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IABFM Articles > > Risk Management > The Dimensions of Risk - March 1999


The Dimensions of Risk - March 1999


By Michael Vincent

28 December, 2006

Risk is many things to many people but underlying the differences are the basic principles of risk identification and risk financing as the underpinning of all risk analysis.

 

This month we look at the local government sector, this is a frequently ignored area of government but in reality the one that has the most direct effect on our day to day living environment.  The basic services of life are supplied by local government but beyond the collection of rubbish and the registering of animals we probably don't give it a second thought.

 

Robin Hosking works in the area and has sought to research the risk functioning of local councils; he chose this area because he is dedicated to the application of risk management within local government.  He found some very interesting results in his examination of councils throughout Australia.

 

The view held by a significant number of people is that risk management is either some sort of elaborate excuse not to take risks, in other words a reason to follow a conservative low risk approach to business, or is only concerned with occupational health and safety.  This view supports the idea of taking few risks and risk management is only about insurance.  This Robin found to be a short sighted view as it limited the potential for councils to identify real risks and the impact on a community.

 

At this stage it is worthwhile to reflect on his first finding above and not let ourselves think that the view is only limited to local government, indeed this view is probably widespread throughout the public and private sectors.

 

Not all risks need to be treated, but identification is essential to allow analysis.  The sorting of risk into low likelihood or low consequence events which may be better managed by inaction because of cost, through to high likelihood or high consequence events which had better be managed effectively so that the council is not facing a fatal outcome.  Most councils have addressed risk but the survey found that the processes and procedures are complex and not user friendly or even understandable in a large number local government entities.  Accordingly staff in many cases are suspicious of risk management because of generally unworkable policies.

 

Councils either manage directly or outsource a significant number of activities that place not just the council employees at risk but also the wider local community. 

 

Some of the major services are: -

 

1. Road design, building and maintenance.

2. Storm water disposal including construction and maintenance.

3. Common effluent drainage maintenance.

4. Traffic signs and line marking.

5. Design, construction and maintenance of footpaths.

6. Parks and reserve design, construction and maintenance.

7. Tree planting in streets and parks

8. Immunisation programs.

9. Swimming pools.

10. Recreation centres and sports grounds.

11. Health inspections including food premises.

12. Parking and traffic controls.

13. Street lighting.

14. Public libraries.

 

Services to support the above activities are: -

 

1. Industrial relations and human resource management.

2. Advice on planning issues.

3. Project planning and management.

4. Records management.

5. Finance/treasury management.

6. Rates collection and processing.

7. Drainage advice.

8. Engineering advice.

9. Human resources.

10. Occupational health and safety.

11. Information technology.

12. Urban and social research.

13. Environmental management

 

The above lists are not exhaustive, indeed if you think for a while you can continually add to these lists. Accordingly the need to have a definitive policy that is easy to understand and implement and importantly acceptable to both staff and constituents is readily apparent.  It is an inditement on us all that the majority of councils are in their infancy as far as risk management is concerned.

 

A framework for risk management requires an understanding of the strategic and organisational planning within the entity.  An overriding aim of council must be to improve the community by a total commitment to all citizens through an honourable and ethical service that is transparent and inclusive of the wider community.  This is impossible without the application of risk management.

 

In conclusion, a different approach needs to be taken towards managing risk in the business activities of local government.  There needs to be a shifting of emphasis from programs that are focussed on negative impacts, that is creating an environment of inactive risk management, towards activities that improve the processes by which corporate success is achieved, that is by instilling a system of proactive risk management.

 

This changing environment will serve to heighten the awareness of line management who will be directly responsible for the processes and for the need to manage threats to the functions.  The entity can then take advantage of improved systems and procedures.

 

The focus is on the integration of risk management into the day to day culture of management and staff at all levels.   This can only be done by empowering the managers to manage and in return a demand for accountability and acceptance of responsibility. Only then will we get the councils we deserve and indeed expect in today's world.

 

Who would have thought that effective risk management would in fact give us better local government?

About the Authors

Department of Accounting and Finance

Faculty of Business and Economics

Monash University

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