ERM Presentation
Enterprise Risk Management (ERM) Project Aviation Division - Facility & Infrastructure and Maintenance Operations Audit Committee May 20, 2014 Prepared and Presented: Jeff Hollingsworth Lauren Smith Enterprise Risk Management (ERM) Project Aviation Division Facility and Infrastructure Operations Focusing on the Most Critical Risks to Facility and Infrastructure Operations Reviewed selected documents; conducted industry research Reviewed selected documents; Interviewed 10 Harbor Services representatives to identify key enterprise risks Reviewed goals, objectives and strategies Selected participants for the project (Dave/Katie) Facilitated risk identification workshop to identify key risks to goals/objectives (March 10, 2014 - In lieu of one on one interviews) Analyzed workshop notes to consolidate similar mentions of risk Defined risks, risk drivers, and risk mitigation activities Prioritized risks based on frequency of mentions Some risk drivers may apply to more than one risk Created Risk Register of Risk Definitions Conducted Risk Assessment Workshop Used impact and likelihood matrix Used voting software Present to Executives 5/9/14 Audit Committee on 5/20/14 Discuss Next Steps 1 Enterprise Risk Management (ERM) Project Aviation Division Facility and Infrastructure Operations Objectives/Strategies Limit growth of O&M costs to CAGR of 2.8% from 2012 to 2018; Reduce airline costs (CPE) as far as possible without compromising operational and capital needs. Meet all future electrical growth through conservation and renewable energy sources. Reduce airline costs (CPE) as far as possible without compromising operational and capital needs. Minimize life cycle capital and O&M costs. Operate a world class international airport by managing airport assets to minimize long term total cost of ownership. Develop a comprehensive computer based asset management system to anticipate airport and tenant needs. Operate a world class international airport by managing airport assets to minimize long term total cost of ownership. 2 Enterprise Risk Management (ERM) Project Aviation Division Facility and Infrastructure Operations Objectives/Strategies Grow continuous process improvement across Port by increasing the number of process improvements and increasing executive, staff, and craft participation. Continually invest in a culture of employee development, organizational improvement, and business agility. Operate all systems reliably, including electrical, mechanical, and communication systems to the benefit of our tenants and passengers. Operate a world class international airport by anticipating and meeting needs of tenants, passengers, and region's economy. Reduce greenhouse gases by 15% below 2005 levels by 2020. Lead the US airport industry in environmental innovation and minimize the airport's environmental impact. 3 Enterprise Risk Management (ERM) Project Aviation Division Facility and Infrastructure Operations Objectives/Strategies Operate a world class international airport by ensuring safe and secure operations for our employees, customers, and business partners. Improve overall safety of aircraft and vehicular movement measured by an increase in a composite annual score of 100 total possible points, ranking runway incursions, wildlife strikes, .. Operate a world class international airport by ensuring safe and secure operations. Continue to manage and renegotiate agreements with the City of SeaTac. Maintain valued community partnerships based on mutual understanding and socially responsible practices. 