It is the desire of every individual part of an organization want to see the organization being successful in pursuing its goal. As such individual progress in an organization, sooner or later they do realize that they have a role to play for an organization to be successful. Effective organizations leverage this by building in advance resilience and the mitigation of risk. This cannot come by chance but through harnessing the measures which reinforce their values and increase the engagement so as to enhance the reputation and performance of an organization.
Risk management plays a significant role in decision-making in the public sector. It is significant for any country for the public sector to outline the sound policy options for the government and efficiently and effectively deliver on the policies and programs of the government. Confidence in the government can only be obtained with sound policies and performance. The public sector entities play a major role in terms of the quality and cohesion of the advice that they provide. So as to perform such roles in an effective manner, the public sector organizations needs the capability of matching expectations, and positive risk culture is a major player in such context.
Risk management processes
Risk management is an element of the management discipline however its application is not always recognizable. Risk can be defined as an uncertainty of achieving the objectives of an organization. Risk arises from both the internal and external sources and it can include the exposure to factors such as economic and financial loss or gain, failure of projects undertaken to reach its objectives, dissatisfaction of clients, negative publicity, mismanagement and failure of equipment and even physical damage. Risks need not necessarily be avoided. If risks can be managed effectively, they can provide opportunities for the improvement of services and business practices.
Risk management plays a momentous role in the identification of the appropriate risk-returntrade-off, the implementation process and the courses of action that do show the chosen level of risk, monitoring the processes so as to determine the actual level of risk and taking the appropriate courses of action once the actual risk levels have exceeded the planned risk levels(Fone & Young, 2000).
There are five major contributors to an organization’s risk which include; strategic risk, operational risk, environmental risk, financial risk and reputational risk. Risk identification and management is an integral part of managing and governing the public sector. Persons charged with governance are required to act in the interests of the primary stakeholders. They need to evaluate and respond to the risks of the entity in line with compliance with laws, the regulations put in place and the procedures used in financial reporting.
Operational risk does cover compliance risk and process risk. By the nature of operational risks, they cannot be seen and are often very difficult to pin down in a precise manner. Operational risk ranges from the very small, such as the risk of going bankrupt due to serious fraud and the risk of loss as a result of minor human mistakes. The operational risk might occur at all levels of an organization. Operational risks can be controlled by an organization through risk assessment and risk management practices which include internal control and insurance (Fone & Young, 2000, 53).
Reputation risk is a major risk of all organizations regardless of the size. For some period now, little attention has been paid to this risk by the board management except when an incident arises which ahs negative impact on the reputation of an organization. Reputation risk has to be managed as part of the public sector entities normal risk management process, and it should totally be integrated into the operational risk processes. Environmental risk covers the macro-environmental factors, competitive factors, and the market factors.
The public sector organizations needs to adopt a risk-based approach to their strategies and internal controls and maintain a continuous assessment of the effectiveness of the same. Organizations have to mitigate the gross inherent risk that is involved in the business activities and determine the net risk that should be borne by the organization. These approaches should be incorporated into the strategic, management and governance processes of the organization and they should encompass the wider aspects of the internal control and they should not just be related to financial reporting.
Effective risk management in the public sector
There have been major developments in the public sector over the last one or two decades. This has majorly to do with the improvement in the governance arrangements, majorly for the entities such as departments that comprise of statutory boards but still commonly have advisory boards. These enhanced governance arrangements have allowed the public sector organizations to make better arrangements for managing their responsibilities and the attendant risks in the environments which encourage stronger outcomes orientation and gives huge authority to the entities so as to deliver the required programs in an effective manner (Fone & Young, 2000, 28).
Public sector organizations have regulations which reinforce the responsibilities and accountability of theorganizations, and they do establish and maintain the appropriate system of risk oversight and the management of the organizations. This has an important effect even in a formal manner signaling of the importance of the effective risk management of the performance of organizations (Wang, 2010, 33).
There has been appreciation over some time by the public sector organizations that risk management is not selective, and it needs to be integrated into the organizations’ businesses as a normal process because in any entity making of decisions is a regular exercise. It is at the enterprise level that risk management is employed, and it relates to significant projects, and it is desirably employed at the program management level which in most organizations is referred to as the divisional level. There need to be clear accountabilities for risk management to be established, and there needs to be an alignment between individuals who hold authority and their respective accountabilities (Drennan & Mcconnell, 2007, 134).
Risk management has goals beyond formal accountability. The aim of risk management is the development of a positive risk culture which can be defined as the set of encouraged and acceptable behaviors, decisions involved, discussions among responsible or accountable individuals, and the attitudes towards taking risks and managing them within an organization(Drennan & Mcconnell, 2007, 88). There is a contrast between the approach of the traditional risk management and the approach to enterprise risk management which reinforces the advantages of a positive attitude to risk culture.
Many organizations in this public sector have not done enough in relation to the management of embedded risk in the entity’s behavior in such a manner that all the employees of an organization can positively contribute to the strong outcomes through more efficient and effective engagement. This can be achieved by scanning the environment for the new risks and being alert for any possibility of recalibrating the early identified risks. This majorly applies whether the responsibility of an individual is for the development of policy, advice or just delivery of services.
Risk management has had positive influences in the management of many organizations in the public sector. This is not only developed as a professional discipline but, it has been welcomed by the other professions as well. An example is auditing in which the body of the professional standards has been rewritten widely so as to embody the whole idea of risk management. This is a requirement for the auditors to reduce their engagement risk which is the risk of giving an inappropriate audit opinion to an acceptably low level in the engagement circumstances. This implies that while a given office is dedicated to discharging its mandate and aim at the improvement of public administration, it is of significance in the auditing approach for the covering off of the risk that forms an incorrect conclusion in the reports so as to adhere to the professional standards of auditing(Wang, 2010).
Risk management has been of great importance to the [public sector and the professions involved therein. However, there is still more to be done on embedding the risk management approaches so that all the employees can be tuned into the key strategies and take a greater view of their accountabilities and responsibilities (Drennan & Mcconnell, 2007, 83). Business planning and risk management should be integrated so that the models of the organization and approach are readily understood well in a general manner so that the models and approach can be easily understood by all the employees of an organization. Understanding the strengths and weaknesses of an organization only assists in the refinement of the required strategies.
The general goal of any organization is the building of risk management into the fabric of the organization and culture so that there can be a more resilient organization. This demands more sound governance in delivering the required standard and being aware of the natural strengths and weaknesses of an organization which allows an organization to compensate for the soft spots created as part of the governance and risk management strategies.
Organizations have to continue improving the significance of their intelligence in gathering and managing uncertainties. Most public sector organizations do appreciate the benefits of strategic risk management approaches, but they do have more work to do so as to embed risk management more so the monitoring of risk into a culture of an organization and assessing its effectiveness in their approach to management of risk in a given period of time. Set and forget approaches are not healthy to the modern organizations according to various audit reports.
Risk management is an investment worth making at any given time. Presently, the public sector resources are tight, confidence in the government declining with the policy stances and delivery models evolving, effective risk management is mandatory. Support of risk management should come from individuals charged with governance responsibilities in the public sector so that it is integrated into a culture for organizations and still be able to deliver on their main responsibilities in an efficient and effective manner.
Drennan, L. T., & Mcconnell, A. 2007. Risk and crisis management in the public sector. London, Routledge.
Fone, m., & Young, P. C. 2000. Public sector risk management. Oxford, Butterworth-Heinemann.
Wang, X. 2010. Financial management in the public sector: tools, applications, and cases. Armonk, N.Y., M.E. Sharpe.