SESSION 2

Role of Risk Management in the

Public Sector

DOROTHEA C. BOY-NAVARRO, RND, MENRM

Director
Sustainable Human Development Program – Development Academy
of the Philippines
 OBJECTIVE

At the end of the session, the participants shall be able to:

§ explain the nature of public sector that necessitates risk
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management
§ describe the context that impacts on the public sector
§ enumerate the importance of risk management for the
Public Sector
 Go to www.menti.com and use the code 7945 8652

What are the key words we

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associate with the Public

Sector?
 WHAT IS PUBLIC SECTOR?

Any part of a state or national economy that is tied to public

programs or services and is controlled by government
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• PROVIDERS OF CRITICAL SERVICES

Programs, goods and services.

• MOTIVATIONS
To enhance the public good, be beneficial for society –
especially for those challenged by poverty, illness or age, etc.

• FLOW OF MONEY ~ FUNDING

PEOPLE’S TAXES
 GENERAL CATEGORIES OF PUBLIC SECTOR
1. Core government agencies and departments working within the various branches of government
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National Govt - Executive National Govt - Judiciary National Govt - Legislative Local Government Units

2. Agencies that provide public programs, goods and services, but exist as separate organizations
apart from government agencies or departments.

3. Public enterprises and non-profits which like agencies also deliver programs, good and services but
are relatively independent and may have sources of revenue in addition to public funding (GOCCs)

Kent State University

 WHAT IS PUBLIC SECTOR?

Public Programs, General Public

STEWARDSHIP Goods and
Its Employees
Services
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e.g education, health care, Private Sector

infrastructure & social
GOVERNMENT benefits, justice, diplomacy &
defense

PUBLIC FUNDS

deliver y
PEOPLE’S Economy
TAXES
DESIRED OUTCOME COMMON
GOOD ~ QUALITY OF LIFE
 In a word or in a
short phrase, how
will you the
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describe the world/

environment we
live in now?

Go to www.menti.com and use the

code 7945 8652
 What does this
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current state mean to

you as part of the
Public Sector?
 Volatility Increasing rate of
change
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Less clarity about Uncertainty

the future

Complexity Multiplicity of
decision
factors
There may be no Ambiguity
“right answer”
 • An unsettled world
• Risks to economic
stability and social
cohesion
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• Climate threats and

accelerated biodiversity
loss
• Consequences of digital
fragmentation
• Health systems under
new pressures

Global Risks Interconnections Map 2020

 WHAT IS RISK?

• Possibility or Potential that a certain action will lead to an

undesirable outcome, given a specific situation.
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• A set of scenarios, each of which has a probability and a

consequence (Kaplan and Garrick 1981; Kaplan 1991)

It is the result of a HAZARD or THREAT given a

certain SITUATION

The likelihood that harm will actually occur

 WHAT IS RISK?
According to ISO 31000

RISK is the “effect of

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uncertainty on objectives”
and an effect is a positive or
negative deviation from
what is expected.

DEVIATIONS
 WHAT IS RISK?

UNCERTAINTY RISK
(Positive or Negative)
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Activity Results and Objectives

Adapted from Terje and Ortwin 2009

 WHAT IS RISK?

• Risks can have different aspects - financial, health and safety and
environmental
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• Can apply at different levels: strategic, organization-wide, project,

product and process
• To be considered a RISK, it needs a
• SPECIFIC SITUATION/EVENT/ACTION
• SOURCE or CAUSATIVE AGENT (HAZARD/THREAT) and the
• CONSEQUENCES
 Hazard or Threat

A dangerous phenomenon, substance, human activity or

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condition that may cause loss of life, injury or other health

impacts, property damage, loss of livelihoods and services, social
and economic disruption, or environmental damage
 The Uncertainties of the Future and how it will
impact on our Strategic Objectives
to occur
e l i k e l y

t i a l E v e nt s may or
ar

P o t e n
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Potential Events generally have Consequences– negative

or positive
Likelihood of Events combines with Consequences

Deviations from the expected go

als or objectives - can
negative effects have positive and/or
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CHANGE
- A major trigger of Risk
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Risk Management in
the Public Sector
 • A coordinated set of activities and
methods used to direct an
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organization and to control the

many risks that can affect its
ability to achieve objectives or can
cause negative impact on people’s
lives, properties, on the
environment and livelihood.

When nothing is normal: Managing in

Extreme Uncertainty
 RM AS A KEY ELEMENT OF CORPORATE GOVERNANCE
IN PUBLIC SECTOR ORGANIZATIONS

• Where corporate governance consists of the structures, the

processes, values, the culture, the behavior or practices and the rules
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used to direct and manage a company à a bureaucracy

o A cornerstone of the organization’s architecture for strategic and
operational success
o Public sector strategic objectives is a balancing act: where
§ citizens are taxpayers
§ public bodies have legal obligations for many service
§ decisions on addressing risks are within complicated and changing
contexts
 Poor controls lead to losses, scandals, failures and damage
to the reputation of organizations in whatever sector
they are from.
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Where risks are allowed to run wild and new ventures are
undertaken without a means of controlling risk, there
are likely to be problems.”