4 Risk Assessment & Prioritization Workshop Results Aviation Division Facility and Infrastructure Operations - Risk Ranking Process Initial Prioritization Based Upon Assessments of Impact and Likelihood Risk Ranking Matrix Risk Ranking Overview Risk Ranking provides an initial means of prioritizing Risk Map assessed risks based upon assessments of Impact and Likelihood Critical Risk Rankings are used to identify a risk's position on a Risk Map (see chart to left) Risk Ranking Calculation Steps Major Multiply the Impact assessment (on a scale of 1-9 with 9 being the highest impact and 1 being the lowest) and the Likelihood assessment (on a scale of 1-9 with 9 being the highest likelihood and 1 being the lowest) for each Impact risk Moderate Reference the product against a range of values (see Minor table below) Assign one of four risk rankings (Very High, High, Risk Rankings Medium or Low) based upon referenced range Insignificant Risk is ranked if the product of Impact & as Likelihood is VERY HIGH Greater than 42.0 Rare Unlikely Possible Likely Almost Certain HIGH Greater than 27.0, but less than 42.0 Likelihood MEDIUM Greater than 9.0, but less than 27.0 LOW Less than 9.0 5 RISK ASSESSMENT MATRIX AVIATION DIVISION FACILITY AND INFRASTRUCTURE OPERATIONS - RISK MATRIX LIKELIHOOD IMPACT TO AVIATION DIVISION Emergency Measure Description Description Financial Operational1 Reputation/Community Employees3 Environmental Prepare/Safety2 When voting, the overall combined impact should be considered on the areas identified above. Broad and sustained interruption to airport activities. Multiple people and key systems impacted. Full ALMOST CERTAIN recovery and return to normal operations will be gradual and over a long time period. Something Almost Critical already Certain Decisions and investments made in the present that will result in difficult and irreversible constraints in happening on a the future, that impact airport activities to include higher costs, less opportunity for revenue growth, and regular basis. less ability to meet other business strategies. LIKELY Broad and/or sustained interruption to or cessation of operations. Multiple people and/or key systems Something impacted. Full recovery and return to normal operations estimated to be long term. already happening on a Decisions and investments made in the present that to a degree may result in difficult constraints in the regular basis but Likely Major is sporadic in future, that impact airport activities to include higher costs and less opportunity for revenue growth. nature. POSSIBLE Impacts require sustained and/or complicated workarounds; some operations disrupted or cancelled. Recovery will take some time. Some people and key systems impacted. Something not happening currently, but Possible Moderate Decisions and investments made in the present that may result in future challenging constraints that anticipated to happen. could impact some airport activities and strategies. UNLIKELY Workarounds are relatively easily to implement and maintain. Few operations disrupted or cancelled. Recovery will take relatively little time. Fewer people and key systems impacted, and then only slightly. Something not happening but it Unlikely Minor could in very Decisions and investments made in the present do not pose significant threats that will impact airport infrequent cycles. activities in the future. RARE No impact or consequence that cannot be easily absorbed into daily operations. All key systems Something not remain fully functional. Today's investment decisions have no future impact. Rare happening and Insignificant not anticipated to happen. Table Notes: 1 Operational impacts are in three main areas: (1) Airline and concession tenants/Port's revenue (2) Slowing down the CIP (3) Effect on the traveling customers. 2 Safety to Port employees, our tenants, and the public or traveling customer 6 3 Impact on employee staffing and employee engagement Risk Assessment & Prioritization Workshop Results Aviation Division Facility & Infrastructure and Maintenance Risk Map Rank Risk Name/ Risk Definition Likelihood Impact Risk Ranking Aviation Division Facility & Infrastructure Heat Map RD-12 Record Master Drawings 8.00 7.33 58.6 1 RD-9 Localized Event/Disaster 6.58 8.00 52.6 2 RD-6 Reliable Infrastructure 6.83 7.25 49.5 9 3 6 12 RD-1 Growth of Costs/Long Term Cost 7.33 6.42 47.1 4 of Ownership 1 8 RD-11 Common Use Trash Recycling/ 7.25 6.25 45.3 11 5 Composting 2 4 RD-8 Relations with City of SeaTac 6.50 6.42 41.7 5 10 6 7 RD-2 Conservation Emphasis 6.67 5.83 38.9 Impact 7 6.67 5.58 37.2 8 RD-10 Asset Management System RD-5 Continuous Process 6.58 5.50 36.2 9 Improvement 5.75 5.83 33.5 10 RD-4 Airside Safety RD-7 Green House Gases 4.58 4.75 21.8 11 Likelihood Workshop participants assessed each risk on two criteria: The estimated likelihood of a risk's occurrence The estimated impact of a risk's occurrence on Aviation F&I and Maintenance ability to meet its strategic objectives The assessments of Impact and Likelihood are used to develop Risk Maps to focus management attention on the most critical risk risks. 