There is a beneficial and affordable way to supplement the generic, FHWA asset management process to fully serve the needs of the Responsible Infrastructure Steward. Like the generic process, the enhanced process is applicable in any organization that wants an organized, logical approach for systematically and cost-effectively maintaining, upgrading, and operating physical assets.

The enhancement adds capability and a toolset to establish clear, credible, and timely links between asset condition/performance and the organization’s business/mission goals. Such links give decision makers the means to apply due diligence and proper weight to aging infrastructure needs in organization-wide resource allocation decisions. The links also make for goal-supporting decisions in selecting which projects to execute with scarce allocated resources.

The generic FHWA process helps to identify the consequences to the assets of deferring repair of the assets, but stops short of using that information to communicate the impact of the condition and performance of assets on the organization’s business, mission, and safety. Focus of the generic process is on the condition and performance of the assets, per se, while enhancing the generic process expands the focus to a broader range of considerations of greater immediate interest and concern to decision makers outside the asset management world.

Process enhancement is accomplished by taking advantage of the growing board room interest in “Operational Risk Management (ORM).” Risk-basing the generic process with Operational Risk Management involves integrating specifically-designed tools for producing outcomes to foster top management’s support in the financial arena, while achieving all the asset management goals of the generic process.

The term “Operational Risk” has different meanings in different fields of endeavor. The particular meaning having relevance to meeting the goals of FHWA’s process is::

“potential business (or mission) disruption, personal injury, death, or property damage caused by a component of an infrastructure asset that fails, either functionally or physically, due to normal physical deterioration.”

Within our relevant meaning, the Operational Risk of a particular asset’s component (e.g. a fire station door) can be expressed as a mathematical product of probability of the component’s failure multiplied by the severity of the failure’s impact on business, mission, life safety, or other property. The product of probability multiplied by severity for a given component is called the component’s Operational Risk Index or “ORI.”

For purposes of this calculation, the measure of failure probability is derived from the component’s condition index as determined by visual inspection according to US Army Corps of Engineer (USACE) procedures. And the measure of impact severity is the component’s Asset Priority Index as calculated, in part, with the Mission Dependency Index (MDI) of the asset to which the component belongs and, in part, with the Component’s Importance Index (CII), which is assigned per USACE procedures.

I’ll now walk you through the generic process, indicating how each step can easily and affordably be risk-based. The generic process appears on the left of the screen and a risk-based supplemental action for each, successive generic step appears on the right.

FHWA Step 1- Goals & Policies
The first generic step is to establish performance expectations, consistent with goals, available budgets, and organizational policies. Such goals and policies are used to guide other steps of the analytical process, as well as the decision-making framework. Risk-basing this step involves determining top managers’ risk appetites for business disruption and converting those tolerances into decision rules for using the Operational Risk Index in other process steps. The primary decision rule is setting a maximum tolerable Operational Risk Index for each asset type in the inventory.

FHWA Step 2 - Asset Inventory

The second generic step involves collection and analysis of asset inventory information. This information also provides input to other process steps. Risk-basing this step involves calculating an Asset Priority Index (API) for each asset component and tagging it to the component in the asset inventory database for use in subsequent process steps.

The data needed to calculate API are gathered in one-time, structured interviews with selected top managers, asset users, and asset managers. Interviews are conducted and APIs calculated in accordance with procedures developed jointly by the Navy, Coast Guard, and NASA and subsequently endorsed by the Army, General Services Administration, and APPA. Interviews and data manipulation are straightforward and cost is minimal.

FHWA Step 3 - Condition Assessment & Performance Monitoring
The next generic step is collection and analysis of asset condition and performance information. This information also provides input on subsequent process steps. Risk-basing this step involves conducting physical inspections and calculating condition indexes and component failure probabilities in accordance with procedures developed by the US Army Corps of Engineers. Cost of on-going inspections is a small fraction of traditional condition inspection cost and results are more reliable.

The final act of risk-basing the condition assessment step is calculating an “Operational Risk Index”  for each component in the asset inventory database and tagging it to the component in the asset inventory database for use in subsequent process steps.
As previously noted, ORI for a given component is calculated by multiplying a component’s failure probability by its Asset Priority Index, which were both tagged to the component in previous process steps.

FHWA Step 4 - Alternatives Evaluation & Program Optimization

The next generic step is to apply analytical tools and reproducible procedures to produce viable cost-effective strategies for allocating budgets to satisfy agency needs and user requirements, using performance expectations as critical inputs. To risk-base this step, each candidate project, is tagged with a benefit/cost indicator called “Operational Risk Mitigation Index.”  The numerator of this index is equal to the expected improvement in the component’s ORI as a result of project execution and the denominator is equal to the project’s estimated cost.

FHWA Step 5 - Short and Long Range Plans (Project Selection)

Generically, the next step evaluates alternative project choices, consistent with long-range plans, policies, and goals. Risk-basing involves selecting from the list of all candidate projects those projects which eliminate unacceptable risk (exceeding top management’s risk appetites for existing ORI) and choosing the combination of those remaining projects that maximizes the sum total “Operational Risk Mitigation Index” of all selected projects within the budget constraint.

This is accomplished by selecting a single, portfolio-wide ORI above which the risk of business disruption is unacceptable for any reason (say, 80) and funding all projects with ORI equal to or exceeding this value. If available funds are insufficient, the target ORI must be raised until it becomes possible to fund all projects with ORI greater than this new value.

After funding projects with ORIs exceeding the threshold of “unacceptable risk,” select the combination of remaining projects that maximizes the sum total “Operational Risk Mitigation Index” of all selected projects within the residual budget constraint. This is done by running a program such as Microsoft Excel Solver on the remaining projects.

FHWA Step 6 - Program Implementation
Gain upper management approval and funding of selected projects.

FHWA Step 7 - Performance Monitoring (Feedback)
The entire process is reevaluated annually through performance monitoring and systematic processes.

Using Operational Risk-based Infrastructure Asset Management, an organization can strengthen the credibility of its repair and replacement backlog by basing project deferral decisions on objective and repeatable analyses and broad views of the entire organization rather than on the subjective opinions and limited perspectives of tradesmen and engineers. Likewise, the organization can improve the quality of resource allocation decisions by structuring those decisions to minimize risk of business disruption rather than to just backlog reduction or condition improvement. Most importantly, organizations that use this method can anticipate breakdowns, reduce mishaps, lower costs, and provide for more efficient use of resources.

Operational Risk-based Infrastructure Asset Management will directly enhance communication between organizational entities and top managers regarding facility condition and impact of funding decisions. Enhanced communications will result in better resource allocation decisions, and better decisions, in turn, will improve the physical condition and reliability of the organization’s real property assets.
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Last Modified 21 August 2010
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