Enterprise Risk Management (ERM)

Minnesota Department of Transportation

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January 26, 2012

DOT has formal, published risk management policies and procedures at the program or project level 35 of the 43 state DOTs (81 percent) 17 (39 percent ) have formalized ERM programs.

How confident are state DOTs at applying appropriate risk management strategies at the various levels of the enterprise: none felt that their agency was always successful, twenty-six respondents (62 percent) felt that they frequently apply the

appropriate strategies, nine (21 percent) felt that they seldom applied the appropriate strategy, and eight (19 percent) felt that they never apply the appropriate strategies.

State DOT State-Of-The-PracticeSource: NCHRP Report 20-24(74) Executive Strategies for Risk Management by State Departments of Transportation (2011)

Relationship of Risk Management to Transportation Business ObjectivesSource: NCHRP Report 20-24(74) Executive Strategies for Risk Management by State Departments of Transportation (2011)

MnDOT Strategic Vision

Global leader in transportation committed to upholding public needs and collaboration with internal and external

partners to create a safe, efficient and sustainable transportation system for the future.

MNDOT defines risk as the effects of uncertainty on objectives; or anything that could be an obstacle to achieving goals and objectives.

Enterprise Risk Management (ERM) is an analytic and management process that ensures a focus on identifying, assessing, and responding to the inherent uncertainties of managing an organization and its assets.

Enterprise Risk Management

Organizational Risk

Management

Programmatic Risk

Management

Project Risk Management

Operations Risk

Management

Workforce Products and Services

Quality of Life Indicators

Performance Measures

Market Research

–Risk Assessment–Market Research–Performance Management–Quality of Life

Enterprise Risk Management Results in Integrated:

• Each Organizational Unit’s Mission Manages Broader Risk(s) to MnDOT’s Strategic Vision

• Focus is on strategic objectives and corresponding areas of highest enterprise risk and benefit

• Assessing tasks, human resource levels, structure, or any risks to organizational unit performance objectives

Organizational Congruency Risk Management

• Balanced program risk assessment• Assessment of broad system and quality of life

risks • Linkage of risks to performance measures (risk

tolerance levels) at district and state levels• Program investment levels mitigate risks• Rate of recovery approach (e.g., Better Roads)• Assessment of State Transportation

Improvement Program and 10-year outlook

Performance-based Program RM

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Managing Pavements through Risk ManagementPe

rcen

t of M

iles

in P

oor C

ondi

tion

Current Investment Level

Risk Based Investment Level(Rate of Recovery Approach)

Flat Investment Level(Specific Performance Target)

• Identify and manage risk of each transportation project

• Respond to risk levels to develop each project – Business Case – Scope– Delivery Method

• Leads to oversight levels and management plans• Adjust design and performance• Adjust resources

Project Risk Management

• Assessing risks to current Operations budgets • Multiple levels and core services, such as snow and ice

control

• Highway Systems Operations Plan (HSOP)– Challenged proposed funding levels for needs– Resulted in $189 million in proposed cuts – Recommended acceptance of more risk– Prioritized budget risks and will help future evaluations for

budget cut and increase scenarios– The #1 investment priority need with current budget is to

increase funding level for road salt due to price increases

Operations Risk Management

• Establish Risk Management Working Group – “Leadership Development” candidates– Business Unit Management liaisons from each

Division– Internal and External Consultants (staff

augmentation and subject matter experts)

Project Next Steps

• Integrate ERM with:– Existing Risk Management Practices

• Organization, Program, Project and Operations– Market Research and Quality of Life Data– Performance Management– MnDOT’s system for setting annual goals with

employees (Performance Management & Appraisal)

Next Steps, continued

• Future Phases of Action Plans; Communications– Identify gaps and opportunities based on risk– Prioritize greatest risks to the strategic vision & communicate– Produce and implement action plans (e.g. business plans) to mitigate enterprise risk

and close gaps outside of accepted “risk appetite” with target time-frames– Assess adequacy and effectiveness of existing risk reporting– Develop process for periodic reporting of emerging risks– Assess progress and benefits of ERM initiative against objectives and communicate

to target audiences– Continue organization-wide communication process with links to performance

appraisal to build risk management culture– Assess on-going resource needs post project completion

Next Steps, continued

Discussion and Questions

Thank You!

Jean Wallace, Director, Policy Analysis Research & Innovation

Jean.Wallace@state.mn.us

Eric Davis, ERM Project Manager

Eric.Davis@state.mn.us