**12. Caltrans enterprise risk management**

Although the term of enterprise risk management (ERM) is not new, Caltrans started looking into its current process for doing business. The nature of risk management is intimately related to Caltrans functional units. Program Project Management, Construction, Environmental, Design, Right of Way and Surveys are the most representative functional divisions existing at Caltrans. Each division plays a role with the project delivery process;

usually representatives of each division formed the project development team (PDT) which has the responsibility of carried on the project since the initial phase until the closeout.

Project and Enterprise Risk Management at the California Department of Transportation 427

of the common risk sources (corporate, programmatic, project and operations); other variables such the quality of life indicators, market research and performance measures are included. These variables have a direct impact into the risk sources, which at the end could

Risk management has to be implemented for projects or within projects, but this is only the first step. Risk management means a change of doing business. For that reason, the culture of implementing Risk management should be brought by the executives and the company's policies. Risk management has evolved into the "Enterprise Risk Management" (see Figure 14).

This new methodology explains that there are different philosophies about risk management with their own methods and focus; these are normally classified in four different types.

ERM is in charge to unify all this philosophies and confer the determination of one whole risk in a corporation. One of the most important topics handled by the ERM is the determination of the Risk Appetite. The Risk Appetite is: "the quantum of risk that the firm

In order to propitiate the ERM in every company, the standard "ISO 31000:2009 Risk management - Principles and guidelines" is a comprehensive guide of how companies should implement a formal risk management process. It sets out principles, a framework and a process for the management of risks that are applicable to any type of organization in public or private sector. It does not mandate a "one size fits all" approach, but rather emphasizes the fact that the management of risk must be tailored to the specific needs and structure of the particular organization. It depends at the end of the company's desire to be

influence the results and benefits of risk management.

**Figure 14.** Risk Management evolution (Protiviti, 2006)

the Risk Silo Management (Operational Risks),

 the Integrated Risk Management (Economic and Capital Risks), the Risk and Value Management (Management and Performance) and the Strategic Risk Management (Senior Management and Strategical Risks),

is willing to accept within its overall capacity" (Barfield, 2008).

competitive and willing to manage proactively risks and opportunities.

Caltrans has four major risks. These are project risk, program risk, operations risk, and organizational risk. Taken together, management of these components constitutes a Department-wide Risk Management Strategy. In some organizations, this is known as "Enterprise Risk Management." Each of these risk components relate directly to the different types of the work performed by the Department's functional areas. For example, project risk is related to the project delivery process; those things that, if they occurred, could impact a project's schedule, cost, or scope. Project Delivery staff can assess and take intelligent risks in delivery because taking intelligent risks fosters innovation and responsible decision-making. But, at the same time, Caltrans needs to follow its project-related processes and controls to manage that risk. Caltrans must monitor the quality of our performance over time, and evaluate any deficiencies and adjust our processes accordingly. Actively incorporating the concept of Risk Management into Caltrans's programs and activities is a dynamic process and must be constantly evaluated and adjusted to meet the strategic goals of the Department.

According to the Minesota Department of Transportation (MnDOT, 2012), ERM is a risk-based approach to managing an enterprise, incorporating concepts of internal control, planning and budgeting. It addresses the needs of various stakeholders who want to understand the broad spectrum of risks facing complex organizations so they can be appropriately managed.

**Figure 13.** Enterprise Risk Management System (MnDOT, 2012)

The ERM at the Minesota Department of Transportation (Figure 13) is a clear example of how risk management can evolve for an organization. It is important to notice that outside of the common risk sources (corporate, programmatic, project and operations); other variables such the quality of life indicators, market research and performance measures are included. These variables have a direct impact into the risk sources, which at the end could influence the results and benefits of risk management.

Risk management has to be implemented for projects or within projects, but this is only the first step. Risk management means a change of doing business. For that reason, the culture of implementing Risk management should be brought by the executives and the company's policies. Risk management has evolved into the "Enterprise Risk Management" (see Figure 14).

**Figure 14.** Risk Management evolution (Protiviti, 2006)

426 Risk Management – Current Issues and Challenges

usually representatives of each division formed the project development team (PDT) which has the responsibility of carried on the project since the initial phase until the closeout.

