Pursuing Risk Management in Government —A Leadership Imperative


Pursuing Risk Management in Government —A Leadership Imperative

Tuesday, October 27th, 2015 - 13:01
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It is a leadership imperative for government executives to mitigate the potency of uncertainty by managing the realities of risk.

This world is fraught with uncertainty, and even the best-laid plans can go awry. Life brings with it varying degrees of risk as a condition of existence. This makes life both difficult, but also worthwhile. As the Lotto ad said, “You gotta be in it, to win it.” Everything worth doing entails a certain level of risk. The increasing complexity and interconnectedness of today’s world only ups the ante on the unknown. What makes a difference in individuals and organizations alike is how well you handle an uncertain environment, with all sorts of risks from financial to reputational to the operational. The way to manage this uncertainty is to build your capacity to anticipate and be resilient: can you anticipate the future and prepare for its effects?

Federal agencies are hardly immune to the “slings and arrows of outrageous fortune,” including sequestration, budget cuts, or a government shutdown. Along with these threats, each day federal agency leaders face similar, as well as unique, risks associated with fulfilling their respective program missions. Today’s headlines are full of stories of failed website launches, cyber hacks, abuses of power, extravagant spending, and a host of other risk management failures. The federal government has taken a hit, with the public’s trust in government continuing to be low, as measured in numerous surveys. This view is shaped in part from some of these stories about how federal agencies could have improved their operational and mission performance, had leaders taken the time to foresee and mitigate potential risks.

It is a leadership imperative for government executives to mitigate the potency of uncertainty by managing the realities of risk. Employing an enterprise risk management (ERM) process can assist leaders in doing just that. When employed on a strategic level, ERM can help decision makers evaluate the likelihood and impact of major events and formulate the best way to either prevent them or manage their effects, if they do occur. Many changes are now occurring that hold the potential to make government function better. It is a positive change that an increasing number of federal agencies have recognized the value of ERM and are taking actions to make ERM an important part of their operational model.

The first step in tackling risk is defining it. The conventional view of risk is focusing on a potentially negative impact. Risk management in this context typically focuses on managing threats to objectives. As Dr. Douglas Webster describes in Managing Risks and Performance: A Guide for Government Decision Makers, defining risk as merely the threat that objectives will not be achieved leaves unanswered the question of how to actively manage the balancing of opportunities and threats. Maximizing the opportunity for success requires that threats and opportunities are actively managed together. As government leaders begin to allocate and invest resources and develop strategic plans for their agencies, it is important to consider threats as opportunities. All future events and the achievement of future results—the heart of strategic planning—are uncertain because they have yet to happen. In identifying, analyzing, and mitigating risk, ERM can also be a powerful resource for strategic planning and effective decision making. To that end, government leaders should view risk as “uncertainty that matters.” When does risk matter? Webster underscores that it matters when it has a material impact on the achievement of your strategic objectives.

As this publication goes to print, the Office of Management and Budget (OMB) is expected to issue a revised Circular A-123. The updated circular is likely to evolve federal agencies’ existing internal control framework to be more value-added and provide for stronger risk financial management to improve mission delivery.

This forum presents government leaders with insights, recommendations, and best practices drawn from two recent IBM Center reports that focus on ERM in government. The first contribution to this forum comes from Douglas Webster and Thomas Stanton’s report, Improving Government Decision Making through Enterprise Risk Management. Webster and Stanton describe the evolution of federal risk management approaches and several agencies’ experiences in adopting ERM. The authors asked cur rent and former federal executives to describe the challenges of adopting an enterprise approach to risk management in their agencies and across the government. They present six challenges facing government leaders, and outline six steps that leaders can take to successfully implement ERM.

The second contribution to this forum is excerpted from Risk Management for Grants Administration: A Case Study of the Department of Education. Authors Young Hoon Kwak and Julia Keleher examine the experience of the U.S. Department of Education in implementing risk management initiatives in 2001. Based on their examination of the Department of Education’s experience, Young and Keleher present a series of lessons learned and recommendations for other agencies. The authors caution that risk management practices may represent a major change for some agencies and should be accompanied by training and capacity-building programs. They also note that agencies should take advantage of OMB’s new risk management requirements as an action-forcing event to improve their risk management capability.

This forum underscores the leadership imperative of taking risk seriously and highlights methods and practices to get out in front of an ever evolving threat environment facing government executives.

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