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The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By J. Woody Stanley, Michael Graf and Daniel Fodera
April 11, 2017
DISCLAIMER: The ideas and opinions expressed in this paper are solely those of the authors and do not necessarily represent the views of the Federal Highway Administration or the U.S. Department of Transportation.
Government agencies continually face the challenge of addressing complex societal problems with constrained resources. Among Federal agencies, strategic planning is a common practice that helps agency leaders identify their priorities and improve performance. While strategic planning does not guarantee they will foresee all future events and issues, a risk based strategic planning process is more likely to highlight emergent trends and, as a result, agency managers are better positioned to face an uncertain future. The consideration of acceptable threats and transformative opportunities strengthens strategy making and increases the value of strategic plans to agency decision makers. In addition, the integration of the strategic planning and risk management processes provides a mechanism for decision makers to use resources more wisely to meet agency strategic goals and objectives.
In 2016, the Office of Management and Budget (OMB) released a memorandum requiring managers in Federal government agencies to extend the use of risk management practices to a broad set of program and management functions including strategic planning. This new requirement comes as agencies are implementing recent reforms to OMB Circular A-11 guidance, which directs large Federal agencies to update their strategic goals and objectives at the beginning of a new presidential administration. As a result, strategic planners must decide how best to integrate these two management processes as they begin to review and update their agency strategic plans for Fiscal Year (FY) 2018-2022.
Strategic planning practices in the Federal Highway Administration (FHWA) have evolved during the past 20 years alongside efforts in the U.S. Department of Transportation to meet the requirements of the Government Performance and Results Act (GPRA) of 1993 and the GPRA Modernization Act of 2011. At the same time, FHWA began using a risk management approach to better manage resources at the project and program level. The two processes of strategic planning and risk management began to converge in 2011, when agency leadership recognized key national or corporate risks and included them in the FHWA strategic implementation plan.
FHWA was an early adopter of what is now the standard definition of risk in the Federal government, which is the effect of uncertainty on objectives. Agency managers assess risks to achieving its objectives at three levels: corporate strategy, strategy implementation and unit planning. At each level, the risks or uncertainty associated with achieving agency strategic objectives are a primary consideration when developing corporate risk and response strategies, cross-cutting national initiatives, and office-level activities. FHWA defines strategic objectives in terms of mission-related program outputs and societal outcomes. For example, a strategic goal is “The Nation’s highway system provides safe, reliable, effective and sustainable mobility for all users”; and the corresponding strategic objective is to “Make significant improvements to critical aspects of highway system performance and condition.” Measurable outcomes for this strategic goal include reducing the rate of highway deaths and injuries, improving the condition of roads and bridges on the National Highway System and mitigation of traffic congestion in metropolitan areas.
FHWA’s risk management approach aligns to the enterprise risk management policy framework outlined recently by the Chief Financial Officer Council, which is a rational approach that aligns the activities at various decisionmaking levels—strategic, budget, program management and operational. Assessing and setting priorities among the risks is a crucial step in operationalizing strategic and budgetary decisions. FHWA has met this challenge without creating a single office or separate governance committee to direct and manage all the risk-related activities. Instead, the responsibilities for managing risks are guided by a leadership steering committee and shared throughout the organization with agency employees who work directly with agency partners, contractors and the traveling public.
The recognition of three levels of objectives, while useful for planning and alignment purposes, necessitates that managers understand the time horizons associated with each level of risk. At the corporate strategy level, some of the identified risks such as the introduction of automated vehicles in the transportation sector have far reaching implications. However, these developments will not necessarily have an immediate impact in the two year time horizon of strategy formulation and plan implementation. By contrast, performance based planning and risk assessment is an annual exercise conducted at the operating unit level. The shorter the time horizon, the more certainty can be assigned to the likelihood and impact of a risk. At the strategy implementation and operational level, more certainty is preferable. However, the corporate risk discussions based on a longer time horizon can be less constrained by timelines. Executives and managers must balance consideration of long range strategic risks with their near term objectives and risk tolerance, especially where they might have less appetite for risk.
Unlike in the private sector where outcomes are based primarily on financial performance, performance information is but one factor agency managers use to make resource allocation decisions. In some instances, the agency contribution to achieving an output or outcome cannot be easily quantified. In addition, program funds are appropriated by the Congress and constraints are placed on how they can be used. However, as general operating expenses become more constrained, a risk-based approach to strategic planning helps decision-makers decide between several options and determine what portion of discretionary funds should be used to support the implementation of agency strategies.
Author: J. Woody Stanley is the Strategic Management Team Leader in the Office of Policy and Governmental Affairs at FHWA. Michael Graf is the Team Leader and Daniel Fodera is the Senior Analyst in the Program Management Improvement Team in the Office of the Directors of Field Services at FHWA.