SEPTEMBER 2012

Risk-Based Transportation

Asset Management:

Achieving Policy Objectives 

by Managing Risks

RepoRT 3: Risks to asset ManageMent Policies
-

Notice 

this document is disseminated under the sponsorship of the U.s. 

Department of transportation in the interest of information 

exchange. the U.s. government assumes no liability for the use 

of the information contained in this document. 

the U.s. government does not endorse products or manufactur 

ers. trademarks or manufacturers’ names appear in this report 

only because they are considered essential to the objective of 

the document. 

Quality Assurance Statement 

the Federal Highway administration (FHWa) provides highquality information to serve government, industry, and the public 

in a manner that promotes public understanding. standards and 

policies are used to ensure and maximize the quality, objectivity, 

utility, and integrity of its information. FHWa periodically reviews 

quality issues and adjusts its programs and processes to ensure 

continuous quality improvement. 

NoTE fRoM ThE DiREcToR 

the Federal Highway administration (FHWa) continuously 

seeks innovative ways to improve the management of the 

nation’s highway infrastructure. the office of asset Management offers this series of reports on risk management as 

another means by which transportation agencies can better 

understand and manage their highway assets. 

the use of risk management among U.s. transportation 

agencies largely is limited to managing risk at the project 

level generally focused during construction. Risk management at the project level helps to identify threats and 

opportunities to projects’ cost, scope and schedule. However, 

we at the FHWa along with our partners at state and local 

transportation agencies recognize the growing need for a 

better understanding of risk management at program and 

organizational levels. 

today, the leading international transportation, banking and 

insurance organizations have explored the benefits of risk 

management at the program and enterprise level and use 

it as a tool to protect their investments. Based on those 

practices, the office of asset Management is offering this 

series of reports on how risk management can be scaled 

up to asset management programs, and to the entire 

enterprise of a transportation agency. 

it’s important for highway agency officials to consider incorporating risk management in the decision-making process 

for several reasons. First, they have seen the benefits of risk 

management at the project level. second, they have heard 

from their international colleagues that risk management can 

pay dividends when used at the broader program and enterprise level, particularly when agencies don’t have enough 

funding to address their priorities. third, managing risk is an 
 ii Risk-Based Transportation Asset Management 

integral step in following a comprehensive asset management framework as described in the “aasHto asset Management guide—a Focus on implementation.” Finally, the 

U.s. congress has required that states develop “risk-based 

transportation asset management plans.” these factors 

convinced the office of asset Management to offer this 

series of reports. 

We believe you will find these reports helpful as you develop 

your asset management program and make investment 

decisions. this series of reports will help the transportation 

agencies to meet the increasingly complex challenges 

involved in making decisions and communicating them 

effectively to the public 

sincerely, 

Butch Wlaschin 

Director of the office of asset Management

Risk-Based Transportation Asset Management iii 

contents 

Introduction ......................................... 1
 

Managing Risks to Policies ........................... 1
 

What are asset Management Policy or strategic Risks? .. 3
 

advanced examples of strategic Risk Management ...... 5
 

Getting Started with Agency Risk Management.......... 13
 

establishing the context ............................ 16
 

identifying the Risks............................... 25
 

analyze and evaluate Risks......................... 29
 

Building the asset Risk Register..................... 29
 

treating the Risks ................................. 32
 

Conclusion......................................... 42
 
Risk-Based Transportation Asset Management 1 

introduction 

Dealing with risks to key strategic objectives is not new to 

transportation executives. they do it every day. What is 

relatively new is formal risk management as a transparent 

framework for identifying risks to strategic objectives, mitigating them and communicating their likelihood. the earlier 

risk management reports provided an overview of risk 

management and its practice at the agency, program or 

project level. this report examines a subset of agency risk 

management, that is strategic risk management, or the 

management of risks to key agency objectives and policies. 

in particular, this report examines risks to transportation 

asset management (taM) policies and objectives. 

Managing Risks to policies 

one author notes that senior leaders either engage in 

strategic risk management or they routinely engage in crisis 

management.(i) strategic risk management causes the senior 

leaders to comprehensively anticipate threats to their strategic objectives and to prepare scenarios and strategies to 

minimize them. another author notes that ignoring threats to 

strategic objectives doesn’t make them disappear, it just 

deprives the executive of the opportunity to consciously 

prepare for them.(ii) a third author says that “managing risks 

is management’s job.” (iii) as such, risk management is not 

a technical function performed in isolation by specialists. 

Rather, it is a dynamic, executive function performed 

continuously by agency leadership. 

although uncommon among transportation agencies, strategic risk management is viewed in many leading industries as 

the central role of senior leaders. “My job is to figure out how 

to grow (the company) and manage risk and volatility at the 

same time,” said Jeffrey immelt, chief executive officer (ceo) 

of general electric. (iv) 
 2 Risk-Based Transportation Asset Management 3 

immelt’s comments reflect the duality of modern management. executives are expected to ensure reliable, predictable 

performance to routinely meet agency and public objectives. 

at the same time, they are expected to anticipate the unexpected, and to be prepared when it occurs. enterprise risk 

management—or the practice of risk management at all 

levels of an organization—is a tool that helps leadership 

provide stable operations in an unstable environment. 

Both in the private and the public sector, stakeholders value 

predictability. Regarding transportation asset management, 

stakeholders want the pavements to be smooth, the bridges 

to be sound, the signs and pavement markings to be legible 

and for work zones to flow smoothly. the public also expects 

that transportation agencies will accomplish this while 

achieving other policy objectives such as operating efficiently without new revenues, reducing emissions, respecting the 

environment, conserving energy, abiding by purchasing and 

contracting regulations, respecting diversity in hiring and 

promptly responding to public complaints. When these 

functions do not reliably and predictably occur, the public’s 

confidence in the agency suffers. in fact, the very definition 

of “quality” has been defined by the degree of reliability 

and predictability in products.(v) 

However, the world is often unreliable and unpredictable. 

Unexpected external events and complex internal ones can 

impede an agency’s predictable march to its asset management policy objectives. Risk management creates a framework for identifying the hard-to-predict threats to asset management policies and creates contingencies to react to them. 

the active managing of risks to asset management policies 

and objectives also plays a key reporting function. it demonstrates to the public and to key stakeholders that the agency 

is anticipatory, prepared and realistic about what can go 

wrong as it manages a diverse, aging and underfunded 

asset inventory. 

Risk-Based Transportation Asset Management 

By anticipating the negative or unexpected, risk management serves as a complement to the disciplines of performance management and asset management. those 

management frameworks create predictable, cyclical 

on-going processes that seek to make high-quality performance routine. Risk management serves to address that 

which is less predictable, and which can present threats, as 

well as opportunities. asset management and performance 

management work like a drive train to propel an agency 

forward. Risk management serves as both a crash-avoidance 

system and a suspension system that softens the bumps 

and potholes of the unexpected. 

What Are Asset Management policy or 

Strategic Risks? 

