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The Final Word - May 2004

By Michael Vincent

26 December, 2006

The public sector and risk management are increasingly becoming entwined as the whole of government struggles with the concepts of compliance and governance.   Sometimes the application of risk management techniques leads to a misunderstanding of the role of risk and government within today's society.  We tend to apply business risk principles rather than social risk principles.

 

We are seeing government run increasingly as a business with strong business outcomes and justification for the allocation of funds.  This methodology could be fundamentally flawed in that do we want government to be profitable and run along the lines of user pays or do we want government with strong social outcomes.  The Kennet government learnt at its cost that government has a social responsibility to supply services at an efficient level within the protocols as laid down by good corporate governance. 

 

In fact one could argue that government is in the business of supplying services that society demands but cannot be delivered at a profit from elsewhere.  We run a real risk of intrusive interference in our lives by a "do-good" mentality of government purporting to be fiscally responsible.  It can be argued that if a government is continually in surplus then it is taxing the community too much and should give it back rather than pretend to be the giver of largess.  It does not matter what the colour of government is, rather the mentality of the politicians in power today.

 

Therefore we need to separate government from the public sector in order to discuss the application of risk management within the public sector today.   Some basic principles apply and if applied add value to the process and enhance the role of government in today's society.

 

Risk faced by the public sector have characteristics that can be defined by identification of attributes, these attributes are discussed in full in "Public Sector Risk Management" by Martin Fone and Peter Young.

 

Attributes:

  

1. The risk cannot be distributed, with recognition for political equity, to responsible parties capable of bearing the risk.2. The risk produces externalities (or imbued with externalities) that cannot be meaningfully captured in market pricing.3. The risk is made manifest by the political process (an extreme example is the risk of revolution)4. The risk imposes significant concerns with respect to the protection of individual rights.5. The risk, in addition to the characteristics above, has an associated high level of uncertainty.6. The exposure is public.

 

An examination of the above attributes if accepted as meaningful demonstrates that the whole of government sector in Australia misunderstands the role of risk management in the conduct of government business and there is a huge gulf between the political operation of the sector and the public management of the sector.  Outrage is an outcome of this mismatch and leads to arrogance and falls from grace.

 

It is said that we get the government that we deserve as a society; this outcome is potentially managed if we have an independent public service.  Unfortunately we are in an era of an increasingly politicised public sector management and it is unlikely to reverse in the near future. 

 

Public sector risk management is about balancing the political needs of government with the requirements of correct compliance and governance with the public sector for the good of the whole community as fundamentally it is the public sector workers who are the guardians of the values of the community.

About the Authors

Director

Australasian Risk Management Unit

Faculty of Business and Economics

Monash University

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