Caltrans has four major risks. These are project risk, program risk, operations risk, and organizational risk. Taken together, management of these components constitutes a Department-wide Risk Management Strategy. In some organizations, this is known as "Enterprise Risk Management." Each of these risk components relate directly to the different types of the work performed by the Department's functional areas. For example, project risk is related to the project delivery process; those things that, if they occurred, could impact a project's schedule, cost, or scope. Project Delivery staff can assess and take intelligent risks in delivery because taking intelligent risks fosters innovation and responsible decision-making. But, at the same time, Caltrans needs to follow its project-related processes and controls to manage that risk. Caltrans must monitor the quality of our performance over time, and evaluate any deficiencies and adjust our processes accordingly. Actively incorporating the concept of Risk Management into Caltrans's programs and activities is a dynamic process and must be constantly evaluated and adjusted to meet the strategic goals of the Department. According to the Minesota Department of Transportation (MnDOT, 2012), ERM is a risk-based approach to managing an enterprise, incorporating concepts of internal control, planning and budgeting. It addresses the needs of various stakeholders who want to understand the broad

spectrum of risks facing complex organizations so they can be appropriately managed.

The ERM at the Minesota Department of Transportation (Figure 13) is a clear example of how risk management can evolve for an organization. It is important to notice that outside

**Figure 13.** Enterprise Risk Management System (MnDOT, 2012)

This new methodology explains that there are different philosophies about risk management with their own methods and focus; these are normally classified in four different types.


ERM is in charge to unify all this philosophies and confer the determination of one whole risk in a corporation. One of the most important topics handled by the ERM is the determination of the Risk Appetite. The Risk Appetite is: "the quantum of risk that the firm is willing to accept within its overall capacity" (Barfield, 2008).

In order to propitiate the ERM in every company, the standard "ISO 31000:2009 Risk management - Principles and guidelines" is a comprehensive guide of how companies should implement a formal risk management process. It sets out principles, a framework and a process for the management of risks that are applicable to any type of organization in public or private sector. It does not mandate a "one size fits all" approach, but rather emphasizes the fact that the management of risk must be tailored to the specific needs and structure of the particular organization. It depends at the end of the company's desire to be competitive and willing to manage proactively risks and opportunities.

Caltrans` goal towards ERM is related directly to its current position as a leader in the United States in the field of transportation projects. Caltrans expects to implement ERM in a near future with the intention of reinforcing its project and business processes.

**Chapter 19** 

© 2012 Banaitiene and Banaitis, licensee InTech. This is an open access chapter distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

© 2012 Banaitiene and Banaitis, licensee InTech. This is a paper distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use,

distribution, and reproduction in any medium, provided the original work is properly cited.

**Risk Management in Construction Projects** 

The financial and economic crisis has had an adverse impact on the Lithuania's economy and construction industry. The GDP of Lithuania grew slightly in 2010, in contrast to a decrease of 14.7% in 2009. Lithuania's GDP increased from 1.3% in 2010 to 4.6% in 2011. Annual GDP growth decreased from its highest point of 6.7%, reached in the third quarter, to 4.4% in the last quarter of 2011 [1,2]. Some industries, such as construction; trade, transport and communications; and the industry sectors were most affected by the crisis. In 2010, the gross value added within the construction sector decreased by 43.3%, and in the trade, transport and communications sector – by 16.6%. In 2011, a positive change in the gross value added was observed in all groups of economic activities. The largest growth in the gross value added was observed in enterprises engaging in construction (by 15%) and trade, transport and communication services (7.3%) [1,3]. The construction sector, one of the engines of economic growth in Lithuania over the last decade, is now facing with serious challenges as companies' closures, rising unemployment, and postponed or even cancelled investments. These events also have changed the clients' and construction companies' behaviour. A reduced demand and shortage of orders dramatically increased a competition between companies of the construction sector. This increased pressure to improve quality, productivity and reduce costs, and the need for project strategies and management that can

Risk management is one of the nine knowledge areas propagated by the Project Management Institute [4]. Furthermore, risk management in the construction project management context is a comprehensive and systematic way of identifying, analyzing and responding to risks to achieve the project objectives [5,6]. The benefits of the risk management process include identifying and analyzing risks, and improvement of

Construction projects can be extremely complex and fraught with uncertainty. Risk and uncertainty can potentially have damaging consequences for the construction projects [7,8].

construction project management processes and effective use of resources.

Nerija Banaitiene and Audrius Banaitis

http://dx.doi.org/10.5772/51460

**1. Introduction** 

Additional information is available at the end of the chapter

appropriately and effectively manage project risk.
