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Implementation of the AASHTO Guide for Enterprise Risk Management (2022)

Chapter: Chapter 5 - Other Case Studies

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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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Suggested Citation:"Chapter 5 - Other Case Studies." National Academies of Sciences, Engineering, and Medicine. 2022. Implementation of the AASHTO Guide for Enterprise Risk Management. Washington, DC: The National Academies Press. doi: 10.17226/26516.
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82 Other Case Studies During the ERM pilot implementation portion of this project, numerous meetings were held (workshops, COP meetings, peer exchanges, and webinars). Representatives from a number of other DOTs also participated in these meetings and shared their experiences about implementa- tion of ERM. In this section, selected experiences from a few of these state DOTs are discussed. ese case reports relate either to the status and progress of overall ERM in their states or other specic initiatives that are separate and distinct from the pilot initiatives implemented as part of this project. Selected experiences from Caltrans, VTrans, MnDOT, and WSDOT are included. 5.1 California Department of Transportation e discussion in this section is based on information presented by Caltrans sta during a peer exchange conducted for the project. It shows how risk management works at that agency. Caltrans represents a mature risk management agency with practices supported by a state government-wide eort to manage risks. Risk management in California is mandated by state law, and the agency is required to report its risk management activities annually to the governor. A key action taken by Caltrans in ERM implementation was to assign the responsibility of ERM to a risk management division led by a chief risk ocer, thereby ensur- ing continuity of ERM eorts in the agency. 5.1.1 Caltrans Risk Management Case Study Caltrans adopted an ERM program in 2013 aer receiving scrutiny in 2012 for questions about the integrity of testing related to the Oakland Bay Bridge. When Caltrans started its ERM program, there were few models to follow. Caltrans sta reached out to WSDOT and MnDOT for input. ese two DOTs were among the few states that had examples to share at the time. e Caltrans risk management program identies and manages risk to the agency’s strategic objectives. e agency’s mission is to provide a safe, sustainable, integrated, and ecient trans- portation system to enhance California’s economy and livability. Caltrans’ risk management program is strongly aligned to its strategic objectives. e risks it identies and focuses on are those that relate to the agency’s strategic objectives. Because Caltrans is so large, with over 20,000 employees and a budget of over $15 billion, the agency faces numerous and diverse risks. e Caltrans ERM team facilitates the risk management process by organizing and conduct- ing agency-wide risk assessments. ese produce a list of threats and opportunities such as those shown in Figure 5.1. e example shown in Figure 5.1 is based on 28 four-hour meetings that Caltrans conducted while assessing the agency’s risks. e meetings originally were free-owing sessions of writing risks on boards and reaching consensus. at process proved dicult for C H A P T E R 5

Other Case Studies 83   synthesizing risks. In a revised process, risk management sta sent forms to various divisions for them to prepopulate with the risks. ese prepopulated risks served as input to the brain- storming in the sessions. Caltrans is continually evolving its process and has not used the same process twice. is is a reection of the agency’s learning and streamlining of the risk assessment process. e ERM sta provide risk management–related training and organize and facilitate the risk assessment meetings. ey lead the teams through the risk assessment and develop the agency’s risk prole. ey also monitor the risk-response actions and keep the agency informed. Caltrans has a chief risk ocer with delegated authority to implement, manage, and lead a statewide ERM function. Caltrans develops two levels of risk assessment. One is at the agency-wide level, and the other is at the level of districts, divisions, and specic programs. Program and district leadership teams participate in the risk sessions. e risks at the agency-wide level are used to support ERM and strategy setting, and they feed into a statewide risk management process. e district- or program-level risks support annual planning and priorities at the district or program levels. At the time of this writing, Caltrans was looking at gaps in the management of risks at the mid- levels of the organization. e 2019 risk assessment eort led to 603 risk statements, of which 197 were opportunities and 406 were threats. Values are assigned not only for likelihood and impact, but also for velocity, which is an indication of how imminent the risk is. Velocity was a new factor in 2019, reecting the continuing eorts to improve the process. Participants discussed how adding velocity, or a time factor for a risk, can help identify which risks are imminent and which are longer term. In the 2019 exercise, likelihood, impact, and velocity, when combined, could create the highest score of 15, while low-risk items had scores of between 4 and 7. e most common risk areas were external partnerships, workforce planning, data governance, project delivery process, and compliance. Figure 5.2 shows a summary of the risk categories. e risk matrix Caltrans used is shown in Figure 5.3. However, the highest-scoring risks include those related to unsheltered populations, equity, out-of-scope work, quality management, and information technology/replacement strategy. Source: Caltrans. Figure 5.1. Caltrans threats, opportunities, and risk owners.

