How to Consider Risk and Life Cycle Costs in Transportation Asset Management Decisions For the 2014 IHEEP Conference Presented by: Katie Zimmerman, P.E.
How to Consider Risk and Life Cycle Costs in Transportation Asset Management Decisions
For the 2014 IHEEP Conference
Presented by:Katie Zimmerman, P.E.
Background
• MAP-21 requires state highway agencies to develop a risk-based TAMP that includes a life cycle analysis of its assets– Risk can be used to help set agency
priorities– Life-cycle cost results help evaluate the
cost-effectiveness of various investment strategies
– Both provide an effective way of communicating with decision makers
Risk Management
Incorporating Risk Into a TAMP
• Risk is “the effect of uncertainty on objectives” (ISO)
• Risk management is “a systematic process to identify risks that may impact agency objectives, to analyze their consequences, and to develop ongoing measures to address them” (Adapted from New South Wales Government Asset Management Committee)
ISO Risk Management Framework
Levels of Risk Management
Source: FHWA (2012). Risk Based Asset Management
Risk Areas
Source: FHWA (2012). Risk Based Asset Management
Types of Risk
Source: FHWA/AASHTO Webinar on Approaches to Integrating Risk into TAM Programs and Plans
Risk Type Considerations
Financial Risk
• Is future funding adequate to achieve our targets?• What is the impact of inflation on our purchasing power?
Information Risk
• Do we have tools to predict and manage asset conditions for the next 10 years?
Asset Risk • Are key assets such as poor-performing pavements or bridges a continuing risk to asset management targets?
• Are specific functional classes particularly vulnerable?
Operational Risk
• Is our project delivery mechanism reliable enough to meet our assetcondition performance targets?
• Do we have a sound preventive maintenance program?• Do we have sound contracting mechanisms to ensure material and
construction quality?
Decision Risk
• Does our project selection process identify appropriate candidates and treatments?
Climate Risk • Will increased climate-related events have a noticeable impact on asset conditions or level of service?
Identify Risk Statements
• Consists of a defined event and its impact• Represents one risk event• Helps analyze likelihood and impact
• Example: “If (RISK EVENT) happens then (CONSEQUENCE) will happen to (WHAT OR WHOM), causing (RESULT).”
Establish Risk Likelihood Ratings
Ranking Likelihood Frequency Score
Very High or Almost Certain Near Certainty (90%) Likely to occur within the year 5
High or Likely Highly Likely (70%) Likely to occur within 2 years 4
Moderate Likely (50%) Likely to occur within 3 to 5 years 3
Low or Unlikely Unlikely (20-30%) Likely to occur within 6 to 10 years 2
Very Low or Rare Remote (10%) Not likely to occur for 10 or more years 1
Establish Risk Consequence Ratings
Consequence Score
Catastrophic Impact on System Performance 5
High/Large Impact on System Performance 4
Moderate/Noticeable Impacts on System Performance 3
Low/Some Noticeable Impacts on System Performance 2
Insignificant/Little Noticeable Impacts on System Performance 1
Risk Consequence: Asset Value/Economic Impact
Factors/Considerations Score
Greater than 50% of the budget controlled at the decision level 5
30% to 50% of the budget controlled at the decision level 4
15% to 30% of the budget controlled at the decision level 3
5% to 15% of the budget controlled at the decision level 2
Less than 5% of the budget controlled at the decision level 1
Risk Consequence: Legal Compliance
Factors/Considerations Score
Agency liable for missing mandates. No viable plan to comply. 5
Agency sued or fined for missing mandates. Expects to comply in 6 months to 1 year 4
Agency warned of compliance issues and adopts corrective action 3
Agency agrees to compliance schedule, and avoids lawsuits and fines 2
Agency fully complies and is on course with regulators to anticipate mandates 1
Risk Consequence: Public Expectations
Factors/Considerations Score
Unplanned disruption to essential service, e.g., lifeline route (long term, over 30 days) 5
Unplanned disruption to large number of households (5 days to 29 days) 4
Simultaneous unplanned disruption to multiple households, firms, or community services/structures (1 day to 4 days) 3
Unplanned disruption to multiple households, firms or community services / structures (<1 day) 2
Community Complaints 1
Risk Consequence: Safety
Factors/Considerations Score
Single fatality, multiple serious injuries and/or primary routes affected 5
Multiple serious injuries and/or a primary route affected 4
Serious injuries and/or multiple secondary routes affected 3
Minor injuries and/or a secondary route affected 2
No injuries or primary/secondary routes affected 1
Risk Consequence: Reputation
Factors/Considerations Score
System largely impacted, national media attention 5
System impacted and large parts performing poorly, public concerned, media attention for 2 days 4
