How to Incorporate Risk Decision Making in Planning and Programming Phase of a Capital Program John Milton, Ph.D., PE Director Enterprise Risk Management Pat Morin, PE Program Manager Capital Program Development Incorporating Risk in Planning and Programming—Session 228 Transportation Research Board 92nd Annual Meeting Washington D.C. January 14, 2013 Today’s presentation Risk management in planning and programming Performance Management and reporting Risk Based Asset Management Planning  At WSDOT risks have different levels of governance.  Each program area has performance goals. (e.g., zero fatal and serious crashes) and reporting requirements  Tools are used to increase efficiency & effectiveness and to address risk in a proactive manner  Asset performance is used in determination of the appropriate risk tolerance for a given asset class. Enterprise Risk Management Optimized decision making Linked to strategic goals and objective Risk Portfolio Mitigate Accept Transfer Avoid Balancing tradeoffs Evolving with needs Corridor versus system planning “across the enterprise” 2/14/2013 3 Risk management in Practice Enterprise Risk Management Performance Management Project and Programs Asset Management  WSDOT views risks management through various means  Developed in-house tools throughout programs to assess risks  Working across boundaries  Useful day-to-day to increase efficiency & effectiveness  Understand and address risk in a proactive manner Risk Management Triangle Strategic Goals & Objectives Risk Management Asset Management Performance Management Source: TRB International Risk Management Practices for Program Development and Project Delivery (2012) 5 Integrating Enterprise Risk Management at WSDOT Strategic Goals & Objectives Risk Management Asset Management Performance Management Operations & Maintenance Source: Milton and Van Schalkwyk (2012) Risk management in Planning Increased understanding at various levels Programming linkage enhanced Managed Expectations  By understanding risks at various levels (location, corridor, system) planning can use this information to target and refine needs  Planning can use the risk triangle to optimize efficiency in both the short and longer term planning horizons  Linkages to programming efforts are critical since risks created or not understood at planning can mean that insufficient funds, schedule or assets are available to achieve strategic goals.  Public and elected officials have reasonable expectations Setting the course Moving Washington Washington's economic vitality and renowned livability depend on reliable, responsible and sustainable transportation  (Strategy): Efficient use of system  (Performance Metric: Increase LOS of Example: Hard facility/Lower Delay/Recurrent or Non Shoulder Recurrent Congestion Running  Assets Impacted: Pavement Shoulder, Electrical Systems, Signage, etc. Strategic Goals of Moving  Competing Risks: Hard shoulder running has Washington the potential to create its own risks to the enterprise and programs , as an example, Enhance Performance what if: • The shoulder structure fails? Modifications of assets • Crashes increase due to proximity of Potential risks need to be barriers and rails? considered by planning and • The public doesn’t like it? programming functions. Reporting Performance How does Planning and Risk Management benefit from Performance Management? Ability to tell your story and report on condition and needs 1. Informed media 2. Informed officials and decision makers 3. Informed managers and employees Allows for better management of the system and enhanced operations 1. Squeeze every ounce of productivity out of your existing investments 2. Understand effectiveness of various strategies and investments when applying limited resources 3. Reduce liabilities and risk 4. Risk Tradeoffs are better aligned with programmatic realities 10 Telling the story Preserving Ferries terminal assets  85% of terminal systems have a condition rating of fair or better Terminal condition;  Terminal preservation Vessel life-cycle investments result in 7.1% of the value of terminal systems needing preservation, compared to 6.6% target Ferries: Vessel preservation: life-cycle assessment Seattle Times, December 9, 2007  WSDOT tracks the life cycle status of vessel systems in terms of how close systems are to the end of standard life cycle  Low vessel preservation investments resulted in 33.4% of the value of vessel systems needing preservation, compared to the 24.7% target  Four vessels pulled from service in 2007. Emergency replacement funds needed: Construction of three new vessels within 2009-2011 11 State Ferry Fleet Retired 80-yr old vessels with severe hull cracking: While effectively mitigating risk to: • • • Department credibility System performance Economic impacts Visual risk assessment used for asset management purposes! 13 13 Climate Change Assessment of impacts and risks Highway Safety Sustainable Safety Reducing fatal and serious injury risk through quantitative assessment Asset Management Asset Based Risks 16 Highway Construction Program PRESERVATION (P) Roadway (P1) Structures (P2) Other Facilities (P3) Paving Preservation Rest Areas Safety Restoration Catastrophic Reduction Weigh Stations Program Support (P4) Unstable Slopes Major Drainage & Electrical IMPROVEMENT (I) Mobility (I1) Urban Rural Urban Bicycle Core HOV Safety (I1) Collision Reduction Collision Prevention Economic Initiatives (I3) Environmental Retrofit (I4) Program Support (I5) All Weather Stormwater Chronic Env Deficiency 1995 2007 Rest Area Stations Fish Barriers Wildlife Connectivity Noise Reduction Mgmt of Environmental Mitigation Sites Scenic Byways Trunk System Restricted Bridges Bicycle Touring Air Quality 17 Strategy no longer active Telling the story Pavement: Target lowest lifecycle cost Funding crisis & meeting pavement preservation goals Risk: declining funding:  Maintaining over 20,000 lane miles while funding dropped by $600 million in 10 years (27% reduction) Mitigation strategies: Create efficiencies  Target lowest life-cycle cost – WSDOT achieves pavement condition goals amidst funding crisis *Note: Projections as of December 2011. 