84 Implementation of the AASHTO Guide for Enterprise Risk Management Source: Caltrans. Figure 5.2. The most common risk areas. Source: Caltrans. Figure 5.3. The risk matrix with opportunities and threats.

Other Case Studies 85   Helping the unsheltered population and improving equity are priorities of the governor. e inclusion of these risks reects how risk management adapts to changing priorities. ese are also the governor’s priorities. Caltrans updates its risk analysis annually. e updates feed the agency’s and the statewide strategic planning process. In 2019, at the time of this case study, Caltrans had four risk sta who reported directly to the director and chief deputy director. In addition to the four sta, there were risk champions in each of the four districts. Caltrans encourages the identication of opportunities. As evident from the 197 opportu- nities identied, the Caltrans process identies threats and opportunities, although risks that were threats outnumbered opportunities by three to one. Caltrans also has a training program that focuses on risk training for new supervisors as they are brought on board. As expected, the expertise of the participants and area of work inuence the risk assessments. Sta notice distinct dierences in what types of risks are identied by dierent groups. Audit sta mostly tend to identify threats and not many opportunities. Field sta tend to identify physical risks to safety, while project sta identify project risks. Caltrans has completed ve cycles of risk analysis, and the agency considers itself to be at a level four on a ve-level maturity scale. One of the next steps being considered to reach the next level is to propose a formal risk governance process to align risk responses to the overall organizational strategies and objectives. 5.2 Vermont Agency of Transportation e VTrans study described here details practical aspects of incorporating and integrating ERM into an agency’s culture, how the experience demonstrated value to the agency and secured buy-in from its leadership and sta, and how the continuity of ERM eorts can be sustained through leadership changes. It provides valuable insights to practitioners and to agencies that are not yet in a mature state of implementing ERM. 5.2.1 VTrans Risk Management Case Study is case study from VTrans emphasizes that risk eorts at state DOTs need to be exible and to the scale of the issue being addressed. Risk management can be advanced more eectively with a clear understanding of how it inte- grates into asset management and other processes. It is important to know what the risk prac- titioner is intending to achieve in establishing or supporting ERM at the agency. e VTrans experience shows that one way to advance ERM is to get it included in an agency strategic plan. e experience of implementing risk management at VTrans provides an example of how advancing ERM is not always a linear, predictable process. In 2014, agency leadership sup- ported risk management, hired a risk management engineer, and adopted a risk management policy. en there was a leadership change, and the new administration had less interest in risk management. Understanding the importance of risk management and addressing this change in interest at the highest level required some changes in the approach which required what VTrans risk prac- titioners called “managing from the middle.” e risk management team conducted risk analyses and provided risk management strategies to support decision making without emphasizing that these were risk management activities. ese eorts were well received and turned the tide in interest in risk management. e VTrans experience shows that risk management can survive