Yusheng Kong 1, Peter Yao Lartey 1,*, Fatoumata Binta Maci Bah 2
and Nirmalya B. Biswas 3
 RM IS AN INHERENT PART OF STRATEGIC
MANAGEMENT
• Where strategic management (A GENERAL MANAGEMENT
FUNCTION) is a continuous process of strategic analysis, strategy
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creation, implementation and monitoring used by organizations with

the purpose to achieve and maintain a competitive advantage
o address uncertainty and unpredictability which may emanate from
the environment where an organization operates
o easier for organization to adapt to changing reality,
o creates conditions which allows the organization to break through
barriers to growth, eliminate or at least alleviate various conflicts
within the organization and take on opportunities
o Strategic management is based on a strategy subject to regular
control
 RM AS AN INHERENT FEATURE OF INNOVATION
IMPLEMENTATION IN THE PUBLIC SECTOR

• Every new initiative to be carried out in public services is

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associated with change, which inevitably implies risk

• The political environment of the public sector adds to the
complexity of public risk management. Changes or
innovations may be: organizational, strategic or
operational
 RISK AND RESILIENCE ARE AT THE HEART OF THE
PLANNING FOR ACHIEVING SDGs

• Shocks and stresses can

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reverse years of efforts and

investments in development
achievements
• SDGs are focused on issues
that are underlying drivers of
risk: poverty and inequality,
climate change, lack of peace
or weak institutions
 RM AS A FUNDAMENTAL PURPOSE OF
GOVERNMENT
• Mandate – the Reason for Being of Government: SERVE ITS
CONSTITUENTS, the People, despite operating in a very dynamic
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environment – VUCA
• Broad responsibility to assess and address the risks that impact the
community they service and their organization in order to DELIVER
THE SERVICE
• Whether risks arise from the physical environment, the economic
environment, or even from changes in voter preferences, public
institutions
 RISK MANAGEMENT DIMENSIONS IN THE PUBLIC SECTOR
POLITICAL LEGAL STRATEGIC TACTICAL OPERATIONAL
DIMENSION DIMENSION DIMENSION DIMENSION DIMENSION

The relationship of Institutional As Every Related to Related to day to day

the elected official existence – organizations-
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budget operations, short-term

with the citizens, the overall would have a execution and planning and
from which we purpose of mission-objective intermediate execution, and
could extract the government formulation range decision functional
overall purpose of process. making. performance
government

Governing – run Development Budget & laws Day-to-day

Getting elected Plannings
the operation of
government government

Fone and Young

 PUBLIC RISKS Government’s Role

• Regulatory- where individuals or

risk that affect Individual Risk business impose risks on others,
society as a government’s role is mainly as
whole regulator, setting the rules.
(epidemics,
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natural Social Risk RISKS affecting beyond • Stewardship- where risks cannot be
disasters and the individual
other attributed to any specific individual
catastrophies) or body, governments may take on
a stewardship role to provide
PUBLIC protection or mitigate the
RISK consequences.
risks that might
affect the • Management- in relation to their
organization own business, including provision of
Organizational
itself (liabilities, services to citizens, governments
Risk
lawsuits, fire, are responsible for the
low enrollment,
identification and management of
financial risk,
etc.). risks.
Fone and Young
 Public risk à generally quantified in financial terms, but
more importantly, they result to NEGATIVE SOCIAL REACTION that
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can manifest or affect the following:

• Citizen satisfaction
• Public trust
• Accountability (Legal)
• Cost Effectiveness
• Competitiveness
• Quality of Life
 SUMMARY: ROLE OF RM IN THE PUBLIC SECTOR
ü Increasing volatility and competition faced by organizations – need for
certain levels of risk awareness
ü Legal requirements by the authorities and regulators – need for
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implementation of increasingly more sophisticated risk management

practices.
ü As technology has helped organizations to be more efficient, it has
also exposed them to different sorts of new significant threats.
à have created new risks and increase the impact and frequency of
existing risks
ü Thus, risk management serves as a process that complements and
integrates with other processes in the organization, in a continuous
and formalized manner
 Public Sector Organizations
that are more willing to take a
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risk achieve better results and

thus, improve their image and
perception by the general
public.

They have a stronger social

mandate and limit their risk of
a political failure.
 REFERENCES

• Risk Management in Public Sector Organizations – Principles,

Course on Basic Risk Management

Methods and Tools, Piotr Tworek

• Rigorous risk management a must-have for public sector
organisations, Jo Williams (FCCA)
• Public Sector Risk Management, Peter Young Martin Fone
• Value of Public Sector Risk Management, An Empirical Assessment of
Ghana, Yusheng Kong et al