System impacted and parts of performance are poor, complaints widespread, media attention for more than 2 days 3
Some impacts on performance, media coverage for 1 week, public becoming aware 2
No adverse media, system works 1
Risk Consequence: Environment
Factors/Considerations Score
Permanent, widespread ecological damage 5
Heavy ecological damage, costly restoration 4
Major but recoverable ecological damage 3
Limited but medium-term negative effect 2
Short-term damage 1
Analyze Risks Using a Risk Rating
Identify Mitigation Strategies
Example – Colorado DOT
Risk Mitigation Strategies
Terminate • Eliminate threat posed by the riskTransfer • Shift risk to third partyTreat • Take steps to reduce probability and/or impact of risk
Tolerate • Deal with the risk, monitor it, lack of options due to cost/low risk
TakeAdvantage • Opportunity – External funding or partnership
Types of Mitigation Strategies
Source: FHWA/AASHTO Webinar on Approaches to Integrating Risk into TAM Programs and Plans
Risk Type Treatment Options
Financial Risk
• Demonstrate funding shortfalls• Communicate uncertainty in achieving targets due to funding fluctuations• Emphasize trade-offs such as lower levels of service to be accepted• Justify and seek additional funding
Information Risk
• Fill data gaps• Improve tools and management systems
Asset Risk • Prioritize assets for funding, treatment, monitoring through using an objective, data-driven approach
Operational Risk
• Improve internal processes
Decision Risk
• Improve project selection approach and adopt a whole-life approach to preserve, maintain and manage assets
Climate Risk • Conduct climate vulnerability and impact studies• Emphasize robustness, resilience, redundancy
Example – NY State DOT
Life Cycle Cost (LCC) Analysis
Initial Costs
Future Costs
What is Life-Cycle Cost Analysis?
• Analytical technique used to assess total cost of asset ownership associated with construction, inspection, maintenance, and disposal
Concept –Transport Scotland
Concept –Transport Scotland
Concept –Transport Scotland
Life-Cycle Modeling StrategiesAsset Typical Strategy Worst-First Strategy Desired Strategy
Pavements
(70-yr Analysis Period)
• Delay need for reconstruction by applying a combination of maintenance and preservation treatments, mill and overlays
• Reconstruct a pavement as it deteriorates to a Poor condition without routine preservation activities
• Apply a major rehabilitation activityat year 50 once the pavement has gone through a few preservation cycles and minor rehabilitation activities
Bridges
(200-yr Analysis Period)
• Repair and preventivemaintenance on 2% of bridges and wash 75% bridges annually• Limited repair actions based on available funding and engineering judgment.
• Replace entire bridge structure as it deteriorates to a Poor condition without any preventive maintenance or repairs.
Pavement LCCA: Results
• Agency’s current policy saves approximately $17 Billion when compared to the worst-first strategy (over entire inventory).• The desired strategy will result in savings of approximately $600 million over the current strategy (over entire inventory).
Bridge LCCA: Treatment Strategies
• Bridges inspected typically at 2-year intervals
• Most bridges washed annually to remove corrosive salts, repairs and preventive maintenance actions performed based on conditions noted during inspections
Badcondition
Newcondition $ $ $
Deterioration
Routine maintenancee.g. washing, sealing
Mid-life preservatione.g. painting, patching, protective system repairs
Rehabilitation and replacementwhen the bridge is too old or deteriorated to repair
Balanced investment
plan
Bridge LCCA: Results
• Agency’s current policy saves approximately $600 Million when compared to the worst-first strategy (over entire inventory).
Using Results to Improve Decisions
Risk Can Be Used To:
• Set priorities• Assign resources• Improve communication with stakeholders• Increase the likelihood of organizational
success• Reduce agency liability
Utah DOT - Risk in Investment Decisions
• Budget: $185M/yr– Interstate (935 mi) -
$70M– Level 1 Roads
(2,960 mi) (> 1,000 cars/day) - $105M
– Level 2 Roads (1,970 mi) (< 1,000 cars/day) - $10M
Role of Life-Cycle Costs in the TAMP
• Convey strategies for managing an asset effectively using preservation activities
• Quantify future maintenance requirements associated with capital improvements and expansion projects
• Determine whether replacement decisions are being made in a timely manner and whether the agency is capitalizing on preventive maintenance opportunities
Resources Available
• 2015 Performance Measures Conference & 1-day
Asset Management Meeting
• FHWA Website
– http://www.fhwa.dot.gov/asset/
• FHWA/AASHTO Asset Management Webinar Series
– http://tam.transportation.org/pages/webinars.aspx
• NCHRP 08-93, Managing Risk Across the Enterprise: A
Guidebook for State Departments of Transportation