FHWA defines risk and risk management, in the context of transportation asset management, as follows:

• Risk: The positive or negative effects of uncertainty or variability upon agency objectives. (23 CFR 515.5)
• Risk Management: The processes and framework for managing potential risks, including identifying, analyzing, evaluating, and addressing the risks to assets and system performance. (23 CFR 515.5)

Considering risk is important in developing TAM strategies, because transportation agencies often must spend significant resources responding to and/or mitigating risks. Reacting to the uncertainty presented by risks can be more expensive than proactive management. Risk management strengthens asset management by explicitly recognizing that any objective faces uncertainty, and by identifying strategies to reduce uncertainty and its effects. Being proactive, rather than reactive, in managing risk and avoiding “management by crisis,” helps agencies best use available resources to minimize and respond to risk as well as further build public trust.

Given the importance of risk management for supporting asset management, agencies should formally identify and manage risks at all organizational levels. Figure 2.6 shows four levels at which risks can be identified within an agency, and the individuals who may be responsible for the risks at each level.

Typically agencies manage risk every day. They are well-equipped to hand risks at the project and activity levels, and regularly consider risks on a larger scale. Formally considering and documenting potential risks at all levels can help bring greater attention to them and improve risk management.

Figure 2.6 Levels of Risk within an Organization

TRB. 2016. NCHRP Project 08-93 Final Report. http://onlinepubs.trb.org/onlinepubs/nchrp/docs/NCHRP08-93_FullGuide.pdf

Risk Management Process

Figure 2.7 depicts a risk management process. While it may not be necessary to walk through each discrete step in this process for every risk an agency faces, this process is helpful for understanding how to incorporate risk into TAM.

• The process starts with establishing the context for risk management. In the case of risk management for a TAMP, the context is largely defined through other TAMP development steps.
• The second step involves identifying the risks that affect the assets in the TAMP. Ideally, in this step the agency considers the full set of asset-related risks, even those that may appear insignificant.
• The third step, risk analysis, involves identifying the cause of the risk, the outcomes or consequences (impact), and the likelihood of the risk occurring.
• The fourth step, risk evaluation, entails prioritizing and ranking risks.
• Fifth, the address risks step is the response the agency takes to the risk. DOTs can choose to tolerate the risk or treat the risk in some manner.
• The left side of the figure shows a continuous communication and consultation activity. Agencies need to communicate the risks to both internal and external stakeholders, as well as monitor and review the risks.
• The right side of the figure shows an iterative monitoring and review process. Once the risks are identified, analyzed, and a mitigation plan is in place agencies need to monitor the risks and update the risk management documentation accordingly.
• More on risk monitoring and management is discussed in Chapter 6 Monitoring and Adjustment.
• This process is generally consistent with ISO Standard 31000, as well as FHWA’s requirements for state DOTs to assess risks to NHS assets in developing a TAMP.

Risk Register

It is common practice to develop a register identifying major risks and assess each based on expert judgment. In this fashion, the process is valuable for identifying “non-programmatic” risks, or risks not previously addressed in any one program. The How-To Guide in this section describes the steps in developing a risk register to identify such risks. Once a risk has been identified and assessed, formal processes may be required to perform a more detailed assessment and manage the risk programmatically, as illustrated in the Arkansas practice example.

Overview

As transportation systems face increasing threats from extreme weather events, climate change, and other disruptions, integrating resilience into transportation asset management plans (TAMPs) is crucial for ensuring the continued performance and reliability of these vital networks. Transportation assets are vulnerable to disruptions that have become increasingly more common or more severe, such as those caused by extreme weather events, climate change, as well as disruptions from man-made hazards such as fires, industrial accidents or security- or cyber-threats-. To sustain the performance and reliability of transportation systems, it is essential to include resilience as a factor in transportation asset management practices.

In the context of transportation asset management, resilience refers to the ability of transportation assets to maintain their functionality and performance in the face of disruptions, as well as the ability of transportation systems to quickly recover from disruptions and restore service. Integrating resilience into a transportation asset management plan (TAMP) involves incorporating strategies to prepare for, withstand, and recover from disruptions caused by extreme weather events, climate change, and other hazards. This approach ensures that transportation assets remain functional and support community needs during and after disruptions.

