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4 | P a g e 1 Introduction The planning, design, and construction of highway projects is complex and subject to considerable uncertainty. These uncertainties stem primarily from a lack of information about the conditions assumed for developing project estimates and from unforeseen changes or problems that arise as a project develops. These uncertainties lead to difficulty in accurately predicting project performance, including cost and schedule. A study1 The National Environmental Policy Act (NEPA) has been a fixture of transportation project development for decades. When NEPA regulations first came to the fore in the 1970s, state departments of transportation (DOTs) generally managed the NEPA process and documentation separately from planning and preliminary development. Over time, DOTs have become proficient in NEPA and to various degrees, have integrated NEPA with some or all preliminary development activities. of 167 roadway projects over the last 70 years shows that most such projects are initially underestimated by an average of about 20 percent, although there is a wide range of underestimation and even some significant overestimation. These difficulties in delivering projects as planned have, in turn, often led to various other problems, such as public dissatisfaction, loss of agency credibility, and funding issues. A DOTâs proficiency in the NEPA process does not necessarily mean that transportation project development is simple or free of delay. Indeed, NEPA issues and their context for implementation is often cited as a reason for project development delays, which can in turn lead to construction cost increases due to inflation, and in some cases, cancellation of projects. A review of NEPA process timelines provides an indication of how environmental review can impact project development. Figure 1 below shows the mean length of time in years to complete the NEPA process, from the 1970s through 2003. In 1999, FHWA estimated that it took an average of 1.5 years to complete an Environmental Assessment (EA). A survey by AASHTO in 2000 estimated that EAs for projects that were not delayed took about 14 months (1.2 years), but when projects were delayed the EA took an average of 41 months (3.4 years). Similarly for and Environmental Impact Statement (EIS), the median time for completion of an EIS stood at 60 months in 2000, 80 months in 2002, and 63.5 months in 2008. Risk Management Some State Departments of Transportation (DOTs) have applied risk management principles to identify and assess the potential of NEPA-related risks and other issues to disrupt project development. FHWA has provided formal guidance on the use of risk management in major projects through FHWAâs memorandum (January 19, 2007), which included guidance for FHWA division administrators to apply to every major project under development, addressing a range of risks and risk management actions. NEPA process improvement is the subject of a great body of research and guidance documents, but NEPA in a risk management context offers a relatively new perspective that facilitates pro-active 1 Flyvbjerg, B., M.S. Holm, and S. Buhl. Underestimating Costs in Public Works Projects. Error or Lie? Journal of the American Planning Association, Vol. 68, No. 3, Summer 2002.
5 | P a g e interventions which can reduce the likelihood of unforeseen interruptions in the process as well as improve the way in which such events are managed. With risk management principles and practices resulting in significant benefits to many areas of complex systems development and delivery, risk management as applied to NEPA potentially offers similar benefits. Risk management is broadly applicable to infrastructure development projects, across a complete category of risks beyond NEPA risks. After considering the contents of this guidance, there is no reason that practitioners should not apply risk management principles during all stages of project development. If agencies can successfully apply these concepts to NEPA risks, expanding its application to all risks in project development should be straightforward and beneficial. Figure 1: Mean Time to Complete NEPA Process (years) Definition of Risk For the purposes of this guidance, ârisksâ are defined as events that might occur in the course of project development, and lead to consequences in project performance. In order to manage risk, it first has to 6.06 6.16 7.07 5.46 6.09 7.50 5.71 6.09 6.91 6.41 6.98 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* M ea n T im e, Y ea rs Calendar Year of NEPA Completion * 2011 data through April 30, 2011 Source: FHWA Office of Project Development and Environmental Review, 2011
6 | P a g e be identified and evaluated for its potential impact. This requires definition in terms of the likelihood that risk will happen, and if it happens, the likely consequences to project performance. For risks which have negative impacts, there are two dimensions which capture the essence of probable loss: the potential for occurrence, and the impact if the event does occur. Risk Examples Risks should be stated as consequential events; a risk cannot just be a statement, or just a cause, but rather, it needs to imply a measureable consequence. Some examples of NEPA risks are: ⢠Time allocated for review by State Historic Preservation Office ⢠Turnover in resource agency staff, such as US Army Corps of Engineers ⢠Inability to secure stream mitigation within the project watershed Consequences of Risk Project managers might mistakenly refer to a âcost riskâ or âschedule riskâ to a project, but costs and schedules are consequences of risk, not risks in and of themselves. The consequences of risk involve the measureable impact on project performance. There are four primary categories of project performance: 1. Budget: relationship between the cost of construction, and the estimated cost of the project at various phases of development. 2. Schedule: the deviation between the date of construction completion, versus the estimated schedule at various phases or project development. 3. Quality: refers to the suitability of the project to meet its stated purpose, in terms of functionality and sensitivity to context. 4. Agency reputation: the public perception of an agencyâs ability to deliver a project or program of projects on schedule and on budget. When an agencyâs reputation for project delivery suffers, there can be consequences in terms of increased legislative oversight or staff changes. Objective of this Guidance The objective of this document is to provide a guide for practitioners on the use of risk management to support: 1. Early identification of key issues that must be addressed 2. Effective application of management action and other resources to avoid or mitigate schedule delays, cost escalation, and quality problems, and 3. Better decision making in project planning, programming and development. âProject deliveryâ can refer to all stages of project development, from initial planning to final commissioning. The primary focus of this research, however, is on NEPA process and related activities occurring prior to construction. âRisk Management is not risk aversion. Rather, it involves the appropriate identification of risks and consequences so that project managers can move project development forward. âToo often, projects are managed to avoid risks, regardless of their likelihood or impact. This increases the alternatives studied, engineering cost, and development time.â - NCHRP 20-24(71) Workshop Participant
7 | P a g e Organization of this Guidance This guidance on using risk management to address NEPA risks in project delivery is organized around the following chapters: 1. Introduction (this chapter), which describes the purpose of this guidance and provides definitions of risk; 2. Risk Management Framework, which lays out a structured approach to risk management and shows how it will be applied to NEPA risks; 3. Identifying and Developing Strategies to Address NEPA Risks, which presents the results of the Practitioner Workshop on NEPA risk management, and provides potential risk management actions for each; 4. Recommendations for Implementing Risk Management, which focuses on NEPA risk management actions which are the province of DOT executive leadership.
