Risk Management at the Edge of Three Worlds

Corporate

City management in the perspective of ‘risk’

Jack Kruf | mei 2007


In this article I want to focus on the specific characteristics of the role and position of local authority CEO, the city manager, in relation to the three worlds of politics, society and management. And specific focus on the role of risk management in supporting the CEO and the process of discussing these issues,  to emphasise that risk management belongs on the strategic agenda and demands a holistic approach.

The “best” job

Some might say it is the most attractive and fascinating job there is: serving as CEO in local public management, (or city manager or secretary). Why? Because it is at the very heart of dynamic society, close to politics and government, at the center of the world of “power and influence” and at the top of the management pyramid. This person sits at the very junction of necessary skills, ambitions, rights, stakes, and interests. He or she is, via society, close to disas- ters, successes, poverty, environmental challenges, and, via politics, to elected officials like the mayor and local alderman, but always in close contact with officials in higher government, and very close to the professionals in within the organisation. Local government leadership is a very exciting job.

“It is clear that risk management should be seen as a core competence for every public leader”

The CEO is a generalist not a specialist. One might say that a realistic comparison of the job would be with the decathlon. As with decathletes, the CEO needs to be well-rounded, competitive and competent within many different areas. 

Furthermore, the CEO cannot operate in isolation but has to be open to the world, always authentic and at the same time able to act as a chameleon. A phrase that has always appealed to me is to be able to walk the web as a spider and be familiar with the rules of chess. This broad spectrum makes the role challenging, very attractive and influential, but also very vulnerable. And it is here where risk management comes into play. 

Risk management 

As the demands of the city manager job are diverse but inter-connected, so must be the management approach: the manager must possess a broad, non-panicky and non-dogmatic perspective on risk and risk management – one which stresses usability in relation to a wide range of public risk issues, as well as to risks in public organisations. 

Such an approach requires a holistic, opportunistic and dialogue- oriented form of risk management, which seeks to harvest the value added, the ethical, resilient, and innovative potential in risk management as a natural part of public governance. 

The management of risks is one of the most challenging issues for the public sector today. Whether risks arise from the physical environment, economic environment, or even from changes in voter preferences, public institutions have a broad responsibility to assess and address the risks that impact the community they serve as well as their organisation. For example, which risks are possible when making investments in a new IT-system? Which elements of risk are to be analysed when decisions about building a new school are made? Which elements of risk are to be assessed in connection with preventing vandalism and break-ins on municipal buildings? And which risks emerge from decisions made by higher governmental institutions? 

It is clear that risk management should be seen as a core competence for every public leader. But what is risk management? In general a way of approaching business, a sound attitude towards and style in managing people, projects and processing as well as in reaching goals. It comprises of course tools and techniques but more than that a smart, honest and external oriented approach – open and authentic. Risk management leads to an effective and efficient way of reaching goals. It is the road to success. Let me focus on the three domains; society, politics and management. 

“One of the major goals for the public sector worldwide is a continuous building and rebuilding of public trust in close combination with sustainable development” 

The three worlds 

The worlds of society, politics and management are always overlapping and connected. This fact requires a new risk management approach. It should consist of more than just preventing losses and reducing costs. Increasingly, risk management can be defined as the coordinated management of all risks. In this regard, modern risk management is a general management function that permeates an organisation, is linked to the organisation’s overall strategic plan and serves to enable the achievement of political and organisational goals and objectives. 

One of the major goals for the public sector worldwide is a continu- ous building and rebuilding of public trust in close combination with sustainable development. Risk management is thus a most valuable management concept and management tool in today’s complex and globalised world with its increasing demands on governance and compliance. 

Risks in society 

The attacks on the World Trade and the Madrid trains, the Indian Ocean tsunami, the financial scandals of Enron and Worldcom, in- creasing poverty, climate change, increasing problems in the supply of clean water, unexpected riots in the suburbs of our cities, the murder of a Dutch politician, the Danish cartoon controversy, and the massacre at Virginia Tech University – all tell us how fragile society is. This underlines the urgency of and demands the control of risks, not only on global but certainly also on local level. 

Risk management requires a knowledge of what is going on in society – how it is developing in our streets, neighbourhoods, vil- lages, suburbs and cities. And knowing requires the measuring and monitoring of stress, satisfaction, trust, safety; that is, perceptions of risk as well as objective and factual measures of risk. Monitor- ing and diagnosing society is important. Understanding relevant trends and developments is critical. 

Risk management also asks us to understand in what way and to what extent institutions in society really cooperate; where they should and why they don’t. This chain of interrelated institutions should be working if we want to be in control. Only the right in- formation can lead to the right conclusions, and the right things to do. So sensing society and its institutions is a form of risk management.

 Of course, we receive some social feedback from citizens during elections. But it is my view that we need to develop a more consistent and permanent way of monitoring and sensing the state or health of society and the risks within it. This will contribute to an overall improvement in the quality of federal and local policies. And if set up internationally, which it should be, lead to more exchange of knowledge and experience between local authorities worldwide.

