NCHRP Project 08-36
Proposed Research Problem Statement
1. Title
Successful Implementation of Enterprise Risk Management in State Transportation Agencies
2. Background
To be successful, transportation executives, administrators, and managers must coordinate a
multitude of human, organizational, technical, and natural resources and manage a high number
of diverse and complex risks. In fact, transportation agencies face unique sociopolitical and
technical risks such as civil rights, right-of-way acquisition, safety, and access management that
make enterprise risk management (ERM) critical to the efficient use of public resources (CAS
2003). As we move into an era of performance-based management, having an established
process that further defines the risk to that success is critical. As such, EMR can be defined as
the consistent application of techniques to manage the uncertainties surrounding the achievement
of an organization’s objectives (Berry and Phillips 1998). Organizations with mature ERM
programs have noted that the use of ERM helps to avoid risks from being managed multiple
times by different functions within the department and reduces the volatility of an organization’s
entire risk portfolio (Muelbroek 2002; Hoyt et al. 2008). Pockets of excellence in ERM exist
throughout state transportation agencies but its use is not yet consistent or pervasive.
3. Statement of Urgency
Exploratory research (NCHRP 20-24(74)) showed that only 13 of the 43 state DOTs surveyed
have formalized ERM programs. This study found that formal ERM tools exist and are adding
value to those agencies that are using them. Additionally, a 2011 FHWA study identified
international ERM best practices that demonstrate value by using risk analysis tools with asset
management practices and performance management. National guidance through Transportation
Research Board research initiatives and American Association of State Highway Transportation
Official knowledge transfer will be essential to the long-term success of risk management in the
transportation sector.
4. Project Objective(s)
The primary aim of this project is to identify, analyze, and describe the qualities of successful
implementation of ERM in transportation agencies through detailed case studies. To achieve this
aim, the following objectives will be targeted:
a) Identify cases where agency-level risks have been effectively identified and managed
using ERM;
b) Describe the factors that contributed to successful implementation of ERM;
c) Identify how the culture of ERM was incorporated through all levels of the organization.
d) Capture the lessons learned and best practices associated with ERM; and
e) Share new knowledge with stakeholders and develop the basis for a future ERM maturity
model.
5. Relationship to Existing Body of Knowledge
Although mature ERM programs are rare, there have been several case studies of successful
organizations. For example, Meulbroek (2002) discussed how Microsoft utilized ERM to handle
sudden market fluctuations and decrease operating costs and Gates (2006) described how
Terasen, a Canadian energy company, uses ERM to reduce revenue volatility, effectively use
available capital, and evaluate human resource risk. These studies showed that strong, unified
support from senior management is critical to successful implementation of an ERM and that a
major barrier to ERM implementation is the inability of analysts to adequately identify and
accurately quantify risks. To enhance potential for success, the Committee of Sponsoring
Organizations (COSO) suggests a top-down risk management approach that prevents the
organization from being exposed to a single systemic risk and risk management policies that help
shift employees’ mindsets from a unit or project-level risk management approach to an
organization-wide strategy that allows for risk syndication.
Despite the growing body of knowledge in the private sector, there is only one study of ERM
in the public transportation sector (NCHRP 20-24(74)). As previously mentioned, this
exploratory study focused on benchmarking implementation, identifying key characteristics of
mature organizations, and evaluating the role that ERM plays in the achievement of
transportation agency objectives. The present study would build directly upon this body of
knowledge and would make important advancements by identifying the specific strategies that
have been successfully employed by the transportation agencies with the most mature ERM
programs to manage high priority risks. These success stories can be used to inspire confidence
in agencies with less mature ERM programs and to increase their initial probability of success.
6. List of Anticipated Work Tasks
To achieve the aforementioned research objectives the following specific tasks will be
performed:
Task 1 - Conduct interviews with representatives from state transportation agencies that are
known to have the most mature ERM programs (identified in NCHRP 20-24(74)) to identify
cases of successful use of ERM strategies to manage high-level agency risks (e.g., project
selection, safety, material price escalation, fleet management).
Task 2 - Perform detailed case studies of the 4 to 6 most successful ERM cases. The unit of
analysis will be the agency-level risk that was managed to identify the: traditional method of risk
management that were formerly implemented; supportive agency management strategies;
organizational processes and structural elements that facilitated successful transition; roles and
responsibilities of key personnel; lessons learned and strategies for continuous improvement; and
other elements that contributed to success.
Task 3 - Analyze case study results to match patterns across successful cases. The patterns
will then be used to form recommendations, which will be reviewed by an expert panel
comprised of executive representatives of agencies with mature ERM programs.
Task 4 - Write a white paper for each case study and a summary report that focuses on the
successful implementation of ERM in state DOTs and other transportation agencies that focuses
on the lessons learned in successful cases.
7. Estimate of Funds Needed
$100,000
8. Estimate of Time Needed to Complete the Research
9. Name, Affiliation and Contact Information of Submitter(s)
12 months
Mike Hancock, Secretary of the Kentucky Transportation Cabinet and Chair of the AASHTO
Standing Committee on Planning
Office of the Secretary
Kentucky Transportation Cabinet
200 Mero Street
Frankfort, KY 40622
Phone: 502-564-5102
Tim Henkel, Assistant Commissioner Minnesota Department of Transportation and Vice
Chair of the AASHTO Standing Committee on Planning
395 John Ireland Boulevard
Mail Stop 120
St. Paul, MN 55155-1899
651-366-4829
10. Date of Submittal
March 31, 2012
11. References
Berry, A. and Phillips, J. (1998). “Enterprise Risk Management: Pulling it Together.” Risk
Management, 45(9): 53-58.
(CAS) Enterprise Risk Management Committee. (2003). “Overview of Enterprise Risk
Management.” Causality Actuarial Society.
Gates, S. (2006). “Incorporating Strategic Risk into Enterprise Risk Management: A Survey
of Current Corporate Practice.” Journal of Applied Corporate Finance, 18(4): 81-90.
Hoyt, R.E., Moore, D.L., and Liebenberg, A.P. (2008). “The Value of Enterprise Risk
Management: Evidence from the U.S. Insurance Industry.” Society of Actuaries,
Schaumberg, Illinois.
Meulbroek, L.K. (2002). “A Senior Manager’s Guide to Integrated Risk Management.”
Journal of Applied Corporate Finance, 14(4): 56-70.
National Cooperative Research Program (2011). “Executive Strategies for Risk Management
by State Departments of Transportation,” NCHRP Project 20‐24(74), National
Cooperative Research Program, Transportation Research Board of the National
Academies, Washington, DC, 2011.