7 Risk Definitions for Assessment & Prioritization Workshop Aviation Division Facility and Infrastructure Operations Risk Definition- RD-12 Lack of Master Record Drawings: Significantly impedes the ability to both prepare inexpensive designs of capital projects, and maintain projects afterward; and severely restrict ability to rapidly regain continuity of airport operations in emergency situations. Risk Drivers Existing Risk Management Activities Lack of record drawings Researching locations and places that benefit from master record as built drawings Overly reliant on a lack of enough people with institutional knowledge Note: Team to add additional mitigation efforts underway Designers utilize Port data/drawings to create their designs, which if the Port drawings are not correct or up to date, will create change orders thus creating extra costs. Designers paid to create as-built drawings; but, sometimes can't access these easily No master facility record 8 Risk Definitions for Assessment & Prioritization Workshop Aviation Division Facility and Infrastructure Operations Risk Definition- RD-9 Localized Event/Disaster: An unexpected event could create an unsafe and catastrophic condition for Port employees as well as airport tenants, partners, and passengers and employees and result in injury, property damage, and create delays (to a lesser degree) with respect to operations getting back to normal. Risk Drivers Existing Risk Management Activities Seismic even could cause significant damage; some On site generation (project planned; early phase) existing campus buildings may not be up to current Certain seismic improvements have been made or codes and standards, and no complete plan (to upgrade studied everything) Lack of emergency preparedness, continuity of Continuous ongoing training and new emergency operations, lack of training management staff to support preparedness Utility reliability (i.e. single source supplies) Jet A fuel availability due to single source of fuel in from Two source substations Olympic Pipeline to fuel farm Communication systems - PA Systems Voice Paging Plans to move forward with back-up power generation Evaluation (upgrading) and Radio 800 MHZ (upgrading) facilities on-site are 2 examples - in addition to other systems such as Emergency Preparation department new focus and computer and voice manager 9 Risk Definitions for Assessment & Prioritization Workshop Aviation Division Facility and Infrastructure Operations Risk Definition- RD-6 Reliable Infrastructure Systems: Demands on all systems could impact the reliability of electrical, mechanical, and communication systems in turn would impact airports tenants, partners, and passengers. Risk Drivers Existing Risk Management Activities Lack of power back up Baggage system optimizations Lack of ability to sub meter Working development of asset management plan Lack of master record drawings Development of well for water No comprehensive renewal plan for key systems Dual fuel capability of boilers Single source of domestic water Onsite generation to island airport (status 2 project) Single source natural gas feed to airport ERM meeting Inability to register and inspect aging assets rapidly (ex. Break of steam pipe joint) Communication systems don't have sufficient redundancy 10 Risk Assessment & Prioritization Workshop Results Aviation Division Facility & Infrastructure and Maintenance Risk Map Risk Definition- RD-1 Growth of O&M Costs & Minimize Long Term Cost of Ownership : Today's investments in capital projects will create future growth in required infrastructure and maintenance that, along with caring for earlier investments, will exceed the resources available to maintain these assets properly through their life cycle. Risk Drivers Existing Risk Management Activities Added facility sq. ft. in projects such as North Star and IAF Working