Critical assets are those that are essential for supporting the social and business needs of both the local and national economy. These assets will have a high consequence of failure, but not necessarily a high likelihood of failure. These assets should be identified separately and assessed in greater detail as part of the asset management planning process.
By identifying critical assets, authorities can target and refine investigative activities, maintenance plans, and financial plans at the most crucial areas. Such assets may include special and major structures, such as estuarial crossings. Critical asset considerations may also include access to assets owned by third parties, such as substations, where access is via a single track road but accessibility is critical.
Criticality can be assessed by applying broad assumptions about the implications of failure, for example, whether the non-availability of a major structure or tunnel would have a significant impact on the local or possibly the national economy or whether higher trafficked roads are assumed to have a larger consequence of failure than lower trafficked roads. Using this approach, simple criteria can be defined to assess the loss of service. For example, the loss of use of a road may
Depending on the criticality of the asset, the risk management approach may be at a network level, by ensuring that diversions are available and have minimal impact; at an individual asset level; or at a detailed component level, with extensive consideration of failure modes.
The most commonly understood risks affecting the road service relate to safety. However, there are a wide range of other risks, and their identification and evaluation is a crucial part of the asset management process. Risks may include the following:
Risk Identification—in this step, the agency formally identifies the risks that could affect its objectives. These can be external, such as price changes, legislative actions, economic changes, extreme weather and climatic events, seismic events, or malevolent acts. Risks also can be internal, such as operational failures, data failures, conflicting internal program objectives, or a lack of trained personnel for key tasks. All risks are generally recorded in a formal risk register.
Risk Analysis—this step evaluates the probability of risk with its consequence. The calculation can be qualitative and based upon expert judgment, it can be quantified simply in a 1 to 10 scale, or it can be subject to complex mathematical modeling. Most such analyses are relatively simple. Regardless of the method used, the intent of this step is to understand the risks and their magnitude.
Risk assessment involves a determination of the likelihood and consequence of an event. Risk assessment allows the identified risks to be analyzed in a systematic manner to highlight which risks are the most severe and which are unacceptably high. An authority can then determine its level of exposure to the risk and the actions necessary to minimize that risk. An example of an assessment of the likelihood and consequence of a risk through a qualitative matrix approach is illustrated below.
Overall, risk is normally described as follows:
Risk = Likelihood × Consequence
Likelihood is the chance of an event happening, for example, a failure (asset as well as organizational) or service reduction. It can be measured objectively, subjectively, qualitatively, or quantitatively. It can be described using general or mathematical terms, such as frequency or probability. Issues to be considered include the following:
The likelihood of physical failure of an asset is related to the current condition of the asset, hence the importance of a realistic and accurate condition assessment. The likelihood of natural and external events is determined less easily, but scientific studies are usually available. The likelihood of other events, such as poor work practices or planning issues, can be difficult to ascertain.
Risk management is the framework to define the necessary treatments for the reduction of the different types of risk.
Risk Treatment—this decision making step applies what can be called the “five Ts”. These are to treat, tolerate, terminate, transfer, or take advantage of the risk. Although the steps are described as being distinct and separate, most manuals note that they tend to overlap and blend into each other. The steps of risk management occur within the context of continuous communication and consultation and continuous monitoring and review. The communication flows up and down the organization and into and out of it with stakeholders. Similarly, the monitoring occurs within the agency as well as outside it from oversight bodies, legislators, the media, and the public.
Risk Management—road authorities are required to manage a variety of risks at strategic, tactical, and operational levels. The likelihood and consequences of these risks can be used to inform and support their approach to asset management and inform key decisions regarding the performance of, investment in, and implementation of works programs. Successful implementation of the asset management framework requires a comprehensive understanding and assessment of the risks and consequences involved. Understanding risk enables the asset management process to address the issues identified.
A basic example of the consideration of risk is related to extreme weather events. All else being equal, programmatic decisions regarding projects should include risk and vulnerability analysis as one of the factors to consider as part of the asset management framework. Another illustration could be the case of an agency that has a well-crafted pavement program. The program relies on sound inventory data, good forecasting, methodical preventive maintenance, timely reactive treatments, and a well-balanced mix of pavement preservation, rehabilitation, and replacement. The agency has forecasted its program for the next five years and is confident it has developed a sound short-term and long-term pavement program that will achieve its short- and long-term performance targets. However, the risk of volatile construction prices creates a major program risk. If prices rise, the agency’s purchasing power will decrease and it will not be able to afford all the treatments it needs. If prices fall, it faces new opportunities to increase investments or achieve a higher level of service. A balanced risk management program would hedge against rising prices by methodically trying lower cost treatment innovations while closely monitoring construction prices. The degree of risk or uncertainty caused by price volatility would be documented, reported to stakeholders, and tracked as a risk to the department’s pavement objectives.
Understanding and management of risk is fundamental to effective asset management and should figure strongly in training and development programs for asset managers.