Policy or strategic risks are ones that could affect missioncritical objectives, cut across an organization, are often 

external and are not in the control of lower-level staff. as a 

result, they are “owned” by the senior executives or by the 

agency’s commission. these reports have reiterated that U.s. 

transportation agencies routinely practice risk management 

at the project level. there, it helps to safeguard against 

threats to cost, scope and schedule while evaluating opportunities to capitalize on risks. When risk management is 

scaled up and practiced at every level of an organization, it is 

called enterprise risk management. enterprise risk management in these reports is considered to be the comprehensive 

practice of risk management at three levels, the agency, the 

program and project levels. the nuance between agency risk 

management and strategic risk management is a fine one. 

in fact, many authors who write about risk management in 

the corporate world don’t use the term “agency risk management” but instead refer to “strategic risk management” as 

the management of risks to key strategic objectives. in these 

reports, “agency risk” management is the practice of risk 
 4 Risk-Based Transportation Asset Management 5 

management to key agency strategic objectives. this report 

will focus upon a subset of agency risk management, that is 

the management of risks related specifically to transportation asset Management objectives. 

the issue of risk-based asset management rose in importance when both houses of congress considered legislation 

to require states to develop risk-based asset management 

plans for the national Highway system (nHs.) For agency 

leaders, the evolution to a risk-based asset management 

approach means they are likely to assume responsibility for 

ensuring that risks to the nHs assets are identified, prioritized and managed. they also are likely to become responsible for ensuring that asset management policies for the 

nHs are carried out, and that risks to those policy objectives 

are effectively managed. as a result, risk management is 

likely to become a new minimum competency which 

transportation executives are expected to master. 

the strategic asset management risks for which agency 

leaders may be responsible in a risk-based environment 

include that: 

◗◗◗the agency reduces risks to achieving its asset
 

condition targets;
 

◗◗◗the agency has reduced the risk of poor investment 

decisions by adopting an organization-wide asset 

management framework; 

◗◗◗the agency has realistically anticipated its asset investment needs and contrasted them to a realistic forecast 

of revenues; 

◗◗◗the agency has reduced risks to the value or condition 

of its assets; 

Risk-Based Transportation Asset Management 

◗◗◗the agency has developed accurate asset inventories 

and asset management systems to enable it to conduct 

robust asset-condition scenario forecasting; 

◗◗◗the agency has anticipated external risks to its assets 

including natural disasters, major economic downtowns 

or political changes. 

agency or strategic risk management is a formal process of 

identifying threats and opportunities across an organization 

and deciding how to manage them. its formal, documented 

practice is common among some international agencies, and 

is widely adopted in the corporate world. When agency or 

strategic risk management is first explained to agency 

executives, they often respond, “but we already do that.” 

in part, this is true. they routinely deal with risk. What is 

much less common in the U.s. is for the risk to be formally 

identified, prioritized, strategized, communicated and then 

tracked. such steps may occur in the thoughts of an executive or in discussions within the senior staff, but agency or 

strategic risk management involves the formal documentation, communication and tracking of the risks and the strategies to address them. transportation agencies with mature 

risk management processes can document the risks to their 

asset management policies, can document the mitigation 

strategies and can document how those strategies have 

reduced the risks that the agency will not achieve its 

asset management objectives. 

Advanced examples of Strategic 

Risk Management 

to better understand risk management as applied to asset 

management objectives, it helps to examine some mature 

examples. among transportation agencies, those examples 

occur generally in australia, the netherlands, new Zealand, 

great Britain and to some extent in canada. 
 6 Risk-Based Transportation Asset Management 7 

Risk management as practiced by these agencies abroad is a 

flexible, policy-based framework that actively involves senior 

leadership with the agency’s strategic asset management 

objectives. the Queensland Department of transport and 

Main Roads (tMR) explains risk management as an enterprise-wide effort to improve all types of decision making. 

“Risk management endeavors to achieve an appropriate 

balance between realizing opportunities while containing 

losses. When risk management is embedded into management practices, it enables continuous improvement in decision-making and performance and is an essential element of 

good corporate governance. in managing risks effectively 

and efficiently, the department will be more likely to achieve 

its purpose and role.” (vi) 

tMR deploys a comprehensive approach that cascades risk 

management from the broad strategic level down to the 

project and operations level. it doesn’t use the term “agency 

risk management” for its highest level but rather uses the 

term strategic risk management. it defines key strategic 

risk as: 

◗◗◗political, economic, social, environmental and 

technological factors in the external environment; 

◗◗◗culture, structure, people and system factors in the 

internal environment. 

its strategic Risk Management Practice guide identifies the 

following agency risks and their consequences. 

Future disasters and failures—if tMR is unable to respond 

quickly and effectively to disasters and failures, damages 

won’t be minimized and its reputation may suffer longterm damage. 

Risk-Based Transportation Asset Management 

Funding pressures—an inability to fund the current and 

projected transport system needs of Queensland is creating 

an accumulating risk of major safety, delivery and reputational failures. 

Regulatory risk—tMR’s regulatory responsibilities represent 

a major ongoing risk to its ability to ensure that community 

and government expectations are met. 

Workforce challenges—unless tMR can link its capability 

needs to its future workforce, it will constantly lack key 

elements of capacity. 

Global forces of change—if tMR does not remain alert to 

long-term forces and trends or is unable to influence how 

government and society responds, its future success will be 

in the hands of others. 

Strategic positioning—lack of strategic position with 

key stakeholders would leave tMR vulnerable in a highly 

competitive and rapidly changing environment. 

Application of IT—if tMR does not take advantage of ongoing fundamental changes in how information is managed 

and used in society it is unlikely to be able to deliver on 

its purpose. 

Adaptive capability—if tMR is unable to transform 

itself into a much faster moving and responsive organization 

it will not be able to deliver on its purpose in a rapidly changing and unpredictable strategic environment. 

Whole of government (WoG) and decision making—if tMR 

is unable to ensure that decision making at all levels is linked 

to broader government policy and strategy it will fall out 

step and will become less relevant and effective. 
 8 Risk-Based Transportation Asset Management 9 

its strategic risks are formally documented and the ongoing 

responses to them are reported to the Board of Management 

and the audit and Risk committee. these reports form part 

of the agency’s internal controls and its formal reporting to 

key external stakeholders such as legislators and the state 

treasury department. 

these agency-wide strategic risks form the highest-level 

of risks that cut across all functions, and which are broader 

than the individual program risks over which they span. the 

tMR stratifies its risk plans and approaches into six distinct 

but interrelated levels—strategic, portfolio, divisional, 

program, project and operational. Risks from any of these 

levels that rise to be potential threats or opportunities for 

the agency can become agency risks to be managed by 

the senior leadership. 

across the Pacific from Queensland, the translink agency 

operates multiple transportation modes in the greater 

Vancouver area of British columbia. its 2012 Business Plan 

reports upon a number of enterprise risks that could prevent 

it from achieving its major policy objectives for the year. 

these include possible diesel price increases. every $.01 cent 

increase costs the agency $400,000. Higher gasoline prices 

also decrease motorists’ fuel usage which decreases its 

local fuel-tax income. it faces union contract negotiations, 

increased pressure from local governments for increased 

financial support of local roads, negotiations with the federal 

government on some funding sources are unsettled, and a 

major new toll bridge is not bringing in the expected revenue 

and threatens its financing plan. Higher rates of absenteeism 

are driving up overtime costs and complicating bus service 

schedules. in addition, high attrition rates caused by an aging 

workforce are increasing recruitment and training costs. 

Risk-Based Transportation Asset Management 

translink reports these risks in its Business Plan and then 

tracks them throughout the year. the reporting of them to its 

oversight body is a regular occurrence that keeps its leadership apprised of progress toward its strategic objectives. 

in scotland, the transport scotland agency documents the 

agency-wide risks that could impede its Road asset Management Plan (RaMP.) (vii) these include: 

Imprecise asset deterioration rates—it has insufficient 

information on asset deterioration rates to support long-term 

predictions of the needed level of investment. its mitigation 

measure will be to identify gaps in its information and to 

hold workshops with experts to close those gaps. 

Insufficient unit cost measures—it has insufficient information on maintenance unit costs and unit rates to support 

robust financial planning. its mitigation strategy is to put 

in place practices to collect accurate unit costs. 

Uncertain performance measures—it is difficult to translate 

strategic aims and objectives into meaningful performance 

targets and levels of service. the mitigation strategy is to 

develop a comprehensive performance management framework that links aims and objectives to performance. 

Insufficient lifecycle tools—the “whole of life” or lifecycle 

cost tools are not suitable to support lifecycle planning. 

the mitigation strategy is to review the current tools and 

to improve them. 