18 Recent Inflation Trend 2008 2Q 7.5 2005 2Q 5.0 2006 3Q 2007 2Q 2008 2Q 2005 2Q 2006 1Q 2015 2005 2000 1995 1990 1985 1980 0.0 1975 2.5 2010 Two gas tax increases at 5¢ and 9¢ per gallon and project budgets set before increases to construction costs 1970 Construction Cost Index 10.0 2007 4Q 19 Gas tax purchasing power declines over time Gas tax not indexed to inflation …and compelling communication of risk is more important than ever Funding crisis  Revenue significantly under projections  Inflation increasing cost of maintenance and construction  Challenge in getting another tax increase Promise to deliver on time and on budget • Includes maintenance, preservation, safety improvements, and other department operations. ** Less Debt Service. Source: WSDOT 20 Corridor Analysis for Investment Decision Making % of all pavements Good/fair $ Pavement Preservation Poor Pavement Preservation Expenditures (June 2011 Real Dollars) in Millions Tracking cost versus pavement performance State highway pavement trends (1980 – 2010) All pavement types (1981 – 2010) 24 Changes in Pavement Asset Management 1990-2010 Then (1990) Now (2010) Worst first Allocation funding WSPMS as sideline Hveem mix design protocol Volumetrics in the lab Concrete Total Replacement Dowel bar retrofit Thick overlays (>2"+) No westside BST BST only if ADT <2000 ADT Lowest life cycle cost Need based funding WSPMS as key decision making tool Superpave mix design Volumetrics in the field Dowel bar retrofit Triage protocol P-1 protocol (2" overlays for all HMA) All west side regions doing BST BST on all routes under 5000 ADT and consideration for routes between 5000-10,000 Consuming all the RAP produced in the state Test project with RAS Pavement Type Selection Protocol Dowel Bar Selection Protocol No RAP No RAS No clear pavement selection No dowel bar selection 25 Mitigating Risks WSDOT’s pavement technology innovations help offset declining investments Pavement: WSDOT uses pavement technology to make the state’s roads last Innovations to lower longer and cost less. Efficiencies include: costs, preserve life  Dowel bar retrofits on concrete pavements  Selective panel replacement and diamond grinding on concrete pavements  Converting higher cost asphalt pavements to lower cost chip seal pavements ($151 million saved as of December 2011) 26 Life Cycle Cost ($) Level of Service versus Life Cycle Cost (Accumulated cost / Annual cost) of not being at LLCC Level of Service 27 Concrete Pavement Condition Condition Indices Risk of Catastrophic Failure Years 28 Telling the story Bridge condition ratings prioritize investments: Bridges: Condition rating used to prioritize spending  95% of WSDOT bridges in fair or better condition  Bridge structural condition rating identifies needs, guides decision-making for preservation funding Bridge load ratings help ensure public safety  Load rating tests verify structures can safely carry legal and permitted loads  Truck load rating is re-analyzed based on bridge age/condition  Deficient structures posted with allowable truck weights Benefits of consistent bridge condition reporting  Consistent reporting on bridge conditions allowed for rapid response to media and public concerns in the wake of the Minnesota I-35W bridge failure 29 Seismic Risks Lifeline Seismic Routes • Enables basic life support following major seismic event • Will decrease the time to restore the economy 30 Risk Assessment for Minor Assets STEP 2 – Estimate the Risk Impact Risk Levels Note: • This guide illustrates the range of potential consequences and likelihood that may be associated with key department risk areas. • Judgment is required to assess the consequences and likelihood of a risk event (both before and after effective risk treatment action). STEP 1 – Determine the Severity Level for each Major Risk Area (Score the Risk Severity for each Key Area that is applicable) Major Risk Areas for Guardrails Risk Severity for Guardrails Severit y Score Type Height Post Type Terminal/Connection Type Very Unlikely Likely Very Likely 1 2 3 ADT Age (Years) Likelihoo d Score High 3 Tier 2 Tier 1 Tier 1 Medium 2 Tier 3 Tier 2 Tier 2 Low 1 Tier 3 Tier 3 Tier 3 Level of Risk Definitions: High Medium Low Consequences threaten the effective the ability of WSDOT to carry out its mission and strategic plan - existing controls must be effective and requires additional action to be managed at the executive management level. Consequences threaten completion of a critical WSDOT function - existing controls must be effective and possibly additional action implemented - action to be managed at Division level. Risk is managed by current practices and procedures - consequences are dealt with by routine operations at Director/Office level - monitor routine practices and procedures for effectiveness. Adapted from "Risk Management Procedure – PN 224P" , version 1.1, Governance Branch, Roads and Traffic Authority, NSW, Australia. STEP 3 – Develop the Risk Response Plan (Develop the Risk Strategy & Remedial Actions) 31 Contact Info John Milton Director, Enterprise Risk and Safety Management Washington State Department of Transportation [email protected] Pat Morin Program Manager, Capital Program Management Washington State Department of Transportation [email protected]