toward a dedicated management liaison to large which will require more maintenance projects to champion for Total Cost of Ownership (starting/not in place fully yet) Selecting low cost maintenance systems during initial Freer use of sole source construction can result in more maintenance, at an earlier Find energy conservation opportunities life cycle stage. Construct systems and buildings that have lower life cycle cost (not consistently done new process not fully Inadequate human and financial resources to maintain developed, not clear how it fits decision matrix) assets through life cycle Revenue growth Preventative maintenance program to extend life cycle. Project teams do not consider total cost of ownership Gain maintenance capacity through CPI initiatives and technology Requirement for renewal/replacement of existing assets Utilize R&R program to reduce repair demand may drive up costs from what they should realistically be. Emphasize LCCA (Lifecycle cost analysis) on projects Could overtax existing resources and reduce customer service. 11 Risk Assessment & Prioritization Workshop Results Aviation Division Facility & Infrastructure and Maintenance Risk Map Risk Definition- RD-1 (Continued) Growth of O&M Costs & Minimize Long Term Cost of Ownership : Today's investments in capital projects will create future growth in required infrastructure and maintenance that, along with caring for earlier investments, will exceed the resources available to maintain these assets properly through their life cycle. Risk Drivers Existing Risk Management Activities Project teams during planning fail to consider future total costs of ownership Some work to update Port standards (but not enough) Port's bidding and procurement process focus on low bid, Best bid process is available, but not always used and it's difficult to use a sole source approach, even if it's Freer use of sole source; improvement over the years the best method identified. Trying to develop a life cost analysis template (NPV); Environmental benefits often not initially forecast in life runway light analysis is one example of using a NPV cycle projections approach. Not consistently used; not a standard Inconsistent use of Port standards by Port consultants approach being used now Disconnect between asset additions v. expense budgets Resources inadequate to appropriately maintain the assets through their lifecycle. Human and political judgment versus a financial analysis (NPV) that takes into account future costs which may impact future budgets ; not a standard and not consistently used (NPV analysis has been used) 12 Risk Definitions for Assessment & Prioritization Workshop Aviation Division Facility and Infrastructure Operations Risk Definition- RD-11 Common Use Trash/Recycling/Composting Infrastructure: Responsibility for the design, daily operation and maintenance of common use trash, recycling and composting facilities is not clearly defined. Risk Drivers Existing Risk Management Activities Trash, recycling and composting collection require Airport Environmental Programs, Airport Operations space for equipment near concessions locations, which and Facilities and Infrastructure play a role in facility is typically in short supply. and equipment design, siting and installation When equipment breaks down, debris builds up, Airport Operations plays a role in the daily operations causing health and safety issues of the facilities and equipment Delays in repairing equipment and cleaning the facilities Aviation Maintenance plays a role in ongoing increases unpleasant odors and the potential for pest equipment maintenance infestation (i.e. lengthy CPO process) Adding two new elevators in CTE As passenger volumes increase, additional infrastructure for larger facilities may be needed, or North Satellite updates in planning phase more frequent pick-ups will be required. Business Development / Concessions plays a role with Ownership of existing facilities and equipment is not tenants and concessionaires who utilize the equipment clearly defined Adding two new elevators Sponsorship for needed infrastructure upgrades is not clearly defined CPO process takes a long time 13 