Insufficient scenario planning—the tools for conducting 

network-level scenarios are not perceived to be robust 

enough for the needs. the mitigation strategies are to 

develop a program to put the asset management program 

planning into a computerized tool. 
 10 Risk-Based Transportation Asset Management 11 

the australian state of Victoria’s roadway agency is known 

as VicRoads. it was visited by the Us risk-management scan 

team and the agency emphasized that risk management is 

a dynamic process that keeps decision makers informed of 

risks to policy objectives. Risk management is a comprehensive undertaking that flows both from the top down through 

policy and from the bottom up through identification and 

response to risks at the front lines. the VicRoads chief executive has the primary responsibility for organizational risk 

management, along with the executive corporate Management group. all VicRoads executives assume responsibility 

for effective risk management within their business areas. 

the director of VicRoads risk management has the responsibility for the development and oversight of corporate risk 

management policies, processes, systems, coordination and 

communication. in addition, that position is responsible for 

the monitoring and reporting of risk status and actions to the 

executive management. the organization develops a three 

year risk register and risk management plan. staff in each 

business area has training and responsibility for identifying, 

coordinating and monitoring risk in their units. the agency 

developed a corporate Risk Management assessment guide 

that identifies key risk areas and provides for risk severities 

and corresponding mitigation action. VicRoads officials 

advised their Us counterparts that risk management is a tool 

that should focus an agency upon how uncertainty could 

affect its objectives. at the same time, risk analysis should 

not lead to paralysis. the agency seeks a healthy balance of 

taking acceptable risk to achieve acceptable returns while 

avoiding excessive risks. 

these examples from australia, canada and scotland illustrate the breadth of practice of risk management, but also 

the breadth of issues addressed at the agency level. all the 

issues addressed above could impede the agencies’ ability to 

Risk-Based Transportation Asset Management 

achieve their strategic objectives as set for them by their 

governing bodies. the issues they are tracking illustrate the 

unique threats they face to achieving their asset management objectives. it is not coincidental that enterprise risk 

management is used by these agencies as a strategy to 

achieve their major policy objectives. Rather, risk management begins with policy. Risk management, at all levels, 

is based upon the entities’ unique objectives, whether 

risk management is applied at the project, program or 

agency level. 

the World Road association—PiaRc says that traditional 

risks for transportation agencies were infrastructure, personnel and finances. (viii) now agency leaders are expected to 

excel at public policy concerning environmental compliance, 

energy reduction, climate change, economic development, 

and social justice. emerging new forms of social media can 

bring nearly instantaneous, issue-driven advocacy to bear on 

these issues when an agency is perceived to have failed to 

meet its social obligations. this brings a whole new dimension to the risk environment in a modern transportation 

agency. threats and opportunities are more diverse, and 

public agencies are expected to anticipate and respond to 

them promptly. 

PiaRc notes that the volatility of modern risks renders 

obsolete the older, traditional model of risk management 

that relegated its practice to specialists. a better description 

of what is needed today could be called dynamic risk management. it reflects the assumption that transportation 

leaders are expected to be ever-vigilant managers of threats 

and opportunities across the entire organization. although 

PiaRc does not use the term, “dynamic enterprise risk 

management” that term describes the approach it suggests. 
 12 Risk-Based Transportation Asset Management 13 

A Strategy for Prioritizing Executive 

Risk Efforts 

Well-known management author Robert s. kaplan 

conveys a message to senior executives that is 

similar to PiaRc’s. in the Harvard Business Review, 

(ix) he writes that executives can delegate the management of some risks to staff, but they cannot 

effectively delegate strategic risks. He categorizes 

risks into three areas: preventable risks, such as 

malfeasance, theft or internal process breakdowns; 

strategic risks, or those affecting strategic objectives, and; external risks or those not directly in the 

organization’s control. He contends that only the 

first, preventable risks, can be delegated to a routine 

staff function. Preventable risks can be addressed 

through periodic audits, quality-assurance reviews 

and checklists of compliance. However, he contends 

that strategic risks do not lend themselves to checklists and formulas but are best dealt with on a 

case-by-case basis by senior leaders. often strategic 

risks create opportunities that leaders may seek to 

exploit. external risks also fall to the senior leaders 

to monitor. even if they can’t prevent them, they can 

track them, explain them and develop contingencies 

to cope with them. kaplan’s view of agency or 

strategic risk management, therefore, is that it is a 

dynamic, core function for leadership and not a 

compliance task reduced to rote checklists or 

standardized reviews. 

Risk-Based Transportation Asset Management 

getting started with agency 

Risk Management 

With these examples provided as background, the question 

now facing U.s. transportation executives may be, how do 

i begin implementing risk management to my asset management policies? 

the protecting and improving of infrastructure assets is a 

key objective and responsibility for nearly all transportation 

executives. even if the conduct of asset management is not 

a formally expressed strategic objective, in nearly every 

agency the preservation, maintenance and improvement of 

infrastructure is viewed as a central, core goal. therefore, 

adoption of agency or strategic risk management will have 

a major focus upon managing physical assets. 

establish Context 

Identify Risks 

Analyze Risks 

evaluate Risks 

Treat Risks 

Communication and Consultation

Monitoring and Review 

Figure 1. ISO’s risk management framework 
 14 Risk-Based Transportation Asset Management 15 

although risk management is applied in many countries and 

across many different industries, its basic structure appears 

to be very consistent. in fact, variants of Figure 1 from the 

international organization for standardization (iso) can be 

found around the world in the risk management policies of 

many public agencies and in the private-sector guidance of 

professional trade organizations. Figure 1 illustrates that risk 

management is a comprehensive framework that includes 

the steps necessary to inculcate it as an ongoing and formal 

process. the framework shown in Figure 1 supports the 

change-management and organizational communication 

practices needed to ensure that a new major process is 

adopted by a large, complex organization. 

the institute of Management accountants (iMa) cites the 

steps needed to ensure that an organization accepts risk 

management as seen in Figure 1. (x) they are slightly 

modified for this report to relate to asset management. 

the steps include: 

◗◗◗establish ceo commitment from the top including a 

clear tone and messaging that managing risks is critical 

to managing assets; 

◗◗◗Risk policies and or mission statements are developed 

and existing agency processes are amended to incorporate a risk-based approach to managing assets; 

◗◗◗adopt or develop risk language that notes that risks are 

not just physical threats but also threats to policies, 

objectives, infrastructure-condition targets and public 

expectations; 

◗◗◗staff is encouraged to consider risks as opportunities, 

and not always threats; 

◗◗◗create reporting mechanisms to and from business 

units, executives, and the board or commission for 

monitoring risks; 

Risk-Based Transportation Asset Management 

◗◗◗adopt or develop a risk framework such as Figure 1; 

◗◗◗establish the agency techniques for identifying risk; 

◗◗◗establish the tools for assessing risks; 

◗◗◗incorporate risk into appropriate employees’ job 

descriptions and responsibilities; 

◗◗◗incorporate risk into the budget function, and; 

◗◗◗integrate risk identification and assessment into the 

strategy of the organization. 

the above steps provide for the cyclic, ever-improving type 

of process illustrated in Figure 2. it shows that risk management when comprehensively applied leads to a “learning 

process” where the results of risk mitigation and opportunity 

Set Strategy,

Objectives

Treat Risks

Communicate

and Monitor Identify Risks

Control Risks Assess Risks

Figure 2. The cyclical steps of risk management 
 16 Risk-Based Transportation Asset Management 17 

identification feed back into the strategy-setting process for 

continuous improvement. Figure 2 also illustrates the dynamic nature of risk management. it continually adjusts as old 

threats are managed and new ones arise. Figures 1, 2 and the 

bullets from the iMa illustrate a point repeatedly emphasized 

in risk management guidance. Risk management is most 

successful when leaders become active risk managers. 

establishing the Context 

Risk management begins with policy. Particularly at the 

agency or strategic level, the foundation of risk management 

is not only leadership’s embrace of it but also leadership’s 

identification of the key objectives it is to ensure. the setting 

of context involves asking, “What really matters to us? What 

policy objectives are strategically critical to us?” “and what 

could prevent us from achieving them?” 

the institute of Management accountants (iMa), iso and the 

risk management manuals seen in international transportation agencies emphasize that the initial focus of risk management is on clarity of strategies and objectives. From those, 

the risk management program is built. as the iMa notes, 

without clear objectives it is more difficult to identify the 

risks and opportunities surrounding them. in terms of managing risks to assets, the same policy basis applies. the 

agency articulates its objectives for infrastructure service 

levels and then identifies risks to them. 

