Tag Archives: risk appetite

224 – Risk taking in local government

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By Colin Weatherby                                                                                               900 words

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Lancing Farrell raised several important issues in providing advice to a colleague regarding risk management. How does a council balance the pressure not to take risks and fail, with the competing pressure (often from the same sources) to take risks and meet demands to create new value?  

Risk is an interesting concept and there are various definitions. I like to think of it simply as the uncertainties related to achieving your goals. It is about the hazards along the pathway as you make your way towards your destination.

Businesses that don’t take risks will fail. They become uncompetitive or customer satisfaction drops. Either way, they lose business to competitors taking risks to create value that customers want and will pay for. We can all think of the companies that have taken big risks in redefining a service or product to create a new market.

You are probably wondering what this might have to do with local government. Aren’t we just doing what we have always done?

Many councils are. Whether they should be, or whether they will be able to continue to do so, should be questioned. We now live in the ‘age of the customer’ – residents want personalisation, mobility, self-service, rapid response, and efficiency (efficiency for them, not the council). The variability introduced by customers must be quickly and effectively absorbed by the organisation. Complexity, by its very nature, creates risks.

In conjunction with mandated limits on prices (the rate cap) and growing numbers of customers (as Lancing points out, Melbourne is growing rapidly), the rising expectations of residents means that councils must do things differently. Different usually involves risk taking.

I recently attended a training session on developing an organisational risk appetite. It showed me how councils could identify hazards and manage risks differently, yet still satisfy the pressure to stop things going wrong while meeting the demand to create new value. It needs a re-think and a more sophisticated approach to risk and compliance. Continue reading →

223 – Risk management in local government

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By Lancing Farrell                                                                                                  730 words

risk taking

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Is there a delegation for taking risks at your council? Does your council have a risk appetite? Are the strategic risks that have been identified appropriate? Are the operational risks relevant? Does the audit program decrease or increase risk?

These are questions that a colleague raised with me recently when trying to understand the way risks were managed at their council. I suggested they look at their risk management framework – how is risk assessed in terms of likelihood and consequence. This should explain the inherent risk, current risk rating, the target risk and rate the effectiveness of controls. It can make interesting reading.

Next, I suggested they look for their organisations lists of key risks – strategic and operational. These are usually in the risk register. This isn’t always easy to find. Someone in the risk department will have it. Most councils will have up to 8-12 strategic risks. There will be many more operational risks.

Councils are very risk aware. Some people describe it as risk aversion. I think this is driven by the multiple accountabilities that councils live with – the Minister for Local Government, the Ombudsman, the courts, the media and the community. Sometimes it is hard to know who is going to take issue with what you have done. Continue reading →

118 – Improving service operations. Why it doesn’t happen in local government.

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Posted by Whistler                                                                                          500 words

 walking the plank

I have read Lancing Farrell and Colin Weatherby’s posts on characteristics of demands, redesigning operations and improving service operations through action plans and service redesign, with some interest. It is all good stuff and not too difficult to understand or do. The question I ask myself is why I don’t see it happening everywhere across the sector. The ‘special and different’ posts partially explain it but I think there is more to it.

To begin with, the motivation to make improvements doesn’t really exist. People say they want to improve the quality of services to their community, and in response to threats like rate capping they say they want to be more efficient. But they don’t really want to do either.

Most councils have the potential to improve productivity by 10-15% (more in some councils). Continue reading →

14 – What can a culture survey, an organisational self assessment, and your Executive’s risk appetite tell you?

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In local government, we like to survey our culture and develop plans to move from the current culture to the preferred culture. It is a very idealistic exercise. In Human Synergistics’ terms, the target culture is often highly constructive and devoid of the competitive and avoidance behaviours currently evident. Typically, the culture of a council in Australia will operate on the basis of ‘keep your head down and fly under the radar, if things go wrong blame someone else, and if there is no one to blame say you were just following instructions’. In a more competitive culture it starts with blame.

An organisational self assessment (the starting point for using the Australian Business Excellence Framework) will probably reveal an organisation where the drivers for the activities of the organisation that fare the best during the assessment will be those that have a legislative compulsion behind them or that have been developed in response to a problem that has a significant consequence for failure.   The focus will be on compliance, not organisational strategy, innovation and customer or community value. This is understandable because councils do have lots of legislated responsibilities and accountabilities that have consequences for non compliance.

Now to the last and, I think, the most interesting piece of evidence – the risk appetite of top management (the Executive). This is interesting because it often isn’t documented and when it is, the context is usually the preparation of a risk management plan and the knowledge isn’t used to reflect on the decision making of the Executive, the organisation they have created, or its culture.   Leaders shape the organisation through what they say and do. If they have a low appetite for risk, especially in a sector that is inherently risk averse, this will be reflected in their decision making. What can you expect to see as a result?

  • A conventional organisational structure that emphasises functional accountability and avoids the risks associated with a focus on cross-functional processes.
  • Organisational systems that are controlling to reduce risk and increase compliance because there is no reward, and potential sanctions, for doing otherwise.  The Executive makes the decisions and policies in accordance with their risk appetite.
  • A culture where people avoid risk and don’t make decisions or just follow the rules rather than take risks to ensure that value is created.

So, if you are wondering why you work in an organisation where there are dozens of forms that need countersigning by each level of authority, where decisions are increasingly being made by the Executive, and your culture surveys keep telling you that you are big on avoidance, maybe you should enquire about your Executive’s risk appetite.

Posted by Whistler