86 Implementation of the AASHTO Guide for Enterprise Risk Management leadership changes with middle managers continuing to manage risks even if the top leadership does not emphasize risk management. Despite the leadership changes, the sta continued to focus on important strategic objectives that were identied before the leadership change. e risk managers also learned that advancing risk management was not just about personnel changes. ey needed to show what could be achieved by using risk management. is required making sure that the sta who used risk management were successful in managing the risks to those objectives. e VTrans experience was similar to the experiences of other DOT risk management practitioners in that the risk management sta acted like consultants. Emphasizing the need to be exible and adaptive, the risk sta oen perform risk manage- ment without calling it risk management. Successful adoption of risk management within the agency also requires addressing the thinking that risk is inherently negative. is tends to make sta avoid using risk management. ere also is a fear that the risk process will get bogged down in minutiae. By making the risk process leaner, it can be more successful. ere was also the perception by design managers who were already working on several steps in the project deliv- ery process that adding risk management would create delays. However, once they saw that risk management could help avoid delays by mitigating risks, they became supportive. e agency’s experience has been that receptiveness to risk management varied. Sta in avia- tion and information technology (IT) were accustomed to managing risks and quickly embraced ERM. Other sta were less receptive when they thought that asking them to manage their risks meant they had done something wrong. It is also important to understand that some sta become nervous when asked to discuss risks. Not calling the practice “risk management” can result in the successful managing of risks even without the name. Figure 5.4 illustrates that there are several activities that are required to keep the risk manage- ment process functioning through changes in agency priorities. Oen, people only see the successes and may be unaware of the many other activities that go into eective risk management. VTrans understands that it is important to be as ecient as possible and use lean processes to continue to expand risk management. Despite the leaner sta, VTrans is encouraged by feed- back from others in the agency using risk management that it has helped them better manage Source: VTrans. Figure 5.4. A graphic illustrating the “beneath the surface” efforts supporting risk management.

Other Case Studies 87   achieving their objectives. is shows that the benets of risk management have become known and that sta are using risk-based approaches. VTrans’ experience is that the risk message is better received when the risk processes are exible and are revised to meet the individual circumstances that are being addressed. e agency also learned that it is important to identify process owners and empower them to manage their risks. e agency has conducted many tabletop exercises to manage and mitigate the risks of oods and other events. at experience of dealing with unpredictable emergencies helped VTrans when it responded to the COVID-19 pandemic. Risk management helped the agency improve its project delivery process. When VTrans began to focus on reliable project delivery, it was delivering only 46 percent of its projects on time. e agency started to measure delivery reliability and started to manage risks to project delivery such as from issues related to environmental approvals and utility relocations. VTrans assembled a group of managers who identied the risks to on-time project delivery and identi- ed steps to mitigate those risks. e goal was to deliver projects on time 80 percent of the time, which they achieved for ve consecutive years. A lot of the success resulted from identifying risks and empowering people at all levels to manage the risks to project delivery. Another lesson from the VTrans experience is that empowering and engaging people at all levels to manage risks is important to achieving success. In the early stages, when VTrans had a risk management engineer, they relied too much on that person to catalyze risk management. Some sta thought that managing risks was the responsibility of the risk management engineer, not a shared responsibility across the department. To make risk management successful, the agency had to dene roles better and assign risk management to the appropriate sta. Figure 5.5 illustrates how the responsibility of responding to bridge risks was both simplied and distributed among the bridge sta to make the eort successful. e pyramid illustrates the risk responses that are to be followed when a bridge inspection identies an issue. e most minor issues result in a cyclical activity that will occur the next time bridge maintenance is performed. e low level of response contrasts to urgent issues that must be addressed within 48 hours. Emergency ndings during a bridge inspection require immediate closure or response. Simplication of risk-response protocols claried how bridge engineers are to respond to issues found during inspections. Source: VTrans. Emergency – Immediate Figure 5.5. A risk-response pyramid showing responses to risks uncovered by bridge inspections.

