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21st Century Operations Using 21st Century Technologies

Build Smart, Build Steady: Winning Strategies for Building Integrated Corridor Management Over Time

Chapter 5. Pioneering New ICM Modes of Operation

This chapter is intended for ICM stakeholders who have established a durable and comprehensive ICM capability and wish to consider more advanced organizational forms and/or incorporate new transformative technologies. In particular, the advanced forms discussed in this chapter revolve around the partial or comprehensive migration of corridor operational management from a collective model of partnerships to an independent third-party operator compensated proportionally to the performance of the corridor over time. This out-sourcing represents a significant step in ICM evolution — where the system performance and operational practices are so well understood that effective management can be accurately measured and equitably monetized. Not every ICM deployment need take this step, but it remains an option for mature ICM deployments facing late-stage financial, institutional, and technological challenges.

As in the two previous chapters, this chapter provides a set of homework assignments prior to coming to a joint meeting, a sample joint meeting agenda, and specific exercises for stakeholders to follow, to advance organization forms, consider new modes of operational practice, and incorporate new technologies.

Third-Party Operational Models

In this transformative model, all or part of the ICM management functions are transferred to a third party as a kind of franchise, responsible for the management of the corridor and compensated based on corridor performance. Simply put, there is a third-party corridor management entity that has the power over some defined set of corridor controls and functions. This entity may be wholly independent, possibly for-profit franchisee who manages the corridor for a set period. It may be a subsidiary element of one or more public agencies with a budget specifically tied to corridor performance. The entity could be a wholly new and durable construct that is intended to manage the corridor in the public interest in perpetuity. There are many considerations when developing a concept of how a third-party entity might be best tailored for the immediate (and long-term) ICM vision.

Note that this has not been attempted before for ICM deployments, so doing this would break new ground. However, third-party management models have been implemented in several tolled facilities, including HOT deployments. In some cases, performance-based compensation is used to incentivize the operator. Extending this model to be inclusive of ICM precepts and deployment technologies is non-trivial, but a remains a potentially practical option.

In this section, we will discuss some key aspects of creating a role for a third-party operator, some conditions under which such an option might be attractive, and a set of exercises intended to help ICM stakeholders consider and move forward effectively if such an option appears to be promising or desired.

Figure 4 (adapted from NCHRP Report 899) shows one example of a transition from a collective, stakeholder-driven coordinated operations model (corresponding to a durable ICM deployment) to a third-party operator (a transformative model). In the left panel of the figure, ICM stakeholders are shown as organizational diagrams (or individuals) surrounding a shared operational plan for ICM (see clipboard icon in the center in Figure 4). Here the stakeholders on the exterior, implement ICM actions based on the agreements they have created together. Transitioning to a third-party model (right panel of the figure), this operational plan has been replaced by an independent organization that fulfils essentially the same role as the stakeholders acting in accordance with the plan. Stakeholders remain on the exterior but now interact with the third-party entity for day-to-day ICM operations and longer-term ICM strategic planning.

This figure shows one example of a transition from a collective, stakeholder-driven coordinated operations model (corresponding to a durable ICM deployment) to a third-party operator (a transformative model). In the left panel of the figure, ICM stakeholders are shown as organizational diagrams (or individuals) surrounding a shared operational plan for ICM. Transitioning to a third-party model (right panel of the figure), this operational plan has been replaced by an independent organization that fulfils essentially the same role as the stakeholders acting in accordance with the plan. Stakeholders remain on the exterior but now interact with the third-party entity for day-to-day ICM operations and longer-term ICM strategic planning.
Figure 4. Chart. Transitioning to a Third Party ICM Operator Model
(Source: FHWA)

Readiness for Third-Party Operations

Readiness for third-party operations includes (among other factors):

