threats Probability, Location, Duration Step 1.b âID Critical Infrastructure Elements ⢠Pavements ⢠Bridges ⢠Tunnels Step 2 âEstablish Threat/Hazard Scenarios ⢠Magnitude/Severity ⢠Probability ⢠Location Data Sources ⢠National/Regional Natural Hazard Databases ⢠Infrastructure Management Systems ⢠Agency Led Intergovernmental Expert Teams Step 3 âEstimate Scenario Consequences ⢠Human Safety ⢠Property Damage ⢠System/Mission Disruption Consequence Modeling ⢠Direct Economic Loss ⢠Indirect Economic Loss Consequence Thresholding ⢠Identify If Scenario Results in Unacceptable Consequences Step 5 âEstablish Risk Mitigation Priorities Step 4 âIdentify Risk Mitigation Strategies and Countermeasures For each combination of initiating event and asset and asset groups analyzed. Establish Consequence Thresholds Figure 3.4. Risk Assessment Process for the Interstate Asset Management Framework.
certain magnitude) and the analyzed asset or asset group. This, again, is a policy decision based on experience and judgment and can be codiï¬ed in predeï¬ned countermeasure matrices. Once effective countermeasures are identiï¬ed and estimates of costs developed, they need to be packaged to maximize cost efï¬ciency and reduce impact on mobility in a given network. Step 5. Establish Risk Mitigation Priorities. By looking at the results of consequence analysis and the mitigation strate- gies and countermeasures identiï¬ed, as well as estimated costs, the IHS owner can establish priorities among the potential risk mitigation packages. This set of risk mitigation priorities should be documented in the Interstate Asset Management Plan and serve as an input into the agencyâs overall invest- ment decision-making process. It is in this process that in- vestments from each of the agencyâs programs, including risk mitigation, must be looked at side by side and the agency must then determine the desired mix of investments. In the event that the more rigorous consequence modeling approach was utilized in Step 3, avoided direct and indirect losses arising from the implementation of each mitigation strategy for a given asset is computed. This is treated as a ben- eï¬t for use in a beneï¬t/cost analysis, where the cost compo- nent is the cost of the mitigation strategy being employed for the asset. As an alternative to a beneï¬t/cost analysis, a return- on-investment analysis can be performed which will allow for phased mitigation strategy implementation over time to bet- ter accommodate all the network needs. 3.3 Institutional Responsibilities for Risk Management The implementation of the proposed risk management ap- proach for the Interstate Asset Management Framework re- quires a strong commitment and dedicated involvement of a broad spectrum of representatives from various organiza- tional levels and functional areas within an agency. Although it is technically feasible to perform the analysis described in Section 3.2 solely for the purpose of populating the Interstate Asset Management Plan with a set of priorities for risk miti- gation, realistically an IHS owner interested in instituting a risk management approach must make a sustained commitment to working on this issue. This section describes the institu- tional responsibilities required for an IHS owner establishing an ongoing risk management function. First and foremost, the basic requirement for instituting a risk management approach is direction and continuous sup- port for the effort from top executives. Next, there must be committed involvement by all of the pertinent departmental managers who have a role in the effort. It is suggested that a team or steering committee consisting of these managers be established to provide oversight of and direction to the risk management program efforts. There also needs to be involve- ment by subject matter experts and caretakers of the vari- ous management systems and databases (e.g., pavement, bridge, maintenance, sign, ï¬nancial, etc.). This multidiscipli- nary team should collectively possess a working knowledge of the owner agencyâs mission, policies, plan, procedures, and critical assets and operations. Important agency departmental functions such as the following should be represented: ⢠Planning and programming; ⢠Budget and ï¬nance; ⢠Maintenance and operations; ⢠Construction; ⢠Design; ⢠Materials testing; ⢠Environmental management; ⢠Pavement and bridge management; ⢠Safety; ⢠Trafï¬c operations; ⢠Facilities management; ⢠Communications; and ⢠Regional or district executives. Given the nature of the threat/hazard emergency planning and response recovery processes, there are external stake- holders, such as the State Emergency Management Agency, State Police, threat-speciï¬c specialists, and local ï¬rst respon- ders that should be considered as part of, or serve as a re- source to, the team or steering committee. This steering committee should establish protocols for risk analyses, including identification of hazards/threats with significant consequences, developing and costing counter- measures, and benefit/cost analysis. The team or steering committee may direct selected risk analyses to be performed on certain asset groups or corridor segments. Upon comple- tion and presentation of these risk analyses to the committee, the committee should determine priority and recommended courses of action for implementation. These actions can be programmatic, for example, placing remotely controlled vari- able message signs at all major interchanges or implementing seismic retroï¬ts on bridges located in a speciï¬c seismic region, or project-speciï¬c, for example, upgrading a designated de- tour route between two critical IHS interchanges. Once high priority risk mitigation countermeasures have been identified for promulgation, they must be funded, planned, and programmed. Most DOTs have a standing pro- gram management committee or process whereby periodic adjustments are made to multi-year Statewide Transporta- tion Improvement Plans (STIP). All DOTs have more worthy projects than they can afford to do. One method of garnering funding for a proposed risk mitigation effort would be for the 21
risk proposal to directly compete for funding against other worthwhile projects based on their ability to meet preestab- lished system performance goals and on beneï¬t/cost analyses relative to those goals. In addition to funding speciï¬c risk mitigation investments, transportation agencies should and do establish annual dis- cretionary or contingency funds speciï¬cally for risk mitiga- tion or disaster response, and have priority risk abatement or disaster recovery efforts vie for portions of such funds. A chal- lenge in establishing such a fund is setting aside enough fund- ing to address difï¬cult-to-predict needs, while not setting aside so much money that this creates unduly complications in the capital programming process. Some amount of fund- ing and attention is needed speciï¬cally for disaster response. Many transportation agencies have established the importance of budgeting for this function, and having well-established and well-rehearsed protocols in place for responding to speciï¬c types of disasters. The bottom line is that the successful implementation of an ongoing risk assessment process as a component of the In- terstate Asset Management Framework requires institutional planning, commitment, and continued personnel and ï¬nancial support. The beneï¬ts of a successful risk assessment process go beyond the fundamental of risk avoidance, albeit the pri- mary purpose, to the augmentation of the credibility and accountability of the organization itself. 22