88 Implementation of the AASHTO Guide for Enterprise Risk Management Another major risk initiative at VTrans was the development of a risk and resiliency tool. e tool allows analysis of the ood vulnerability of assets up to 100 years into the future based on potential precipitation and the elevation of a site. e information is available to designers so that as they consider projects, they can incorporate the ood risk potential into design elements. Asset management working groups in VTrans are sharing broader responsibilities for manag- ing assets and the risks to them. Another initiative is that VTrans conducts a quarterly review of its risk register to assess if risks have changed and if the necessary mitigation eorts are continu- ing. Another risk-related development is that VTrans is incorporating risk and resilience into its Vermont Project Selection and Prioritization Process criteria as a factor in evaluating proposed projects. VTrans is incorporating location risks into its corridor planning process. Summaries of new, proposed projects include a discussion of potential risks that new assets could face. e intent is to plan with a longer horizon and to incorporate risk mitigation improvements before project scopes are set. VTrans has developed a management system known as the Vermont Asset Management Information System, which is resulting in VTrans mapping and documenting its processes. e mapping of processes allows VTrans to identify the places within its processes where risk assessment and management should occur. VTrans is using working groups to identify those people tasked with managing assets, performance, and risks. VTrans is using working groups to manage from the middle and to make risk management more formal and less messy. VTrans has developed a web-based application called the Transportation Resilience Planning Tool (TRPT). is tool generates detailed vulnerability assessments for roads, embankments, bridges, and culverts vulnerable to damage from oods. It estimates risks based on the vulner- ability and criticality of the roadway segments. e TRPT also includes vulnerability assessments for six watersheds. e TRPT was targeted to include the entire state by late summer 2021. VTrans is working with districts to capture information about at-risk slopes. is engagement of districts is part of the new normal of managing change from the middle with an emphasis on peer-to-peer interactions but without emphasizing or calling it risk management. e infor- mation can be incorporated into project designs. VTrans achieves buy-in by promoting risk management through informal and formal means. e informal means include storytelling of how risk management has been successful. More formal means include providing data services and data visualization experts to help sta better identify risks. Success in achieving objectives has helped advance the use of risk management. For example, when district maintenance sta see that a culvert that has been identied as at risk is improved with the next paving project, it becomes evident that risk management is meaning- ful. ese successes help build advocates and leaders for risk management at every level of the organization. Convincing agency leaders to support risk management is important. However, to sustain risk management, it is important is to build the support of leaders at every level of the organization. 5.3 Risk Management to Support Financial Decision Making e year 2020 roiled many state DOTs, which faced signicant nancial challenges caused by declines in highway and transit revenues. e following case studies examine how two state DOTs used risk management to support executives’ budgeting decisions during 2020’s revenue uncertainty. Although neither case study is related to the pilot, they provide examples of state DOTs actively engaged in this project and in implementing risk management. ese are sum- maries from presentations made by Washington and Minnesota during the project’s national

Other Case Studies 89   webinar. e webinar, titled “Managing Risks in Uncertain Times,” showed how states are using risk management to manage the unpredicted risk of the COVID-19 pandemic and budget reduc- tions. Both case studies represent COP members’ eorts, and both illustrate the utility for risk management to support decision making. 5.3.1 Washington State DOT Financial Risk Analysis WSDOT views risk management as integral to the agency’s strategic planning and performance management process, as shown in Figure 5.6. In describing risk management at the agency, one WSDOT ocial described the department as being “fortunately unfortunate.” e department is fortunate to have many incentives to practice risk management. Unfortunately, those incentives are driven by the many risks that the agency faces. e state faces many weather-related risks. It has active seismic zones, can be volcanically active, is exposed to sea level rise, and has experienced devastating wildres. e state has faced several revenue shortages since 2019. en in 2020, the COVID pandemic slashed ridership on the department’s transit, rail, and ferry services and reduced fuel tax receipts. In 2019, through the I-976 initiative, Washington voters approved cutting car-tab fees. I-976 threatened to reduce WSDOT revenue by $500 million in its rst year, $1.7 billion in the second year, and $4.5 billion over 10 years. Its passage would have resulted in billions in lost revenue for WSDOT. In 2020, the initiative was overturned by the courts. However, it has forced WSDOT to delay projects and plan for other budget reductions. WSDOT sta called COVID-19 a “game changer” because of its immediate and long-term eects. In the short term, it reduced mass-transit and fuel-tax revenue and aected how and where WSDOT employees worked. COVID’s long-term impact on revenues and its inuence on commuting patterns create long-term risks to WSDOT’s assumptions about the projects it should plan for and how to pay for them. Much of the I-976 revenue was slated for transit, which exacerbated the COVID-related transit fare revenue losses, although this impact was soened somewhat when I-976 was overturned. However, prior to that court decision, WSDOT’s risk management sta, in preparation for the budget cuts, quickly applied risk analysis to an extensive list of proposed budget cuts. e Source: WSDOT. Figure 5.6. WSDOT integration of risk management and strategic objectives.