this foundation in policy makes risk management similar to 

asset management. Both can be tied to key policy considerations, such as preserving public value, ensuring sustainable 

resources for future users, demonstrating transparency, 

providing accountability and ensuring adequate levels of 

infrastructure service. as such, risk management becomes an 

adjunct to asset management as a means to demonstrate 

Risk-Based Transportation Asset Management 

that an agency is striving to achieve the infrastructure policy 

goals and service targets established by the legislature, 

governor, congress or regulatory bodies. 

the first step in risk management is to set the agency’s 

context that describes the agency’s priorities. this context 

provides the policy foundation upon which the following risk 

management activities are built. in setting the context, the 

agency articulates the key policy objectives that it seeks to 

achieve. this step not only guides subsequent risk management activities, it also demonstrates to external stakeholders 

that the agency strategically is approaching its objectives 

and the risks to them. 

although risk management cascades through all levels of the 

organization, the identification of the agency’s highest-level 

strategic risks generally falls to the senior leaders. the policies or strategic objectives that the organizations are expected to achieve are often expressed in legislation, executive 

guidance from the gubernatorial or treasury level, or from 

the agency’s own strategic objectives. as noted on pages 5, 

6 and 7, these strategic objectives can vary widely and can 

change over time. in the scottish example, some of the risks 

to be managed were quite specific and addressed the need 

to improve agency asset management forecasting tools. 

these reflect a common need for senior leaders to have 

sound, reliable models with which to conduct scenario 

planning. complex organizations—whether in the highway or 

the financial-investment fields—rely on models and they can 

be a critical risk factor for successful investment. over time, 

as the models mature and become routine, they may no 

longer rise to the level of a strategic risk. they may become a 

program or even operational risk addressed by lower levels. 

However, in the early stages of asset management development, such management systems may be a central threat or 

opportunity closely monitored by senior leadership. 
 18 Risk-Based Transportation Asset Management 19 

noticeable throughout the risk management materials of 

australian and new Zealand transportation agencies was 

a focus upon environmental compliance while managing 

assets. High political and social expectations that the agencies operate in compliance with environmental goals elevate 

the leadership’s management of environmental risk compliance. environmental approval is often cited in U.s. risk 

management activities at the project level. in australia and 

new Zealand, the concerns were agency-wide. Reducing the 

risk that the agency would be cited for violating environmental regulation was a significant focus area for management. 

also,the agencies’ growing energy usage and carbon footprints were seen as agency-wide risks. these can spill over 

into asset management practices in terms of carbon consumption as a consideration in material selection. environmental compliance also can affect drainage maintenance 

practices, salt usage, or pavement noise considerations. 

such issues generally are addressed at the project, program 

or operational level but have risen to the agency level 

when senior leaders are called to task for on-going noncompliance or because of stakeholder concerns. 

Preserving public asset value is another area where asset 

management activities rise to the policy or agency level in 

the international agencies. in the United states, the governmental accounting standards Board statement 34 (gasB34) 

requires public agencies to report on the overall value of 

their assets and to report any material issues that could 

affect them. these reports do not generally create substantial public interest. (xi) However, in england, treasury requirements compel agencies to adopt as a major objective the 

preservation of the value of agency assets. similarly, in 

australia, statutes require local governments to track their 

asset values and to prepare long-range plans to ensure that 

highway assets remain in sound condition. in these instances, 

the asset management programs become major agencyRisk-Based Transportation Asset Management 

wide mechanisms to ensure that the agencies meet these 

strategic objectives set by their governments. in some 

cases, the asset management programs are audited and 

the agencies held accountable to correct deficiencies. 

improving the condition of key asset classes also can rise 

to an agency risk management focus. in 2003, the oregon 

Department of transportation launched a statewide program 

to replace 365 bridges that primarily were reinforced concrete deck girder bridges subject to dangerous cracking. 

the legislature authorized $1.3 billion for what at that time 

was one of the largest infrastructure programs in the state’s 

history. the department and its commission managed the 

program actively and produced monthly reports that tracked 

not only progress on delivering the bridge projects but also 

reported on the program’s environmental compliance, its 

recycling of old materials, its job creation and its use of small 

and disadvantaged businesses. although bridge replacement 

projects normally would be considered at the project level 

of risk management, in this case the severity of the cracking 

and the large number of structures elevated the issue to an 

agency risk. although the oregon Dot did not describe its 

efforts in risk management terms, its department-wide focus 

on delivering the bridge program was representative of an 

agency risk management approach. 

the Missouri Department of transportation faced a similar 

enterprise-wide effort with its safe & sound Bridge improvement Program that improved more than 800 bridges in five 

years. it is on track to replace 554 bridges and to repair the 

rest. as of Dec. 31, 2011, it had completed 672 bridges 

through its aggressively managed program. 

the Michigan Dot also pursued a strategic effort to address 

deficient bridges when it realized in the early 2000s that its 

structural deficiencies were well above national averages. 

However, after a few years of “worst-first” bridge focus, it 
 20 Risk-Based Transportation Asset Management 21 

also recognized the long-term risk of allowing good bridges 

to fall into a state of disrepair. it faced the long-term risk of 

never adequately improving its entire bridge inventory unless 

it kept its good bridges in sound condition. as a result, it 

now pursues a dual approach of focusing upon repair of its 

structurally deficient bridges but also investing significantly 

in bridges on the cusp of developing serious structural 

deficiencies. it has a strategic asset management policy of 

focusing on bridges in the structural deficiency categories of 

5 and 6. it singles out these bridges for repair to return them 

to a condition of 7 on a 0-9 scale. this strategic policy 

approach keeps good bridges in acceptable condition and 

lowers the department’s risk of long-term decline in its 

bridge inventory. agency executives say they began the 

strategy as an asset management strategy but recognize 

it as a risk-based approach intended to prevent the risk of 

widespread, expensive degradation to their bridge inventory. 

Minnesota Department of transportation (MnDot) officials 

take an explicit risk-based approach to asset management 

and used it to convince their legislature to allow it to better 

balance long-term investments between bridge and pavement inventories. 

the legislature through a statute known as chapter 152 

required the Minnesota Dot to substantially increase its 

bridge spending following the collapse of the i-35 bridge. 

MnDot is required to replace 120 bridges that are either 

structurally deficient or functionally obsolete. the investment 

improved bridge conditions but consumed funds that otherwise would have been invested in pavements. in a recent 

long-term, risk-based forecasting exercise, the staff looked 

at the department’s management system forecasts. the 

forecasts showed that bridge conditions would remain sound 

but that rural pavements were at substantial risk of imminent 

decline. the department staff quantified the risk to pavement conditions and the cost to correct the deficiencies if 

Risk-Based Transportation Asset Management 

Figure 3. MnDOT used this graphic to illustrate how different 

funding levels by program increased or decreased risk. 

they were allowed to worsen. the staff explicitly articulated 

the pavement decline as a risk to ride quality, safety and 

long-term economics. as a result, the legislature allowed the 

department to shift funds from bridges to pavements and 

create a more balanced and sustainable investment program. 

Figure 3 illustrates that at lower funding levels, shown as the 

shorter, darker columns, the risks increase that pavements 
 

 22 Risk-Based Transportation Asset Management 23 

will deteriorate, not meet condition targets and require more 

expensive repairs. the higher funding levels, shown in the 

light blue and yellow columns, decrease the risks to the 

pavement inventory’s condition and long-term repair costs. 

the arrows indicate that as funding levels rise closer to the 

yellow, optimum level, risks decline. as funding levels decrease to the black column level, risks increase. the riskbased description allowed the department to illustrate to its 

legislature that risks were greater for the pavement program 

than for the bridge program. 

these examples illustrate how risk-based approaches to 

asset management programs can be tailored to the agency’s 

unique policy needs. Risk management can address either 

policy outcomes such as environmental compliance or 

physical condition outcomes such as ensuring that a state 

corrects growing and threatening pavement deficiencies. 