  • Stable corridor operational practices that define third-party responsibilities. Operational practices and technical integration are so mature that these routine ICM management actions can be codified and bounded to describe what the franchisee can change, modify, and under what conditions.
  • Proven performance measurement. Technical capabilities are in place that can provide accurate and reliable insight on corridor performance. Such capabilities include the ability to provide a bottom-line figure for corridor performance that quantifies the volume of multimodal travelers and goods moved in the corridor as well as the corridor conditions (e.g., state of repair, operational status, incidents).
  • Strong corridor stakeholder cohesion around goals and corridor performance. The notion of what "good" looks like for ICM should be so advanced that it can be both quantified and incentivized. Revenue generation — ideally, should be linked to the number of passenger trips and goods delivered within a target reliability window in the corridor, unrelated to mode (e.g., transit versus vehicle trips). Otherwise there will be an incentive to favor one mode or type of trip over another — and will lead to the corridor being managed to maximize revenue rather than maximize corridor performance.

Motivation for Third-Party Operations

Why should we consider third-party ICM operations? The motivation may originate from one or more considerations related to financial or institutional issues:

  • Insufficient operational revenue. The ongoing cost of maintaining roadway/transit systems tend to rise over time, while the revenues accorded under current mechanisms (e.g., gas tax revenues) are often flat or in decline. Any shortfall must be covered by general revenues, which is dependent on a broader political system weighing myriad competing priorities.
  • Insufficient capital revenue. Related to the above (and here perhaps the operational revenue model is not an issue) but the ICM infrastructure itself requires an expensive upgrade and the existing funding process cannot or is unwilling to respond. In this case, a third-party model could provide the initial capital and recover its investment over a longer period (e.g., like tollway/HOT lane franchises).
  • Desire for institutional permanence. Agreements among ICM stakeholders are prone to change over time — former ICM champions may leave and ICM stakeholder organizations may alter their ICM engagement (or simply exit). Although a coordinated ICM plan may be in place, the durability of this plan depends on the continuing goodwill of key ICM stakeholders. A motivation for a third-party arrangement may be to codify the core of this plan as a separate entity, which may have a more permanent and durable function — protected from the potentially fluctuating support from key stakeholder organizations.
  • Desire for direct accountability. The franchise/operator model forces direct accountability in a pay-for-performance model that may be impossible under a system where stakeholders are working collectively. Where such a path is clear and an operational management system can be performance-driven, it is logical for direct compensation for effective management to be tied directly to value delivered.

Third party operations for ICM is a relatively new concept — and has never been implemented. However, the concept of third-party operations for roadway systems is not new, either conceptually or in practice. For a broad introduction to the concepts and motivations for third-party operations, see Street Smart by Gabriel Roth and The Road Ahead by Phil Tarnoff.

Deliberating the Suitability of Third-Party Operations

The precipitating factors that may spark an interest in third party operations are likely to be either financial or institutional. However, such a transition is complex and may not be viewed uniformly by all ICM stakeholders. It is suggested that ICM stakeholders begin deliberations on their own terms and time schedule well before financial and institutional issues become immediate crises. This enables the ICM deployment to adapt over time cognizant of impending issues seen on the horizon. Deliberation of this topic is organized into a homework exercise for ICM stakeholders prior to a periodic meeting, as well as an exercise within the meeting.

Strategic Planning Exercise for Transformative ICM Deployers

This section provides a structured all-day exercise for ICM stakeholders who have a mature and comprehensive ICM capability and wish to consider more advanced organizational forms and/or incorporate new transformative technologies.

Exercise Purpose

The purpose of the exercise is for ICM stakeholders to collectively explore the nature of practical, effective third-party roles for ICM operations management.

Exercise Outcomes

The expected outcomes of the exercise are to:

  1. Reach a consensus on the need and suitability of third-party operations.
  2. Create a punch list of high priority actions to be taken over the next 18 months to progress into third-party ICM operations.

When to Conduct This Exercise

This exercise (or something similar in intent) can be incorporated into a periodic (annual) meeting of ICM stakeholders. Although the meeting is held only once a year, the task forces should coordinate more frequently (e.g., quarterly or semi-annually) among themselves and with the ICM deployment teams.

