Transit agencies are mission-driven, budget-constrained, politically sensitive, and highly exposed to fluctuations in fuel and energy prices. Effective risk management helps agencies proactively control these volatile costs and improve financial predictability.
Section 1: Take Control
- Know the Variables: Identify exposures, quantify risks, define acceptable ranges, and evaluate mitigation strategies.
- Set Achievable Goals: Reduce potential cost swings by a specific percentage, set ceiling prices, or eliminate targeted risks.
- Understand the Tradeoffs: Know what you’re giving up or gaining in exchange for greater budget certainty—and be able to justify your decisions regardless of how future markets unfold.
- Align with Strategy and Operations: Risk management should operate in parallel with core agency functions, serving as a strategic defense. Understand both the capabilities and limits of risk management.
Section 2: Three Case Studies in Price Risk Management
- Using fixed-price instruments to insure against market volatility
- Purchasing protection against rising fuel prices
- Creating a price range to keep costs within a targeted budget band
Section 3: Managing Risks Beyond Price
- Regional pricing differentials (basis risk)
- Timing and sequencing risks
- Reputational and political exposure
- Compliance with GASB standards
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