Rather than being an arbitrary compliance function, risk 

management can be especially tailored to support the 

agency’s unique asset policy needs. 

also as part of the context setting, the agency leadership 

generally articulates its risk management vision and builds 

the risk management structure. the vision is articulated 

through the policies that establish the risk management 

program. the structure involves the assignment of roles and 

responsibilities. the responsibilities generally are stratified 

at least at the project, the program and the agency level. 

some agencies also manage risk at the operational level, 

the region level or the portfolio level. generally, a portfolio 

would be a collection of related projects. the levels can vary 

according to agency need, however, most guidance emphasizes that a clearly articulate structure is essential. iso 

recommends adoption of a formal Risk Management Framework that is a set of components that provide the foundaRisk-Based Transportation Asset Management 

tions and organizational arrangements for a continually 

improving risk management process. such frameworks are 

explicitly documented in several of the largest australian 

transportation agencies, as well as in new Zealand (xii, xiii) 

as well as by iso and the iMa. (xiv, xv) 

Risk Tolerance or Appetite 

a final and important part of the context-setting process 

is the identification by senior leaders of the agency’s “risk 

appetite” or “risk tolerance.” the risk appetite indicates the 

degree of risk that an agency is willing to accept by issue, 

policy or even by asset class. For instance, an agency may 

declare that it will accept very low risks for high-volume, 

aging, fracture-critical structures. it may declare that they 

need to be inspected frequently and be instrumented for 

constant monitoring of stress, strain or subsidence. For other 

assets, such as low-volume rural pavements, the agency may 

accept a higher degree of risk. an agency may identify a 

target of having 90 percent of high-volume pavements 

meet condition targets. But it also may articulate in the 

context-setting phase that it wants to accept little risk to 

the long-term performance of those pavements. therefore, 

it insists on sound forecasting and extensive preservation 

to reduce the risks that those pavements will fail to perform 

in the future. 

Risk appetite also can be qualitative. the english Highways 

agency sets a very low risk threshold for risks related to 

ethics, theft or malfeasance. However, it accepts far-greater 

risks for innovations such as complex design-build-operateand finance projects that require more than $1 billion in 

long-term investment. its guidance illustrates how risk 

appetite can be qualitative and based upon important 

public sensitivities. 
 24 Risk-Based Transportation Asset Management 25 

the english Highways agency Risk Management Policy (xvi) 

says in part, 

“the Board welcomes and encourages wellmanaged risk taking where the potential rewards 

in terms of improved customer service, savings 

of time or cost, or improvements in quality make 

taking the risk worthwhile. no one need fear the 

consequences for failure if the risks that caused 

the failure were anticipated, appropriately managed and, where required, escalated to senior 

management. 

the Highways agency Board has no toleration for 

risks that threaten: 

◗◗◗integrity, propriety and regularity in the use 

and stewardship of public funds and assets, 

or 

◗◗◗our ability to demonstrate that safety risks 

have been reduced as low as reasonably 

practicable.” 

the risk appetite or tolerance also can be dynamic or changing. During spring flooding the risk appetite for having early 

warning bridge scour systems inoperable may be zero. in the 

dry months of summer, the tolerance may be higher. the 

appetite also can change with public expectations or current 

events. the risk appetite is like risks themselves, it can ebb 

and flow over time. 

the risk appetite becomes a measure against which risks are 

compared in later steps of the risk-evaluation phase. 

Risk-Based Transportation Asset Management 

Identifying the Risks 

once the framework is in place and the priorities are articulated at the project, program and agency levels, the process 

of identifying risks to them begins. the guidance from the 

international risk management scan team and from numerous sources emphasizes that risk identification is best if 

done inclusively from a broad cross-section of agency 

participants. Risks that may be obvious to persons at one 

level of the organization may be unknown to persons from 

another level. Having a major program’s risks reviewed from 

all levels of an organization can reduce the possibility of 

threats and opportunities being missed. the iMa also 

suggests considering some degree of confidentially in risk 

identification. sometimes, risks are caused by internal operational failures or impediments that staff may be reluctant to 

publicly identify. iso’s generic standard says that risks should 

be identified from all sources, even if the risks are beyond 

the agency’s control. 

the steps used to identify agency risks are not complex. 

they include brainstorming sessions, strength Weaknesses 

opportunities threats (sWot) analyses, questionnaires, 

workshops and scenario analyses. iMa suggests that 

facilitated workshops can spur idea generation that will 

bring forth risks that might otherwise be overlooked. 

the Queensland Department of transport and Main Roads 

Program Risk Management Practice guide suggests 

clarifying assumptions of program managers to determine 

where their assumptions may be based on high-risk or 

highly variable circumstances. 

“keep it simple” was the advice of the U.s. risk management 

scan team. they and others emphasize that most risks are 

known to persons in the agency. they can be documented 

from past events, from known variables, or from changes in 
 26 27 

Figure 4. 

Risk-Based Transportation Asset Management 

the agency environment. the agency’s internal weaknesses 

or program conflicts generally are well known, even if they 

are not formally documented. 

some simple graphical tools can be used to record the risks 

that are identified. Figure 4 illustrates a graphical mapping 

of risks to an agency’s asset management programs. Risks 

are categorized as being in one of four categories, financial, 

strategic, operational, or hazard. the possible events within 

the inner circle are ones identified as having the highest 

likelihood and the greatest possible impacts. examples 

such as Figure 4 are not based on any software program 

or particular analysis protocol. Rather, they represent the 

common, shared opinions of the staff. the expertise of 

the staff is viewed as the most important element, and 

the identification of risks is seldom left to outside experts 

or consultants. 

as can be seen in Figure 4 in this theoretical example, 

the agency leadership has identified the following risks 

to achieving the agency’s asset management strategic 

objectives. 

◗◗◗information systems that do not provide the necessary 

analysis, insight or reliability; 

◗◗◗Maintenance failures caused by a lack of timely
 

treatment;
 

◗◗◗inadequate asset inventories that obscure the size, 

condition and location of assets; 

◗◗◗Budget shortfalls that prevent adequate investment; 

◗◗◗Price increases that erode purchasing power; 

◗◗◗Rising interest rates that increase the agency’s costs 

to borrow and finance major reconstructions; 

Risk-Based Transportation Asset Management 

◗◗◗changing legislation that may create new mandates 

that increase costs; 

◗◗◗lack of management support, or weak program
 

management;
 

◗◗◗loss of experienced asset management staff. 

an exercise as depicted in Figure 4 allows an agency to 

communicate both internally and externally that many 

factors could impede its asset management objectives. 

this helps to convey to outside stakeholders the complexity 

facing the agency’s asset management programs. 

fiNaNcial 

RiSkS 

STRaTEgic 

RiSkS 

Economic 

downturn 

Budget 

uncertainty 

Rising interest 

rates 

price 

increases 

Budget 

Shortfalls 

Changing 

Legislation 

Asset 

Inventories 

Information 

Systems 

Maintenance 

failures 

loss of 

key staff 

Weak program 

management 

Excess 

loadings 

Stakeholder 

Demands 

Environmental 

Standards 

Public 

opinion 

Floods

Barge 

strikes 

Seismic 

events 

Lack of 

management 

support 

hazaRD 

RiSkS 

oPERaTioNal 

RiSkS 

AGeNCy 

RISk 
 28 Risk-Based Transportation Asset Management 29 

Not All Risks Are Bad 

the evolution of enterprise risk management reflects the realization that organization leaders can’t just avoid risks, but must 

seek to evaluate them for their threats and their opportunities. 

after the scandals of enron and Worldcom, U.s. corporate 

governance laws required chief executive officers and boards 

of directors to take responsibility for internal risks in their 

organizations and to anticipate external ones that could affect 

shareholder value and legal compliance. as one post-scandal 

industry guidance document said, “the underlying premise 

of enterprise risk management is that every entity exists to 

provide value for its stakeholders. all entities face uncertainty, 

and the challenge for management is to determine how much 

uncertainty to accept as it strives to grow stakeholder value. 

Uncertainty presents both risk and opportunity, with the potential to erode or enhance value. enterprise risk management 

enables management to effectively deal with uncertainty and 

associated risk and opportunity,...” (xvii) 

as kaplan notes in the Harvard Business Review article cited 

above, agencies and businesses want to manage risks but they 

certainly do not want to avoid them all. only by taking risks 

can a company launch a new product, enter a new market 

or form a new partnership. analogously for transportation 

agencies, every construction project represents a significant 

risk. accidents could occur, contractors could go bankrupt or 

traffic could be delayed. However, without the risks of projects, 

agencies could not improve the transportation system. a new 

management system represents a risk of money, staff time and 

potential disruption to business processes. Without such risks, 

however, asset management processes can’t be improved. 