Risks in politics 

It is the task of the CEO to advise his local politicians as effectively as possible, to prevent and even to protect them from risks. This boundary between politics and management requires special attention. Politicians often have a different view of risks than specialists and professionals. The approach here is to invest in the awareness of risks and to put it on the common strategic agenda. This seems so easy but actually is not. Politicians and managers do not always speak each other’s language. On the other hand the local govern- ment is an entity committed to the development of policies and legislation by politicians on a regional, national and European level. Yes there is the fact these are sometimes difficult to implement or if so against high costs and with intense efforts from municipal organisations. 

Risk management compels us to consciously calculate the risks and bring them forward. National organisations should play a key role in this. In my view we should invest in partnerships between the different governmental layers. The other approach is to share your experiences in implementation, synchronisation and cooperate in this as much as possible. In the long term, higher levels of government should involve lower levels of government in policy development and implementation. The best form of risk management is a true partnership. 

Mind you, another factor that local government has to deal with is the lack of cooperation on a higher level. Central governmental institutions and ministries are organised by sector: traffic, environment, agriculture, economic, social, legal et cetera. An integrated approach of specific areas, projects, problems or target groups and even individuals is often literally blocked by this compartmentalisation. And this fact itself leads to higher risks for “control” of society. The result is, for example, legislation which is not consistent and may even be contradictory at the local level. 

“Mind you, another factor that local government has to deal with is the lack of cooperation on a higher level.”

Introducing risk management here implies bridging the gap between the compartmentalized nature of government and the need for integration, truly a real challenge for the city manager, generalist, process engineer, chameleon and spider as he or she may be. 

However, reducing the risks of a non congruent and consistent approach on a local level caused by compartmentalisation is often very difficult and frequently impossible. Most power and influence, laws, regulations and budgeting of projects are organised along such sectoral lines. This causes high risks for society. Bridging those gaps may be one of the highest forms of risk management. 

In general it is very clear that a broader approach to risk management can lead to successful projects and policies and from there to successful local politics and politicians. While this seems obvious, it has not always been that way. Indeed, often risk management is seen as an obstacle to political goals and ambitions. I would simply argue here that risk management enables the fulfilment of goals, and if it isn’t happening in an organisation, well, risk management is not being effectively practiced.

“Introducing risk management here implies bridging the gap between the compartmentalised nature of government and the need for integration…”

Risks in management 

The CEO is, in general, responsible for the management of the municipal organisation. And as every manager, he or she has to be perfectly in control and therefore be able to realise the political targets. In this the CEO is, with mayor and alderman, also responsible for the mistakes/faults of the local organisation. In this context, risk management has a lot to do with minimising errors, mistakes and accidents. Preventing crises and disasters and, if they occur, doing the right things. 

Another factor is that good news always travels fast to the top, but the bad news often stays hidden. Most employees never enter the room of the executive to tell the top manager that a decision is very risky and that it will lead to trouble. This would be, as they say, not a good career move. That is the reason that it should be the CEO who puts risk management high on the strategic agenda, as an invitation and a request to employees in the organisation to come forward. Beyond that, he or she has to develop a safe and open culture for employees to talk about risks and, more importantly to reduce them. Most CEOs today delegate directly to others. But it is my opinion that this is a risk in itself. Risk management requires the involvement of all members in the management team, and it requires that they all explicitly share the risks. 

Another important aspect of the job of CEO is realising political targets. This demands a management style focused on results. Defining the goals and auditing the risks of not realising them can give an enormous stimulus to develop and focus employees on those results. This is risk management pur sang and can assure success and improved control. In this regard the CEO needs to be open and transparent in his approach to facing risks. In my view the process of reducing risks and uncertainties is often too implicit, sometimes even hidden and not visible. 

To prevent the organisation itself approaching risks sectorially it is worthwhile considering the “bundling” of control in the organisation in one place, of course with the checks and balances embedded and incorporated. Legal, IT, financial and quality officers often don’t talk with each other because they have their own specialisms. The city manager also has to develop an integrated approach, as it will improve the quality of political advising, addressing the needs in society and fostering higher quality decisions. 

The necessity of sharing 

In my judgment, all of the preceding comments underscore the importance of sharing—that is, the sharing of ideas, techniques, and strategies among public sector managers. For reasons that escape me, we do not see the level of sharing (between local authorities, between local and central governments, and – yes – between governments of various nations). But sharing is necessary, in significant part because of globalisation. We can learn a lot more if we are prepared to look around us and learn from each other, share our experiences and approaches. 

To encourage and facilitate the goal of sharing, a new visionary and comprehensive risk management organisation for public risk management on a CEO-level has been set-up. It is called the Public Risk Management Organisation (PRIMO). It is an international association that strives to establish an influential trans-national network for creating awareness, to set up networks, to connect people, to develop and disseminate well-founded, solid, useful and cutting-edge knowledge on public risk management for the benefit of society, the citizens and the public organisations. 

Just get started 

Risk management has a good scientific basis, though it is relatively young in the public sector. But there are sufficient tools and techniques available to start. Put risk management high on the strategic agenda. Start the debate about the most experienced risks, create a safe atmosphere and culture in which it is possible to share and bring forward risks. Identifying the risks is a start in itself and the first step for reducing risks and uncertainties on projects, advising and processes. And, I want to underscore this final point; it has to be the city manager who sets the example and leads the way.


This essay is a replica of the article as published in the magazine Public Risk Forum May 2007.

Image: Jack Kruf (2020) Valorising the City [fine art print].