Target Audience

The target audience is the same as that for the ICM Maturity Assessment exercise (see Chapter 2).

Event Type

The event type is the same as that for the ICM Maturity Assessment exercise (see Chapter 2).

Homework

As a homework assignment, prior to the exercise, all participants should consider the following and be prepared to discuss and make decisions:

  • Consider Threats. Using the four possible motivations provided in the section above (operational revenue shortfall, capital revenue shortfall, institutional durability, direct compensation), consider the most significant threat to the ICM deployment in a 3 to 5-year horizon. Describe the most critical potential threats to the ICM deployment represented by this highest-threat element in short bullet points (max 5).
  • Relevance of Third-Party Operations. For each threat bullet point, consider the relevance of third-party operations to address these threats (binned into NOT RELEVANT, LOW RELEVANCE, HIGH RELEVANCE). Provide a short description to support each assessment. If any of these items is marked LOW or HIGH, move on to the next step.
  • High-Level Boundaries of Third-Party Operations. Where there is at least some relevance, identify the aspects of the ICM capability that make would make sense to migrate to a third party. Each stakeholder should come prepared to discuss what leeway the third-party entity would have to control the system.
  • High-Level Third-Party Revenue Model. At a high level (one paragraph) describe how the third-party would be best compensated. For example, how revenue would flow from corridor users to the operational entity, and how this would be tied (at a high-level) to corridor performance.

If there are no serious threats observed by any ICM stakeholder, or no stakeholder sees relevance of third-party operations to a threat, then no exercise is needed at the upcoming periodic meeting.

Exercise Agenda and Instructions

At the periodic ICM Strategic Planning meeting, insert this exercise as a supplement to the agenda laid out in Chapter 4:

  1. Threat/Relevance Discussion (30 minutes). Facilitated discussion of the homework inputs provided by each stakeholder.
    • Collective threat assessment — to what extent is there stakeholder agreement on threats and the seriousness of these threats?
    • Collective relevance assessment — to what extent are stakeholders in agreement on the relevance of a third-party operational models or address these threats?
    • Goal Output: List of top threats (max 5) addressable by the adoption of a third-party organizational model.
  2. Boundary Discussion (30 minutes). Facilitated discussion.
    • What would the third-party operator be responsible?
    • Where are the limits of the scope of the third party?
    • Goal Output: functional diagram of actions/responsibilities binned into three groups: Third-party primary functions, Secondary functions, and Functions outside of third-party control.
  3. Revenue Mechanisms (30 minutes). Facilitated discussion.
    • What are possible revenue mechanisms for the third-party operator?
    • What are the attributes of exceptional corridor performance?
    • To what extent can these revenues be tied to performance?
    • Goal Output: collective high-level revenue model for a third-party operator
  4. Scenario Planning Exercise (30 minutes). Facilitated discussion.
    • Consider three modes of operation, driven by the data from specific days (Low-demand day with incident/disruption; High demand day, Severe weather or other major emergency).
    • How would the third-party operate in these conditions? Is it clear they would have the leeway to influence corridor performance?
    • Revise/refine functional and revenue models
      (repeat scenario planning as time allows with new scenarios)
  5. After Actions (30-60 minutes). If there is enough agreement to move forward, refer to individual task forces to consider key questions.
    • What forms of new technologies must be put in place to realize this model?
    • Is the revenue model sustainable over time? What are the expectations? How will capital costs and operational costs be borne?
    • What changes to the institutional capital will be needed? How is liability handled in this franchise model? Will the franchisee be solicited or created?
    • What gates should be built in and when to undo the agreements if the franchisee underperforms, fails, or goes bankrupt?
    • How do the stakeholders influence the franchisee after the agreement is operational?
    • Is it possible/desirable to develop a roadmap synthesizing recommendations based on the inputs collected?
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