90 Implementation of the AASHTO Guide for Enterprise Risk Management analysis supported WSDOT’s executives in their deliberations and was forwarded to the gover- nor’s oce to support statewide budget decisions. WSDOT ocials described the agency’s scal situation as catastrophic in the early months of 2020. e I-976 vote from November 2019 brought a freeze on hiring and new projects. Eorts were begun to cancel numerous projects, and the agency’s long-range plan assumptions required serious revision. en, beginning in about March 2020, automobile travel declined as people stayed home, and mass-transit ridership fell far more. WSDOT ocials compiled highway trac volumes, as well as ridership numbers for rail, bus, and ferry services. In some cases, ridership fell 80 percent compared to the same month in the previous year (Figure 5.7). WSDOT’s previous budget assumptions became moot, and the governor and WSDOT leader- ship ordered analysis of what services and projects could be cut to balance agency budgets. In response to the direction for budget cuts, each department and division in WSDOT began to formulate and prepare the required budget cut proposals. However, these pro- posed cuts were viewed from the perspective of how they would aect the individual function proposing the cut. In this siloed approach, how cuts in one area could ripple across the depart- ment and affect other functions was not being taken into account. Understanding that a low priority for one unit can be a high priority for another work unit was missing. An example Washington Governor Jay Inslee released a statement on I-976, stating, “. . . in response to the will of the people, I am taking immediate action. I have directed the Washington State Department of Transportation to postpone projects not yet underway. I have also asked other state agencies that receive transportation funding, including the Washington State Patrol and Department of Licensing, to defer non-essential spending as we review impacts. I will work with legislators, agency leadership, and stakeholders on how best to respond to the impacts of this initiative. I remain committed to finding solutions to meet Washington’s growing and urgent transportation needs.” (Inslee 2019) Source: WSDOT. Note: The baseline year is the top line; current year is the lower line. Figure 5.7. Washington passenger rail ridership.

Other Case Studies 91   cited was cutting data collection. The loss of data may not have a critical impact and might be a lower priority for the data-collection staff functions. However, the lack of data could cre- ate serious impacts on functions that relied on the data, such as safety or asset management analysis. Another concern the risk staff raised was how to consider the impact of cuts on key agency values, such as supporting diversity and enhancing the environment. Without a framework to assess the risk to agency values, the impact of cuts could not be fully considered. When all WSDOT offices submitted their individual proposals for 20 percent budget reductions, the result was an unprioritized 350-page list of possible cuts. Each of these cuts proposed in isola- tion did not include any analysis of how it affected other work units or the agency’s strategic objectives. The risk management staff saw the need to look at the budget cuts while taking into consid- eration the cross-area impacts and providing analysis to help decision makers make informed decisions that accounted for cross-agency priorities. The WSDOT risk staff reviewed the AASHTO ERM Guide and used all the available tools to help the agency make risk-based decisions. They looked at the 350-page budget reduction document and considered the use of a simple risk-register-like tool to document and succinctly present the assessment results and the implications of each proposed cut. The team worked to reduce the amount of detail and came up with a new methodology of doing a risk assessment. The analysis addressed both the DOT’s guiding principles and the guidelines for doing risk assessments. Figure 5.8 shows a screen capture of the Excel-based risk-register-like tool that the risk man- agement staff used for this exercise and that is based on a simple example. Each section of the tool is expanded and shown in Figures 5.9 through 5.11 to be more legible. Staff evaluated each cut by two sets of criteria, each of which contributed to a final numeric risk value. The risk value of each proposed cut could then be used to assess the degree of risk the cut presented. The first set of criteria ranked was based on WSDOT’s strategic objectives (also listed in Figure 5.9 under Potential Risk Categories): • Develop core workplace competencies • Department performance • Environmental sustainability • Financial sustainability • Health and safety • Legal compliance • Reputational credibility • Transportation system performance The second area that the risk team considered was how a cut affected multiple divisions, documented as “cross-functional considerations” (Figure 5.9, in the lower part of the figure). As noted with the data-collection example, a minor cut in service in one area could impede perfor- mance in several others. An X was assigned for each performance area that the cut would affect. The number of areas affected served as a multiplier for the effect of the cut. Overall risk rankings were then developed on an “additive” or a “multiplicative” basis, reflective of whether the cumu- lative risk impacts from the risk categories individually or in combination with cross-functional impacts were additive or multiplicative. The latter would be indicative of a compounding of the impacts between the primary risk categories and the cross-functional considerations. As shown in Figures 5.10 and 5.11, the product of the risk assessment was a document similar to a risk register that provided a numeric ranking of the risks to strategic objectives