Without trying unproven new pavement treatments or experimenting with new bridge designs, construction innovations 

would not occur. 

Rewards are the fraternal twins of risks. 

Risk-Based Transportation Asset Management 

each of these risks may also offer opportunity. improvement 

in management systems, asset inventories, maintenance 

treatments, less-than-expected price increases or increasing 

management support all could cause asset management 

processes to improve. this duality is what causes risk 

management to be the supportive complement to other 

frameworks such as strategic goal setting, asset management or performance management. once an agency’s 

strategic priorities are clear, the risks to those priorities 

can be clarified by this step in the risk management process. 

this step also can identify new opportunities to achieve 

strategic goals. 

Analyze and evaluate Risks 

the next step in managing risks to asset management policies is to analyze and evaluate the risks to them. some risk 

management frameworks such as iso’s describe these as 

two different steps. in that framework, risks are analyzed for 

the magnitude of their potential impact or opportunity. then 

in the evaluation phase, they are evaluated for how they 

should be treated and how they compare to the risk appetite. 

the phases are closely connected and in this report will be 

described here as one process. 

Building the Asset Risk Register 

as described in report 1 and the literature review, the risk 

register is an essential tool for managing risks. at its most 

basic, it is a color-coded table or spreadsheet that lists an 

organization’s risks, ranks them, often color codes them and 

provides a brief explanation of how they are being treated. 

they are commonly used around the world to provide executives and staff an at-a-glance summation of the organization’s risks and what is being done about them. 
 30 Risk-Based Transportation Asset Management Risk-Based Transportation Asset Management 31 

Risk event 

LiklihoodConsequenceRating 

inadequate information systems 

Risk Mitigation Strategy/Treatment: 

invest in updated information systems 

0.90 0.70 0.63 

Budget shortfalls 

Risk Mitigation Strategy/Treatment: 

Monitor budget, prepare contingency program strategies 

0.70 0.80 0.56 

inadequate asset inventories 

Risk Mitigation Strategy/Treatment: 

invest in updated asset inventories 

0.70 0.70 0.49 

Maintenance failures 

Risk Mitigation Strategy/Treatment: 

increase training, audit maintenance processes 

0.70 0.70 0.49 

Price increases 

Risk Mitigation Strategy/Treatment: 

Monitor bid prices monthly and prepare contingencies 

0.30 0.70 0.21 

loss of experienced asset management staff 

Risk Mitigation Strategy/Treatment: 

institute succession planning, training, mentoring 

0.30 0.70 0.21 

changing legislation 

Risk Mitigation Strategy/Treatment: 

Monitor legislation. inform legislators of impacts 

0.30 0.30 0.09 

economic downturn 

Risk Mitigation Strategy/Treatment: 

Monitor economic activity and plan contingencies 

0.30 0.30 0.09 

Public opinion 

Risk Mitigation Strategy/Treatment: 

sustain robust public information processes 

0.30 0.30 0.09 

environmental standards 

Risk Mitigation Strategy/Treatment: 

train staff to comply with standards. conduct audits. 

0.30 0.30 0.09 

lack of management support 

Risk Mitigation Strategy/Treatment: 

train mid-level staff. ensure compliance with taM. 

0.10 0.70 0.07 

Barge strikes to bridges 

Risk Mitigation Strategy/Treatment: 

install navigational warnings. 

0.10 0.70 0.07 

excess vehicular loadings 

Risk Mitigation Strategy/Treatment: 

Monitor truck weights on vulnerable routes. Urge enforcement. 

0.10 0.70 0.07 

Rising interest rates 

Risk Mitigation Strategy/Treatment: 

Monitor interest rates. time bond issues accordingly. 

0.10 0.30 0.03 

Flood 

Risk Mitigation Strategy/Treatment: 

install storm event gauges. countermeasures at scour-prone structures. 

0.10 0.30 0.03 

seismic events 

Risk Mitigation Strategy/Treatment: 

Develop contingency planning for detours, emergency repairs. 

0.01 0.70 0.01 

the 2011 U.s. international risk management scan team 

members said they did not find many examples of the risk 

management plans that iso and others call for. instead, they 

found that the risk register was the essential tool that international agencies relied upon. 

Figure 5 on the preceding page illustrates the theoretical risk 

register built from the risks identified in Figure 4. this transportation agency has listed as its highest risks to achieving 

its asset management strategic objectives as its information 

systems, maintenance failures caused by a lack of timely 

treatments, inadequate asset inventories, budget shortfalls, 

price increases and a variety of other issues. 

as seen in the register, the issues are evaluated both for their 

likelihood and for their consequences. the risk rating is the 

simple multiplication of likelihood times the consequence. 

some agencies illustrate the risk rating with and without risk 

mitigation strategies illustrated. Figure 6 on page 20 shows 

the same risk register after mitigation. Figures 5 and 6 are 

shown separately just for legibility reasons in this report but 

in most risk registers they are combined. 

Table 1. NSW risk rating table 

Risk Likelihood L Impact I 

almost certain 0.9 extreme 0.9 

Highly likely 0.7 Very high 0.7 

likely 0.3 Medium 0.3 

Unlikely 0.1 low 0.1 

Rare 0.01 negligible 0.01 

Risk management specialists use various tools to help agencies provide nominal rankings to their perceived risks. some 

Figure 5. The risk register shows numeric risk rankings use simple verbal scales such as shown in table 1 provided by and also is color coded as a heat map. 
 32 Risk-Based Transportation Asset Management 33 

the new south Wales (australia) treasury for use by local 

governments when evaluating risks in their asset 

management plans.(xviii) 

in this theoretical example, the agency has identified a major 

risk as being its information system’s inability to produce 

credible condition and investment forecasts suitable for 

making long-term program investment decisions. the agency 

leaderships knows this is a significant problem and rates its 

likelihood as almost certain which produces a likelihood of 

0.9. the leadership also considers the impact of these information system shortcomings to be Very High to its asset 

management plans, which produces an impact value of 0.7. 

the risk rating, shown in table 2 therefore, is: 

Table 2. Risk rating for information systems 

L I Rating 

0.9 X 0.7 .63 

all the other risks are likewise rated by their likelihood and 

their consequence to provide a series of risk ratings that 

populate the risk register as seen in Figure 5. 

Treating the Risks 

once identified, evaluated and ranked, the agency begins 

to treat the risks. the treatment already is shown in the 

line below each risk. For inadequate information systems, 

for instance, the treatment is to invest in updated ones. 

For budget shortfalls, the treatment is to monitor the 

budgets and prepare contingencies to programs if budgets 

need to be reduced. For each risk, a treatment strategy 

is identified. 

Risk-Based Transportation Asset Management 

Risk treatments fall into four, and sometimes five, categories 

according to most agency practices. the four universal 

categories are to treat, tolerate, terminate or transfer. 

the english Highways agency and others include “take 

advantage of” as the fifth “t” in the risk-response decision 

tree. the english Highways agency includes table 3 in its 

guidance document. 

Table 3. English Highways Agency risk responses 

option explanation 

Treat 

the most commonly used, this 

means we are going to take action 

to mitigate the risk. 

Tolerate 

the second most commonly used, this 

means the likelihood of the risk 

materializing is so low or if it does 

materialize the impact would be so 

low that we need not worry about 

the risk. We do, however, monitor 

the risk to make sure it does not 

become worse. 

Terminate 

this does not mean terminate the 

risk but terminate the activity, and 

as such is not usually available to us. 

Transfer 

this is where accountability for 

managing the activity is transferred to 

another agent. again, this usually is 

not available to us. 

