An Application of System Dynamics and Risk Management Techniques to School Bus Safety Policy Bronwyn Howell and Mark Obren Graduate School of Business and Government Management Victoria University of Wellington PO Box 600, Wellington New Zealand Ph/fax 64 4 299 5752 Email amalthus@xtra.co.nz New Zealand’s Land Transport Safety Authority (LTSA) has a dilemma in that it is charged with setting safety standards in a politically sensitive environment. However, the standard benefit/cost justification process for safety initiatives cannot adequately cater for catastrophic risk events of low probability, uncertain probabilistic distribution and high political impact. The school bus sector is one area where this dilemma is highlighted; a base level of risk exists from daily operation, in addition to a catastrophic risk of a major school bus accident. The LTSA's ability to manage these risks is limited by the interaction of the stakeholders, namely the Ministry of Education, students, parents, schools, communities, bus operators, and central government. This paper approaches this situation from the perspective of a comprehensive risk management analysis, based upon the New Zealand Standards and the State Services Commission guidelines. The system dynamics approach provides an analytical framework to develop an understanding of the interaction of policies with the school bus environment, and their subsequent impact on the risk factors to be managed by the LTSA. A Powersim model has been developed to investigate the validity of this approach, and to demonstrate the relationships between the four aspects of modern risk management, namely financial, behavioural, reputation and hazard. The model is used to provide insight into five proposed policy initiatives and four realistic future scenarios facing the LTSA. The model suggests that the most volatile risk that the LTSA faces is reputation-based, a clear example of which is a school bus catastrophe. The Land Transport Safety Authority (LTSA) is the New Zealand statutory body charged with developing and ensuring the enforcement of safety policy, regulations and standards for all forms of land-based transport, and the users of such transport (both operators and passengers) within New Zealand. As a regulatory body, the LTSA develops rules and regulations for safe operation of vehicles and services. Policy and rule development requires a consultative process offering all significant stakeholders the opportunity to have input in the process. The LTSA has the responsibility of receiving and assessing the relative merits of submissions and, along with its own specialist research, skills and knowledge, translating them into potential