Source: WSDOT. Expenditure Reduction Rankings Template (Overall Risk: +Additive) Cross-functnl considertns X = 2.0 Concerns, gaps and opportunities Comments Column1Column2 Column22Column3 Column32 Column33 Column3211 Column32112Column3210Column3212 Column6Column7Column8Column9Column10Column11Column12Column13Column48Column47Column46Column45Column44Column43Column42Column5Column14 Column16 1 Division A AB Item 1 22 2 16 3 6 2 2 5 1 3 1 2 1 1 X X X Concern 1 Comment 1 2 Division B CD Item 2 27 1 17 1 10 1 5 2 1 1 2 2 3 1 X X X X X Concern 2 Comment 2 3 Division C EF Item 3 21 3 17 1 4 3 3 1 1 1 1 2 5 3 X X Concern 3 Comment 3 4 Division D GH Item 4 17 4 15 4 2 4 1 1 1 4 1 1 5 1 X Concern 4 Comment 4 5 Division E IJ Item 5 17 4 15 4 2 4 1 1 1 1 5 1 4 1 X Concern 5 Comment 5 Effi ci en t d el iv er y (p ro je ct /P SE /c on st ru cti on ) Co re w or kf or ce & c om pe te nc y D ep ar tm en t p er fo rm an ce En vi ro nm en ta l Fi na nc ia l H ea lth a nd sa fe ty Re pu ta tio n an d cr ed ib ili ty Tr an sp or ta tio n Sy st em P er fo rm an ce Sa fe o pe ra tio ns Pr es er va tio n & m ai nt en an ce D at a- dr iv en d ec is io ns / re se ar ch Le ga l a nd c om pl ia nc e Instructions for Ranking: For each division, enter focus item/subject in column D Identify (X) cross-functional considerations X, these are from the guiding principles Identify weight for guiding principles Rank risk categories 1 low to 5 high Brief description of other concerns/opportunities in column AJ Comments, if any, in column AL IMPORTANT NOTE: TO MAINTAIN FUNCTIONALITY OF FORMULAS, INSERT LINES (DO NOT ADD THEM FOLLOWING THE LAST ROW). TO CUSTOMIZE FOR YOUR OWN USE, de ne Potential Risk Categories (cells L1:S1) and Cross-functional Considerations (cells T1:AA1). Enter your items a er row 11, then delete rows 6-10. There are multiple ways to sort, including overall ran, overall totals, risk rank and cross-functional rank. Page Division Exec Item Overall Totals (Risk + Cross Functional) Ca pa bl e w or kf or ce /s us ta in ab le k no w le dg e Te ch no lo gy / e nt er pr is e bu si ne ss su pp or t St ew ar ds hi p / st ro ng o w ne r So ci al o r g eo gr ap hi c eq ui ty Potential risk categories Overall Rank Potential Risk Category (Total) Risk Rank Cross- Functional Considerati ons (Count*X) Cross- Functional Rank Figure 5.8. A screenshot of the risk assessment tool. To be more legible, its components are shown in Figures 5.9 through 5.11.