Take advantage to be used in relation to 

opportunities. 

as can be seen in table 3, the most typical option is to treat 

the risk. this is because government agencies often lack the 

ability to terminate or transfer risks. the private sector can 

cancel a high-risk product line or service but the public 
 34 Risk-Based Transportation Asset Management 35 

sector usually cannot. a few years ago, many U.s. highway 

agencies eliminated high-risk underground fuel storage tanks 

in favor of newer, lower-risk above-ground tanks. in that 

narrow case, agencies could eliminate a risk of leaking 

underground tanks. other examples can include systematic 

programs to replace culverts of a certain age, or to systematically replace aging sign inventories with signs that use 

more current reflective materials or to systematically eliminate certain types of bridge elements prone to early failure. 

systematic risk-treatment programs are common. However, 

transportation agencies cannot eliminate other high-risk 

activities such as conducting highway maintenance activities 

on high-volume roads, or owning agency bridges, or even 

owning high-crash locations. therefore, the treatment of 

risks tends to be more common than the termination or 

transfer of it. 

tolerating risks also is commonplace. agencies know from 

statistics that run-off-the-road crashes and intersection 

crashes are among the most common types of crashes. they 

take steps to treat the risks through improved intersection 

operations, or the use on two-lane routes of safety edges, 

rumble strips and highly reflective pavement markings. 

However, they know they have to tolerate some intersection 

and run-off-the road risks because they cannot all be eliminated. From an asset management perspective, agencies 

often lack the resources to exhaust all preservation and 

preventative maintenance treatments. therefore, they tolerate the risk of a predictable rate of asset degradation. they 

may try to slow the rate of asset degradation but it cannot 

be eliminated and must be tolerated to an extent. Pavement 

management system forecasts would have less risk if agencies collected 100 percent samples of pavement conditions. 

However, the cost of collecting data on 100 percent of all 

lane miles is prohibitive. therefore, agencies tolerate a 

degree of risk to the accuracy of their pavement management systems. 

Risk-Based Transportation Asset Management 

the amount of risk an agency is willing to tolerate is set by 

its risk appetite or risk tolerance established during the 

context-setting phase. Risk tolerance for public safety generally is low, so that risks of bridge failures are generally not 

tolerated. Risks to traffic signals generally have low thresholds. However, risks to guardrail condition or pavement 

smoothness on low-volume routes typically may have much 

higher tolerance levels, or the agency may have a greater risk 

appetite for those conditions. 

an example of terminating a risk can be the elimination of 

certain engine-cleaning solvents from maintenance facilities 

and their replacement with less volatile and less hazardous 

chemicals that pose lower risk to employees and to groundwater. or some agencies have terminated the risks caused by 

guardrail end treatments on high-volume routes by replacing 

them with crash attenuators. at a more programmatic level, 

agencies may try to reduce bridge spread footers in areas 

prone to scour or to reduce manual data collection in lieu of 

automated collection to terminate the risk of human judgment in data collection. there are examples where agencies 

can terminate risks but they tend to be less common than 

treating risks. 

Risk transfer is common in construction through the use 

of performance specifications, bonding and warranties. 

through the use of these mechanisms, performance risk 

of the project is transferred to the contractor to a degree. 

Design-build projects also can transfer some aspects of risk 

to the design-build team. the team assumes the professional 

liability for the design, often assumes the schedule risks and 

some risks to costs. 

in the asset management arena, agencies can transfer datacollection risks by contracting for data collection. this puts 

upon the outside contractor the risk of cost, scope and 

schedule for collecting data as well as the physical risks for 
 36 Risk-Based Transportation Asset Management 37 

collecting data under traffic. in a paper produced for the 

FHWa office of asset Management in 2011 “key Performance indicators in Public-Private Partnerships “it was 

reported australian and British public-private partnership 

(PPP) projects transferred large amounts of asset management risks to the companies who were awarded the designbuild-operate-and maintain projects. (xix) in those contracts, 

the private contractor was responsible for developing robust 

asset management processes that guaranteed that when the 

project was turned back over to the government in 30 years 

that its assets would be in sound condition. those systems 

required the contractors to develop accurate asset inventories, frequent condition inspections, robust maintenance 

regimes and periodic asset renewals to ensure that in 

30 years the assets would be in sound condition. 

the transfer of asset management risk in the U.s. still is 

relatively rare but is seen in some of the privatized maintenance contracts that are slowly expanding in use. generally, 

however, transportation agencies own the risks to asset 

management inventories, data systems, decision making and 

investment levels. therefore, the asset management process 

can be a high-risk activity for agencies. 

taking advantage of risks in the asset management arena is 

less common but is possible. an example could be adoption 

of a new technique for data collection, such as relying on 

rolling wheel deflectometer for assessing pavement structure, or using ground penetrating radar to assess bridge 

decks. these technologies have inherent risks because they 

are relatively new and lack the decades of testing and refinement that may be common in other data-collection processes. these techniques can create contract risks because there 

may not be many bidders to provide the services, or the 

agency may have few back-up options if the processes work 

poorly. However, the acceptance of such risks are what lead 

over time to the development of new processes and techRisk-Based Transportation Asset Management 

nologies. taking advantage of the opportunities inherent 

within some risks is routinely considered within a risk 

management framework. 

Identifying the Risk Treatments 

in a formal risk management process, the risk management 

staff or consultants are likely to lead the senior leadership 

through an extensive series of issues and have the leadership 

examine each strategic asset management risk for its threats, 

opportunities or treatment strategy. the new south Wales 

Rta guideline for using its project risk register (xx) walks the 

user through 58 standard issues that should be considered 

when evaluating project risks. this list of the types of risks 

that have been identified before serves as a prompt to 

ensure that the risk managers have considered a full range 

of threats and opportunities surrounding project risk and 

consider the appropriate treatment. such prompt lists for 

strategic risks are much less common because of the stillevolving nature of strategic or agency risk management in 

transportation agencies. However, the role of the agency’s 

risk management staff is to compile such lists that are 

pertinent to the agency and to use them in exercises with 

the senior staff as they develop their risk register for the 

agency’s strategic risks to its asset management processes 

or to the assets themselves. 

For the risks identified in Figures 4 and 5, such an exercise 

for the issue of the “inadequate information systems” risk 

could include the staff leading the team through an exercise 

to consider: 

◗◗◗are the risks to the information systems caused by the 

age or outdated nature of the systems? 

◗◗◗is the system recent but failing to operate because of 

design or operational problems? 
 38 Risk-Based Transportation Asset Management Risk-Based Transportation Asset Management 39 

◗◗◗is the system adequate but hampered by incomplete or
 

inaccurate data?
 

◗◗◗is the system adequate but users are not heeding its
 

outputs or scenarios?
 

such a prompt list stimulates an exercise in which the leadership examines the strategic issue from all of it perspectives 

and decides which of the five ‘ts’ to apply to the risk. in this 

case the agency leadership concludes that it can treat the 

risk and will do so by replacing the system. 

For the next risk, budget shortfalls, the agency leadership 

concludes that it cannot influence the amount of revenue 

that it receives and must rely on the strategy of monitoring 

its income and preparing contingency allocations if budget 

shortfalls arise. the agency only has the ability to tolerate the 

budget shortfall risk and cannot terminate it. contingency 

planning is its only risk-response option. 

the third risk, inadequate asset inventories, is viewed in this 

analysis as a treatable risk. the agency will upgrade its asset 

inventories to more fully support its asset management 

policy objectives. 

these steps taken by the strategic leadership leads to 

another calculation showing the risks after they have been 

treated, as seen in Figure 6. it illustrates that a budget shortfall remains as a high, untreatable risk that must be monitored, tolerated and reacted to with contingencies and 

budget reductions if it occurs. However, with treatment, the 

risks to inadequate information systems, inadequate asset 

inventories and maintenance failures have had their likelihood reduced. they still remain high risks but are no longer 

critical. other issues, such as price increases and loss of 

experienced asset management staff are viewed as less 

controllable, and again remain to be treated to the extent 

possible and to be monitored. 

