6.5 HT: Methods of Monitoring Financial Risks in a TAMP


Methods of Monitoring Financial Risks in a TAMP

An agency’s Transportation Asset Management Plan (TAMP) includes a 10-year financial plan that details planned investments to achieve its performance and condition objectives. Included in the financial plan are forecasts of future funding from various funding sources and projected levels of investment needed based on forecasts of asset conditions and repair costs. Proactively managing the uncertainty associated with these 10-year forecasts enables agencies to better understand the risks and identify strategies to reduce the likelihood that future performance objectives will not be met.

  1. The FHWA published a report on identifying and managing financial risks in 2023. It recognized three types of financial risks (Zimmerman et al. 2023):

    • Uncertainty in Future Revenue: Includes concerns with Federal funding, the availability of adequate State matching funds, and inaccuracies in future revenue projections.
    • Uncertainty in Agency Costs: Includes fluctuations in labor and material costs that impact the cost of work and the level of service that can be provided.
    • Other Financial Risks: Includes the agency’s ability to design and construct projects on a timely basis, accelerated asset deterioration, and shifts in funding from asset preservation to other strategic objectives (e.g., mobility, freight, resilience).

  2. The FHWA offers four strategies for managing financial risks, as described below:

    • Strategy 1: Monitor revenue, inflation, costs, and other parameters to help identify situations calling for adjustments to the plan. Suggestions are provided for tracking and interpreting changes in revenue and cost trends.
    • Strategy 2: Develop forecasting and scenarios to evaluate the long-term impacts caused by different situations. Potential outcomes for each scenario can be estimated so that an agency can consider uncertainty and plan possible responses.
    • Strategy 3: Ensure a steady investment in asset preservation to slow asset deterioration and defer the need for costly repairs. This strategy recognizes the importance of ongoing investments in asset preservation to both lower life cycle costs and to control future investment needs.
    • Strategy 4: Explore alternative revenue sources such as discretionary grants, increased vehicle registration fees, bonds, or shifts in revenue between programs. While alternate revenue sources might not be considered by all agencies, being aware of available options may uncover an unexpected revenue stream to help offset shortfalls.