Enterprise Risk Management (ERM) Project Aviation Division Facility and Infrastructure Operations Items Open for Port Discussion Where does Port take ERM moving forward and what do we do with ERM results? ERM assessment versus performance audit Response to findings Mitigation efforts funding for Who is the audience for reporting ERM findings? Audit Committee versus Commission or both Division finance and budget Establish Roles & Responsibilities and Policies & Procedures What is the merit of establishing an ERM process and identify ERM roles and responsibilities Establish Initial Risk Reporting Framework Should formal reporting tools and approaches for ERM results be created? Define Risk Appetite and Tolerances Recommendation from Initial Consultants Formally define the Port's risk appetite and establish a consistent and documented approach to understanding risk drivers, risk management options, and governance for key risks 14 Appendix - Enterprise Risk Management (ERM) Project Aviation Division Facility and Infrastructure Operations The Port of Seattle representatives who participated in the ERM Project are listed below . Dave Soike, Senior Manager Steve Rybolt, Environmental Management Specialist 2 Stuart Mathews, General Manager Aviation Katie Blair, Assistant Jennifer Mims, Senior Manager, Aviation Maintenance Asset & Logistics Goran Versegi Senior Aviation Infrastructure Engineer Gary Richer, Senior Manager, Aviation Maintenance Luisa Bangs, Senior Manager, Aviation Maintenance Trevor Emtman, Utility Business Manager Mike Smith, Airport Facilities and Infrastructure Systems Manager Wendell Umetsu, Airport Facilities and Infrastructure Systems Manager Jeff Ganges, Fire Marshall, Fire Protection Engineer Tina Soike, Chief Engineer Engineering CDD 15 Enterprise Risk Management (ERM) Project Aviation Division Facility and Infrastructure Operations Appendix I Past ERM Heat Maps From Prior Studies Harbor Services 2010 ICT 2011 Cruise Operations 2012 16 Enterprise Risk Management (ERM) Pilot Project Results Harbor Services Enterprise Risk Map Harbor Services: Enterprise Risk Map Rank Risk Name Risk Ranking 1 Land Use / Zoning* 53.20 2 Environmental Regulations 50.25 3 Political Relations 49.40 4 Maintenance* 43.55 2 5 Commercial Fishing Industry 42.84 11 1 6 5 6 Access to Capital* 40.12 8 4 3 12 10 7 Internal Port Support Services 38.64 13 18 7 8 Strategic Business Model 37.05 14 9 19 9 Litigation 35.88 16 20 10 Legal & Regulatory Compliance* 35.28 17 15 11 Natural Disasters, Cat. Events and Business Continuity 30.24 12 Economy 29.61 Impact 13 Competition 27.60 14 Public Relations 27.00 15 Budgeting 22.79 16 Employee Costs 19.11 17 Marketing 18.92 18 Customer Service 18.81 Likelihood 19 Safety & Security 18.36 20 Hiring & Retention 17.28 Note: Risks are listed in the order of Risk Ranking; additional information for each risk can be found in the detailed risk overviews * Risk Action Plans including Assignment of Risk Owners was done during the workshop. Risk Action Planning templates are included in this deck for the selected risks 17 Risk Assessment & Prioritization Workshop Results Information and Communications Technology Enterprise Risk Map ICT Enterprise Risk Map Rank Risk Name Risk Ranking 1 Decentralized Systems 65.78 2 Internal Port Processes 63.11 3 ICT Budget 50.03 13 11 4 Complexity and Volume of Systems 49.28 1 10 5 Leadership 48.41 2 3 6 Roles and Responsibilities 48.19 7 5 6 4 8 7 Contracting 47.53 12 15 8 9 Change Management/Employee Engagement 43.76 14 9 Staffing 43.29 Impact 16 10 Compliance 41.33 11 Security 40.91 12 Workload 39.76 13 Natural or Manmade Disasters 33.84 14 Enterprise Technology Strategy 32.60 15 ICT Department Leadership 31.97 16 Technology Marketplace 31.10 Likelihood 18 Risk Assessment & Prioritization Workshop Results Seaport Cruise Operations Enterprise Risk Map Cruise Operations Enterprise Risk Map Rank Risk Name Risk Ranking 1 RD-11 Costs 40.70 2 RD3 - Environmental Constraints 37.12 10 3 RD5 - Increase of Maintenance Costs 33.92 7 4 RD1 - Future Investments 32.33 1 5 RD7 - Cruise Lines Reduce Operations 31.74 6 5 6 RD6 - Demand for Cruise Goes Down 31.50 3 2 7 RD9 - Localized Event/Disaster