Risk event 

LiklihoodConsequenceRating 

Budget shortfalls 

Risk Mitigation Strategy/Treatment: 

Monitor budget, prepare contingency program strategies 

0.70 0.80 0.56 

inadequate information systems 

Risk Mitigation Strategy/Treatment: 

invest in updated information systems 

0.30 0.70 0.21 

inadequate asset inventories 

Risk Mitigation Strategy/Treatment: 

invest in updated asset inventories 

0.30 0.70 0.21 

Maintenance failures 

Risk Mitigation Strategy/Treatment: 

increase training, audit maintenance processes 

0.30 0.70 0.21 

Price increases 

Risk Mitigation Strategy/Treatment: 

Monitor bid prices monthly and prepare contingencies 

0.30 0.70 0.21 

loss of experienced asset management staff 

Risk Mitigation Strategy/Treatment: 

institute succession planning, training, mentoring 

0.30 0.70 0.21 

changing legislation 

Risk Mitigation Strategy/Treatment: 

Monitor legislation. inform legislators of impacts 

0.30 0.30 0.09 

economic downturn 

Risk Mitigation Strategy/Treatment: 

Monitor economic activity and plan contingencies 

0.30 0.30 0.09 

Public opinion 

Risk Mitigation Strategy/Treatment: 

sustain robust public information processes 

0.30 0.30 0.09 

environmental standards 

Risk Mitigation Strategy/Treatment: 

train staff to comply with standards. conduct audits. 

0.30 0.30 0.09 

lack of management support 

Risk Mitigation Strategy/Treatment: 

train mid-level staff. ensure compliance with taM. 

0.10 0.70 0.07 

Barge strikes to bridges 

Risk Mitigation Strategy/Treatment: 

install navigational warnings. 

0.10 0.70 0.07 

excess vehicular loadings 

Risk Mitigation Strategy/Treatment: 

Monitor truck weights on vulnerable routes. Urge enforcement. 

0.10 0.70 0.07 

Rising interest rates 

Risk Mitigation Strategy/Treatment: 

Monitor interest rates. time bond issues accordingly. 

0.10 0.30 0.03 

Flood 

Risk Mitigation Strategy/Treatment: 

install storm event gauges. countermeasures at scour-prone structures. 

0.10 0.30 0.03 

seismic events 

Risk Mitigation Strategy/Treatment: 

Develop contingency planning for detours, emergency repairs. 

0.01 0.70 0.01 

Figure 6. The risk register shows numeric risk rankings 

and also is color coded as a heat map. 
 40 Risk-Based Transportation Asset Management 41 

this simplified analysis illustrates the close alignment of risk 

management with strategic planning or performance management. even without a risk management framework, the 

agency may have identified these issues from the risk register as strategic priorities. the risk management framework 

walks the agency leadership through a formal process that 

allows it to evaluate and prioritize the risks and to place 

them in a nominal ranking. the ranking may be based upon 

the agency’s perceived risk and not upon more quantifiable 

risk but nonetheless it leads to a formal articulation of the 

strategic risks, the ranking of those risks and the treatment 

it identifies. as such, the risk register serves to reinforce the 

strategic planning process by clearly identifying the issues 

upon which the agency must concentrate in order to achieve 

its strategic asset management objectives. 

Communicating, Monitoring Strategic Risks 

Figure 1 from the iso guidelines also includes the elements 

of communication and consultation and Monitoring and 

Review of risks. it depicts them as dynamic ongoing processes. Much of the literature relating to management of 

strategic risk emphasizes that it is a continuous, dynamic 

process owned by the organization’s senior leadership. 

Because senior leadership is expected to promptly address 

strategic risks, risk management allows for the prompt 

reassessment of risks, the addition of new risks and the 

diminishing of old ones as circumstances change. in the risk 

register above, if a new environmental standard arises that 

could affect asset costs, the senior leadership could quickly 

reassess the risk, elevate it in the risk register, communicate 

that risk to internal and external stakeholders and continue 

to mitigate and monitor the risk. For instance, if the storm 

Risk-Based Transportation Asset Management 

run-off regulations change in a state and require the agency 

to significantly change its maintenance or drainage-design 

standards this could change the issue’s ranking in the risk 

register. such regulatory changes create risks of cost, 

regulatory non-compliance, loss of reputation and delay in 

projects that must be redesigned to accommodate new 

runoff requirements. such an issue can be quickly added to 

the register if it becomes a high strategic priority for the 

agency. another policy risk could be a legal decision or 

policy decision to quickly address sidewalk ramps to accommodate the americans with Disabilities act (aDa). such a 

change could be very costly and could directly affect capital 

program amounts. Failing to address the issue exposes the 

agency to reputational, regulatory and even legal risks. 

these examples illustrate the policy basis of strategic risk 

management. as kaplan noted the rapidly changing nature 

of some risks and the need for artful responses to them, 

mitigates against the use of standardized checklists to 

monitor strategic risks to assets. the monitoring of these 

risks requires constant assessment of the external environment and prompt response to it by the agency leadership. 

Risk management serves as a means for the agency to 

formally identify such risks, place them in a hierarchy of 

similar risks and articulate the agency’s response to them. 

this ranking also serves the function of communicating to 

the public, legislators and other stakeholders why the 

agency needs to make tradeoffs in one area to pay for other 

priorities. to need to invest in new storm-water control 

structures or sidewalk ramps requires the reduction in other 

capital spending, and perhaps an increased risk to other 

classes of assets. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 42 Risk-Based Transportation Asset Management 43 

conclusion 

a simple acid test for whether or not agency risk 

management is succeeding is to ask these questions. 

they have been modified to address a transportation 

agency’s physical assets: (xxi) 

◗◗◗What are the top 10 risks to our asset management 

objectives? 

◗◗◗Do we have a concise report that shows our risk
 

exposures and trends?
 

◗◗◗are we in compliance with internal asset management 

policies and external laws and regulations? 

◗◗◗Were the majority of our asset management failures 

anticipated in our risk reports? 

◗◗◗are we managing assets on a risk basis? 

Risk-Based Transportation Asset Management 

eNdNoTeS 

i lam, James, enterprise Risk Management” John Wiley
 

and sons, Hoboken, n.J. 2003, p.4
 

ii trieschmann
 

iii lam, p.48
 

iv Brady, Diane, general electric the immelt Way, Business 

Week, sept. 11, 2006, accessed at http://www.businessweek.com/magazine/content/06_37/b4000060.htm Feb. 

23, 2012. 

v iso and old management book 

vi Queensland Department of transport and Main Roads 

Risk Management organisational Policy 2011 p.6 

vii transport scotland Road asset Management Plan, 2007­

2009 accessed at http://www.transportscotland.gov.uk/ 

strategy-and-research/publications-and-consultations/ 

j9061-16.htm on Feb. 23, 2012 

viii PiaRc 

ix kaplan, Robert s. and anette Mikes, “Managing Risks: 

a new Framework, Harvard Business Review, June 2012, 

p.48
 

x add iso reference
 

xi get reference from asi report
 

xii get australian frameworks
 

xiii get new Zealand frameworks
 

xiv iso
 

xv iMa
 

xvi Highways agency Risk Management Policy & guidance,
 

2001 p.5 

xvii Maki 

xviii new south Wales treasury total asset Management 

Manual, appendix e, calculating Risk Factors, 2001 

xix get the kPi citation 

xx guideline Using the Risk Register, nsWRta, nov. 2009, 

pp 8-14 

xxi lam 44 
 44 Risk-Based Transportation Asset Management 

Additional information is available from the following: 

Nastaran Saadatmand 

asset Management Program Manager 

office of asset Management 

Federal Highway administration 

1200 new Jersey avenue, se 

Washington, Dc, 20590 

(202) 366-1337 

nastaran.saadatmand@dot.gov 

or 

Stephen gaj 

leader, system Management & Monitoring team 

office of asset Management 

Federal Highway administration 

1200 new Jersey avenue, se 

Washington, Dc 20590 

(202) 366-1336 

stephen.gaj@dot.gov 

office of asset Management 

Federal Highway administration 

Prepared by: 

gordon Proctor
 

gordon Proctor & associates, inc.
 

in association with:
 

shobna Varma
 

starisis corporation
 
office of asset Management 

Federal Highway administration 

1200 new Jersey avenue, se 

Washington, Dc 20590 

FHWA-HIF-12-054