Addressing resilience within a TAMP has the following six major components:

1. Develop Resilience Objectives and Targets: Transportation agencies should develop resilience goals and objectives. These objectives and targets should be aligned with the overall goals of the transportation system and should be measurable and achievable. These objectives should focus on minimizing disruptions, reducing recovery time, and enhancing the overall resilience of assets. By setting specific targets, an agency can effectively track progress and make informed decisions about resilience investments.
2. Identify Risk: A transportation agency needs to identify and assess the risks that its transportation assets face. This includes understanding the likelihood and severity of potential disruptions, as well as the potential consequences of those disruptions. Identifying potential hazards, such as floods, hurricanes, or earthquakes, and evaluating their likelihood, severity, and potential consequences for transportation assets are important.
3. Assess Risk: Calculating and assessing risk involves considering the probability of occurrence, the potential damage, and the associated costs. The formula for calculating risk can be generally described as:

Risk = Probability of Occurrence × Damage × Cost

• Probability of Occurrence—The probability of occurrence is a measure of how likely it is that a particular event will happen. It is usually expressed as a percentage or a decimal between 0 and 1. For example, if there is a 20% chance of a flood occurring in a given year, the probability of occurrence would be 0.2.
• Damage—The damage is the extent of the negative impact that an event would have if it were to occur. This could include physical damage to assets, financial losses, or harm to people or the environment. Damage is often expressed in monetary terms, but it can also be qualitative.
• Cost—The cost is the amount of money that would be required to mitigate or recover from the damage caused by an event. This could include the cost of repairs, insurance premiums, or emergency response measures.

Once you have determined the probability of occurrence, damage, and cost, you can multiply these three values together to calculate the overall risk. The resulting value represents the expected financial impact of the risk.

4. Identify and Implement Resilience Strategies: Transportation agencies should identify and implement a variety of resilience strategies to mitigate the impacts of disruptions. These strategies may include hardening assets, improving redundancy, and developing emergency response plans. Understanding the specific risks faced by your transportation network will guide the development of tailored resilience strategies.
5. Incorporate Resilience into a TAMP: The resilience strategies and considerations should be incorporated into all aspects of transportation asset management planning, including asset inventory, condition assessment, and prioritization of investments.
6. Monitor and Evaluate Resilience: Transportation agencies should monitor and evaluate their resilience efforts to ensure that they are effective in reducing the impacts of disruptions. This includes collecting data on asset performance, disruptions, and recovery efforts.

Resilience considerations should be integrated into all aspects of your TAMP, including asset inventory, condition assessment, and prioritization of investments. Consider the resilience implications of each decision and how it affects the overall resilience of your transportation system. For example, when prioritizing maintenance or replacement projects, consider the vulnerability of assets to disruptions and prioritize those that are critical for maintaining network connectivity or supporting emergency response efforts.

Overview

All transportation decision-makers must contend with uncertainty. In regards to resource allocation, uncertainty is inherent in variables such as data on asset conditions and performance, future funding levels and costs, how a transportation system and specific assets will perform, and what external events or other factors may require reallocating resources. This uncertainty complicates efforts to make decisions about the future and forces agencies to be nimble so as to effectively respond to unpredictable events and evolving conditions.

In recent years, transportation and other industries have made significant progress developing improved approaches for managing uncertainty to minimize negative and leverage positive impacts. An area of focus in transportation has been in managing the risk of project cost and schedule overruns; a number of agencies have established enterprise risk management programs in order to address risk and uncertainty across their organizations. Likewise in TAM, there is increased interest in identifying and assessing risk so as to comply with both the best practices and the FHWA requirement for state DOTs to consider risk in developing their NHS TAMP.