Other Case Studies 93   Source: WSDOT. Potential Risk Categories Core workforce & competency Department performance Environmental Financial Health and safety Legal and compliance Reputation and credibility Transportation System Performance Cross-Functional Considerations Safe operations Preservation & maintenance Data-driven decisions / research Efficient delivery (project/PSE/construction) Capable workforce/sustainable knowledge Technology / enterprise business support Stewardship / strong owner Social or geographic equity Figure 5.9. A section of the risk assessment tool. At the top are the potential risk categories, and at the bottom are the cross- functional considerations. Source: WSDOT. Expenditure Reduction Rankings Template (Overall Risk: +Additive) 1 Division A AB Item 1 22 2 16 3 6 2 2 Division B CD Item 2 27 1 17 1 10 1 3 Division C EF Item 3 21 3 17 1 4 3 4 Division D GH Item 4 17 4 15 4 2 4 5 Division E IJ Item 5 17 4 15 4 2 4 Page Division Exec Item Overall Totals (Risk + Cross Functional) Overall Rank Potential Risk Category (Total) Risk Rank Cross- Functional Considera- tions (Count*X) Cross- Functional Rank Column1Column2 Column22Column3 Column32 Column33 Column3211 Column32112Column3210 Column3212 Figure 5.10. A section of the risk management tool. The nal values indicated the overall risk from a proposed cut and how the cut affected functions across agency departments assuming a cumulative additive impact.

94 Implementation of the AASHTO Guide for Enterprise Risk Management and a ranking of the cross-divisional risks. These figures show how the rankings change when viewed individually. Using the risk scores, the risks were sorted to show the executives the highest and lowest priorities based on the overall risk to the organization and its 53 divisions. e tool also showed some concerns, gaps, and opportunities along with comments. Using risk management to assess and support this complex budget cut was a new way of approaching business. e goal was to analyze the risks from hundreds of proposed cuts and summarize the nal analysis into a succinct, understandable, and actionable format. e prod- uct allowed decision makers to quickly see how each proposed cut aected strategic objectives and how each proposed cut inuenced one or more functions. e risk-based budget assessment was well received by WSDOT leadership, and it was included in the information sent to the governor’s oce. e assessment summarized the 350 pages of narrative down to a few pages of tables that allowed for easy assessment of the risks posed by each possible cut. WSDOT staff said that an important takeaway is to avoid the common problem of pro- viding too much information to decision makers. If it takes more than 30 seconds to explain a proposed action, the presenter can lose the decision maker. In the case of the budget-cut risk assessment, the WSDOT risk team presented decision makers with a succinct evaluation of what had been an overwhelming amount of information. They highlighted the risks and the impacts. e process used is reinforced in Figure 5.6, which shows that risk management is an integral part of the WSDOT strategic management process. In the case of evaluating the impacts of the budget cuts, the cuts were evaluated for the risks they posed to achieving WSDOT’s strategic objectives, while considering the high risks and priorities of all the work units. WSDOT sta said the process contributed to better decision priorities and better alignment with strategic Source: WSDOT. Expenditure Reduction Rankings Template (Overall Risk: *Multiplicative) Column1Column2 Column22Column3 Column32 Column33 Column3211 Column32112Column3210 Column3212 1 Division A AB Item 1 96 2 16 3 6 2 2 Division B CD Item 2 170 1 17 1 10 1 3 Division C EF Item 3 68 3 17 1 4 3 4 Division D GH Item 4 30 4 15 4 2 4 5 Division E IJ Item 5 30 4 15 4 2 4 Overall Rank Potential Risk Category (Total) Risk Rank Cross- Functional Considerati ons (Count*X) Cross- Functional RankPage Division Exec Item Overall Totals (Risk * Cross Functional) Figure 5.11. A section of the risk management tool. The nal values indicated the overall risk from a proposed cut and how the cut affected functions across agency departments assuming a multiplicative impact.

