Special Report: Public sector risks

Inevitably, any discussion of the UK public sector revolves around the theme ‘more for less’. As the UK struggles to emerge from recession and the resulting huge national budget deficiency, cost cutting moves have been a feature of public policy for some time. The new coalition government will continue the pressure on local authorities and other public sector organisations to reduce spending.

Cutting back on services is unlikely to be an option – at least not in the case of those services that are most in the public eye. For example, any authority that announced it was reducing services relating to child protection or care of the elderly could expect a pretty rough ride in the press – downhill all the way. And, indeed, following cases of social workers failing to prevent some recent horrific incidents of child abuse, the public view is that services need improving rather than diluting.

This is where ‘more for less’ comes in. It’s a tough challenge and one that many public bodies are tackling with a range of strategies. These include removing duplication of facilities, new and more cost-effective methods of procurement, such as joint purchasing schemes, and outsourcing/partnership arrangements.

Cutting duplication, theoretically at least, should cut waste. Forming consortia with similar organisations that allow authorities to benefit from economies of scale seems a sensible move. Given that it’s not generally an option for UK public bodies to outsource to low-wage developing countries, experience in the private sector shows that outsourcing works best in the UK when you’re using an organisation that is a large specialist in its field, getting a better service and the benefits of that organisation’s own economies of scale.

All of that can work very well when you’re talking about back-office functions, such as IT, insurance buying and even human resources. The risks are there, of course, as with any loss of direct control, but careful contract drafting and good service-level agreements offer a reasonable measure of protection.

Avoiding the axe

The greatest risks are more likely to arise in outsourcing or partnership arrangements that provide services to the community. While there may be significant cost benefits, a local authority may also be risking ‘the crown jewels’ – the services by which the public, often fed by the media, judge them. You can outsource almost anything but accountability!

When it comes to outsourcing and partnerships, relationship management is a risk that’s very high on the agenda. For many public bodies, it’s a new discipline and one with which managers, who previously were involved in a direct operational capacity, may need some help.

It is crucial for risk managers to step up to and deal with the organisational changes thrown up by the ‘more for less’ challenge. Cutting waste and changes in procurement methods inevitably mean job losses, with consequent lowering of staff morale affecting performance, particularly while people are waiting for the axe to fall.

It’s up to risk managers to ensure that they’re not also waiting for that axe by actively exploring the risks involved in organisational change and providing added value with demonstrable input on ways of reducing risk – even perhaps taking advantage of opportunities, while the organisation goes through its transition.

Finding the silver lining

And talking about opportunities, climate change is an issue that is taxing most public sector organisations. The UK in the last five years have seen many of the effects: storms, floods, snow and ice, even high temperatures and droughts.

In the latest very cold winter some local authorities once again came under the media spotlight, due to issues surrounding difficulties delivering meals to the elderly, running out of salt for roads, and school and road closures. Yet there is an apparent silver lining. Some coastal local authorities envisage an increase in tourism as a result of hotter and sunnier summers.

In the meantime, many authorities and partnering housing associations are looking at how they can build new developments and refurbish existing ones to provide essential protection against extreme weather conditions. The challenge here is achieving the balance between using sustainable materials, such as timber, and not increasing fire risk as a result. This is an issue that authorities commissioning new schools also have to consider.

In the public eye

All of this highlights the fact that public sector risk managers have not got an easy brief. It’s made much worse by the fact that they’re working for an organisation that is in the public eye – and anything that goes wrong is almost guaranteed to get into the public domain.

At first glance, reputational risk may not seem so much of a threat to the public sector as it is to private businesses. After all, communities have to use their local services. They can’t ‘vote with their feet’; when you living somewhere, you’re pretty much saddled with the local services, however good or bad they may be.

But reputational risk is an issue. For a local authority, it can affect the morale of both staff and partnership organisations. And for a university depending on the financial input from overseas students and perhaps research and development funding, it’s absolutely crucial.

Risk managers in public sector organisations have a challenging time ahead. Hopefully, this special report will provide some useful pointers on the key issues.