The word ‘risk’ can be very context specific, meaning very different things depending on the industry and application. For instance, a financial analyst is primarily concerned with uncertainty in financial returns and the risk of incurring a significant financial loss. In the nuclear power industry, however, the focus of managing risk is on minimizing the potential for catastrophic loss that might occur from damage to a nuclear facility. As discussed in Chapter 2, in this guide risk is defined as the “effect of uncertainty on objectives” consistent with the ISO definition. This definition captures the full range of applications of risk management, and acknowledges the possibility for both positive and negative consequences of uncertainty.

The term ‘risk management’ is used to capture the set of business processes associated with identifying and managing uncertainty and risk. The overall risk management process is described in Chapter 2. The remainder of this section describes how this process relates to resource allocation.

Implications for Resource Allocation

While the scope of risk management may be very broad, an organization’s approach to risk management and the outcomes resulting from a risk assessment may nonetheless have important implications for TAM resource allocation. Consequently, it is important to establish a risk management approach and integrate consideration of risk with the resource allocation process.

Specific possible implications of risk management on resource allocation may include, but are not limited to:

• An organization may identify through its risk management approach areas where better data or improved processes are needed to best address a given risk, in turn impacting the resource allocation process. For instance, if uncertainty concerning future asset conditions is found to be a significant risk, this may result in efforts to improve the deterioration models in an agency’s asset management systems and/or motivate data collection improvements to reduce uncertainty.
• An organization may identify specific investments of staff time and/or agency funds required to mitigate negative or leverage positive risk. Once specific investments are identified, they can be assessed along with investments in other asset/investment categories. For example, Caltrans defined a separate program for seismic retrofits as described in the Practice Example.
• If an agency’s allocation of resources hinges on uncertain future values for one or more parameters, it may be necessary to incorporate consideration of uncertainty formally in the decision-making process. This can be accomplished using Monte Carlo simulation or other quantitative approaches to establish the predicted distribution of outcomes. For instance, in performing a life cycle cost analysis to select between project alternatives for a given facility, Monte Carlo simulation can calculate the range of life cycle costs predicted depending on future values for cost escalation, deterioration, or other parameters.
• In approaching formal accounting for uncertainty, an organization may define different scenarios representing the possible range of outcomes and then determine how best to allocate resources in each scenario before establishing a preferred resource allocation approach. For example, if an agency’s future capital budget is unknown, a decision-maker may wish to define a high, medium and low budget scenario and determine what investments would be made in each scenario in order to most effectively prioritize given uncertainty. Likewise, a scenario analysis approach can be useful in assessing how to allocate resources for improving infrastructure resilience given uncertainty concerning future sea level rise. Typically, the decision maker will review results for different scenarios and make a subjective determination of how to allocate resources considering the relevant factors. The Practice Example describing the analysis of harbor-wide barrier systems for the City of Boston shows one such approach. Recent research in the area of Robust Decision Making (RDM) has focused on developing quantitative approaches to select optimal investments between different scenarios.

Practice Example
Seismic Risk Management

Caltrans

Caltrans initiated its Seismic Safety Retrofit Program in the wake of bridge failures experienced in the 1989 Loma Prieta Earthquake. Through this program Caltrans evaluated the retrofit needs for all of the over 12,400 bridges on the State Highway System (SHS). Retrofit needs were prioritized using a multi-attribute procedure that calculated a score for each bridge considering the likelihood of an earthquake at the bridge site, the vulnerability of the bridge to collapse in the event of an earthquake, and the impact of a collapse considering the traffic using the bridge and detour distance in the event of a collapse. Through 2014 the program resulted in retrofit of 2,202 state highway bridges at a cost of over $12.2 billion.

Sources:

2018 Caltrans TAMP

Practical Lessons from the Loma Prieta Earthquake (1994), p. 174-180 https://www.nap.edu/catalog/2269/ practical-lessons-from-the-loma-prieta-earthquake

Practice Example
Analysis of Harbor-Wide Barrier Systems

University of Massachusetts

The Sustainable Solutions Lab at the University of Massachusetts Boston used a scenario-based approach to analyze the feasibility and potential risk reduction of Boston Harbor barrier systems to protect the Boston area from future flooding due to sea level rise. The report included an economic analysis in which costs and benefits were predicted for 32 scenarios considering:

• Two barrier system alternatives
• Two construction time scenarios
• Two scenarios for effectiveness of “shore-based solutions”
• Low and high construction cost estimates
• Discount rates of 3% and 7%

The analysis indicated that the benefits of the proposed barrier system would exceed their cost for both systems evaluated, but only in the case that one assumed a low discount rate, accelerated construction schedule, and failure of other shore-based solutions for mitigating sea level rise. Also, the analysis indicated that beyond a certain point sea level rise would be such that a barrier system would no longer prove effective (since the barrier would have to be closed at all times rather than only during flood events). The report further predicted costs and benefits for two alternative scenarios involving incremental adoption of a variety of shore-based mitigation approaches, and recommended an initial focus on shore-based adaption as the most promising strategy for the City of Boston to address sea level rise.

Source: https://www.greenribboncommission.org/wp-content/uploads/2018/05/Feasibility-of-Harbor-wide-Barriers-Report.pdf

Practice Example
Risk Management

Regional Municipality of Peel (Canada)

The Region of Peel is the second largest municipality in Ontario, just west of Toronto and supports two cities and a town. Peel assesses needs and priorities across a diverse portfolio of Infrastructure that supports a variety of programs and services including an arterial roads network, solid waste management, water and wastewater treatment distribution and a variety of social, health and emergency services. The Region integrated a number of inputs to enable an optimized investment methodology including a Risk Management, Level of Service, and Life cycle Management Strategies and priortize needs across diverse infrastructure, as illustrated in the figure. The integration of these three strategies was possible through three enablers and working with all of the programs and services to model their infrastructure:

1. Establishing a consistent approach to quantifying risk – The Region evaluates the degree of risk that is currently being accepted associated with delivering service levels. Inherent risk (similar to asset criticality) and residual risk (the Region’s risk objective) are established and the current level of risk that an asset presents to service delivery is also determined. The gap between current and residual risk represents the unmet funding and asset needs.
2. Establishing a normalized method to determine current level of service to assist the cross-asset funding allocation task. The adopted normalized indicator was determined to be: LOS=% of Assets Meeting LOS + (% of Assets Not meeting LOS x Average Condition of Assets not meeting).
3. Adopting a direct relationship between LOS and risk that allows for an analysis of alternative investment scenarios, and modeling techniques to optimize investment allocation. It also allows annual infrastructure evaluation based on the most current condition information and annual Asset Management Reporting.

Peel’s risk-based approach to asset management is integrated with the Region’s Strategic Plan and the Long-Term Financial Planning Strategy, and supports the desired service outcomes by evaluating risk against the Council approved asset levels of service. This approach provides senior decision-makers an objective way to consider resource allocation alternatives and communicate in a common language when evaluating between service areas and different asset portfolios.

Peel Enterprise Asset Management Plan. 2019. http://www.peelregion.ca/council/agendas/2016/2016-04-07-arc-agenda.pdf. http://www.peelregion.ca/finance/_media/2019-enterprise-asset-management-plan.pdf

Risk Register

A risk register is one of the most common tools for tracking and managing risks within an agency, since it provides a framework for capturing critical information about each risk, its importance to the agency, mitigation plans and tracking and managing responsibilities. A risk register is typically generated as a spreadsheet, though other formats are available. An example of a comprehensive risk register, which includes assignments for risk mitigation strategies, is presented in Figure 6.4. Over time, columns may be added to indicate when the risk information was last updated, what further action is required and whether adequate progress is being made towards the mitigation strategy.

A risk register should be reviewed at least quarterly to evaluate whether the risk register or the risk management plan for any of the performance areas needs to be updated. Periodic changes to the risk profile may be obtained through executive staff meetings meant to evaluate progress regularly, or ongoing reports tracking risk mitigation efforts and results. Annually, the agency may determine whether any strategic-level risks should be adjusted based on evaluation of the agency’s performance and the risk reports provided by the risk owners.

Risk Reports

Risk reports, which reflect excerpts from the risk register, may be developed by risk owners to communicate ongoing activities and manage risks at any level of the organization. The type of risk report shown in Figure 6.5 conveys what steps are being taken to address project delivery risks.