Shuts Down Facilities 27.20 8 RD8 - Port Facilities Cannot Accommodate Increased Demand 26.00 4 8 9 RD2 - Seasonal Constraints 24.75 Impact 11 9 10 RD10 - Area Wide Disaster 22.62 11 RD4 - Lack of Regional Support for Cruise 20.58 Likelihood 19 Risk Assessment & Prioritization Workshop Results Aviation Division Facility & Infrastructure and Maintenance Risk Map Rank Risk Name/ Risk Definition Likelihood Impact Risk Ranking Aviation Division Facility & Infrastructure Heat Map RD-12 Record Master Drawings 8.00 7.33 58.6 1 RD-9 Localized Event/Disaster 6.58 8.00 52.6 2 RD-6 Reliable Infrastructure 6.83 7.25 49.5 9 3 6 12 RD-1 Growth of Costs/Long Term Cost 7.33 6.42 47.1 4 of Ownership 1 8 RD-11 Common Use Trash Recycling/ 7.25 6.25 45.3 11 5 Composting 2 4 RD-8 Relations with City of SeaTac 6.50 6.42 41.7 5 10 6 7 RD-2 Conservation Emphasis 6.67 5.83 38.9 Impact 7 6.67 5.58 37.2 8 RD-10 Asset Management System RD-5 Continuous Process 6.58 5.50 36.2 9 Improvement 5.75 5.83 33.5 10 RD-4 Airside Safety RD-7 Green House Gases 4.58 4.75 21.8 11 Likelihood Workshop participants assessed each risk on two criteria: The estimated likelihood of a risk's occurrence The estimated impact of a risk's occurrence on Aviation F&I and Maintenance ability to meet its strategic objectives The assessments of Impact and Likelihood are used to develop Risk Maps to focus management attention on the most critical risk risks. 20 Enterprise Risk Management (ERM) Project Aviation Division Facility and Infrastructure Operations Appendix II Individual Heat Maps and Scoring for Each Risk Definition 21 Risk Assessment & Prioritization Workshop Results Aviation Division Facility & Infrastructure and Maintenance Risk Map RD-12 Lack of Master Record Drawings: Risk Score = 58.64 Likelihood Mean Score: 8.00 9 4 Risk Map 5 - Critical 2 1 Possible 0 12 0 Major Unlikely 0 0 Rare 0 Moderate 0 5 10 15 20 25 Impact Impact Mean Score: 7.33 Minor Critical 2 Insignificant 4 Major 3 2 Moderate 1 Rare Unlikely Possible Likely Almost Certain 0 Minor 0 Likelihood 0 Insignificant 0 0 5 10 15 20 25 22 Risk Assessment & Prioritization Workshop Results Aviation Division Facility & Infrastructure and Maintenance Risk Map RD-9 Localized Event/Disaster: Risk Score = 52.64 Likelihood Mean Score: 6.58 9 0 Risk Map Almost Certain 3 - 3 Critical Likely 4 Possible 2 9 - 0 Major Unlikely 0 - 0 Rare 0 Impact Moderate 0 5 10 15 20 25 Minor Impact Mean Score: 8.00 Critical 5 Insignificant 2 Major 5 0 Moderate 0 Rare Unlikely Possible Likely Almost Certain 0 Minor 0 0 Likelihood Insignificant 0 0 5 10 15 20 25 23 Risk Assessment & Prioritization Workshop Results Aviation Division Facility & Infrastructure and Maintenance Risk Map RD-6 Reliable Infrastructure Systems: Risk Score = 49.52 Likelihood Mean Score: 6.83 9 1 Risk Map 4 - 2 Critical 3 Possible 1 1 6 Unlikely 0 0 Major Rare 0 0 5 10 15 20 25 Impact Moderate Impact Mean Score: 7.25 Minor Critical 3 2 Major 3 Insignificant 3 Moderate 1 0 Minor 0 Rare Unlikely Possible Likely Almost Certain 0 Insignificant 0 Likelihood 0 5 10 15 20 25 24 Risk Assessment & Prioritization Workshop Results Aviation Division Facility & Infrastructure and Maintenance Risk Map RD-1: Growth of O&M Costs :& Minimize Long Term Growth of Ownership: Risk Score = 47.06 Likelihood Mean Score: 7.33 Risk Map 9 2 Critical Almost Certain 4 - 4 Likely 0 Possible 2 Major - 0 1 Unlikely 0 - 0 Impact Moderate Rare 0 0 5 10 15 20 25 Minor Impact Mean Score: 6.42 Insignificant Critical 0 - 1 Major 5 Rare Unlikely Possible Likely Almost Certain - 4 Moderate 2 - 0 Likelihood Minor 0 - 0 Insignificant 0 0 5 10 15 20 25 25 Risk Assessment & Prioritization Workshop Results Aviation Division Facility & Infrastructure and Maintenance Risk Map RD-11 Common Use Trash/Recycling/Composting/Infrastructure: Risk Score = 45.31 Likelihood Mean Score: 7.25 Risk Map 9 1 4 Critical - 4 3 Possible 0 0 Major Unlikely 0 11 0 Rare 0 Moderate 0 5 10 15 20 25 Impact Minor Impact Mean Score: 6.25 Critical 0 Insignificant 2 Major 2 5 Moderate 3 Rare Unlikely Possible Likely Almost Certain 0 Minor 0 0 Likelihood Insignificant 0 0 5 10 15 20 25 26
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