Other Case Studies 95   objectives, had executive support, and aligned risk treatment strategies and goals. One result of the exercise is that going forward, the risk oce will work with the budget oce to evaluate proposed budget decisions. is engagement in future nancial planning and prioritization is an advancement of WSDOT’s risk management process. e budget managers appreciated the analysis. e way the risk sta set up the conclusions helped the budget managers readily see the results of the analysis. 5.3.2 Minnesota Department of Transportation – Incorporation of Risk into the Budgeting Process It its biennial budget cycle, MnDOT integrated risk management throughout the budget- development process. e results were strongly inuenced by current events, which directed attention to equity, employee safety, productivity, technology, and workforce safety and devel- opment. Risk integration was accomplished through the identication of risks to the oce and district objectives and through risks to strategic objectives, which included the inuence of current events. e result was that budget funding requests addressed the most signicant risks facing the agency’s strategic objectives and business plan objectives. As part of the development of the biennial budget-request challenges, the title of the applica- ble Excel section, “Opportunities and Challenges,” was changed to “Risks and Mitigation Strat- egies,” and was basically a risk register for meeting business plan objectives. e risk register summarized the threats and opportunities to achieving each oce’s budget objectives. Each oce used a high-, medium-, low-threat, and opportunity rating in its assessment for each objective, and it identied the mitigation needed to resolve the risk. Next, a checkmark was used to indicate if an investment was needed as part of the mitigation strategy (Figure 5.12). Source: MnDOT. Figure 5.12. This risk-register-like summary was the product of an effort to integrate risk into the budget-development process.

96 Implementation of the AASHTO Guide for Enterprise Risk Management e eort included identifying the major strategic objectives for the agency and how sta rank the risks that were identied for the opportunities and challenges in accordance with the investment strategies. e risk sta worked with the Oce of Financial Management to develop an exercise for senior leadership to help identify investment priority areas. ey took the gover- nor’s priorities as well as the priorities from the transportation plan and the strategic operating plan, and they grouped these priorities into 11 areas. e exercise asked the executives to assess the agency’s ability to inuence each objective. Figure 5.13 shows the matrix mapped based on responses to certain questions. e executives were asked to view the objectives from four quadrants: • Where there would be high inuence with low eort • Where there could be high inuence but with high eort required • Where there could be low inuence with low eort • Where there would be low inuence even if high eort were invested e eort was a risk assessment exercise to understand the investment priority areas for MnDOT. e eort also helped assess the ability to inuence a priority area and the level of eort needed. It helped MnDOT assess whether the initiatives were adequately resourced. Although each area was considered important, the exercise allowed the agency to see which areas needed additional resources. Each oce was asked to develop a budget request and show how each request linked to the 11 priority areas shown in Figure 5.14. In addition, the oces were asked to identify the objec- tives that would be met by the budget request, the likelihood of these risks occurring, and how the budget request would address the risk. rough these activities, the sta collected about 50 budget request proposals. e proposals were sent for deliberation and prioritizing to the Resource Investment Committee, which is an internal group of assistant commissioners and assistant division directors as well as sta from Source: MnDOT. Figure 5.13. MnDOT investment priorities – ability to inuence versus level of effort.

Other Case Studies 97   the Oce of Financial Management. e committee members brainstormed on each and ranked all 50 of the proposals on a 1 to 5 scale specically addressing the following ve areas: 1. Advancing agency investment priorities 2. Importance of expected outcomes 3. Importance of advancing risks 4. Likelihood of mitigating risks 5. Comfort in accepting trade-os Based on the scoring, all 50 of the budget requests were then grouped into one of six tiers, depending on how they scored in the ve areas. As shown in Figure 5.14, several of the top ini- tiatives were directly related to key risk areas prominent in 2020, such as equity, environmental sustainability, and employee recruitment and retention. e ranking of these issues illustrated how risk assessment can bring social factors such as equity into the risk assessment process to support budget decision making. Source: MnDOT. Figure 5.14. Budget requests were placed in tiers once their risks were assessed.

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The AASHTO Guide for Enterprise Risk Management, published in 2016, defines enterprise risk management as “the formal and systematic effort to control uncertainty and variability on an organization’s strategic objectives by managing risks at all levels of the organization.”

The TRB National Cooperative Highway Research Program's NCHRP Research Report 986: Implementation of the AASHTO Guide for Enterprise Risk Management documents how several state departments of transportation are adopting risk management principles and practices.

Supplemental to the report are a presentation, a risk assessment tool, a Washington State Department of Transportation budget template, and a video of a webinar by the project team.

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