Sir John Bourn, head of the National Audit Office, today reported to Parliament that properly planned and managed risk taking by government departments can promote innovation and lead to improved value for money for taxpayers. Departments are increasingly considering how best to devise and implement effective risk management strategies.
By September 2000, all departments must set out how they are going to handle the risks for which they are responsible, and the NAO report aims to help government departments improve their management of risk and assist them in well thought through risk taking.
The Modernising Government programme encourages departments to adopt well managed risk taking where it is likely to lead to sustainable improvements in service delivery. Government spending and receipts of over £600 billion cover a range of activities such as provision of social welfare benefits, health care, procurement and management of major construction projects, and the collection of revenue. All departments’ activities involve some degree of risk, and a constructive approach to risk – taking can provide opportunities to deliver services in new ways. Managing such risks is important as it can lead to better service delivery, more efficient use of resources, help minimise waste, fraud and poor value for money, and promote innovation.
The report draws on an NAO survey of all government departments. It sets out examples of good practice in risk management from public and private sectors, including the approach to countering risks involved in implementing innovative approaches to the early release of prisoners and crime reduction in schools. The report notes the progress made in the development of guidance on risk management strategies and frameworks by HM Treasury and the Cabinet Office.
- Eighty two per cent of departments in the survey agreed that risk management is important to the achievement of their objectives, although few had risk management objectives or policies. 57 per cent of departments say they had procedures for reporting risks; and only a third say that regular risk reports were an effective component of managing risks in their department.
- While departments recognised that delivering services in new and innovative ways is a risk in itself which needs to be managed, four fifths say they support innovation. Two fifths, however, regarded themselves as more risk averse than risk taking, while only one fifth regarded themselves as more risk taking. The report identifies some of the reasons for risk aversity (for example culture of the organisation, lack of expertise in risk management, fear of project failure) and some incentives to encourage risk taking (shifting away from a blame culture, improved communication about risks, dissemination of good practice on risk management).
- Central to the Modernising Government initiative as a way of improving service delivery is more joint working between departments, and between public and private sector organisations. About half the departments in our survey identified the risks arising from new ways of working, although just 13 per cent of departments agreed that they know about the strengths and weaknesses of the risk management systems of other organisations they work with.
Once departments have their risk strategies and frameworks in place, they will need to develop action plans for implementing them and ensure that their staff understand the importance and the benefits of risk management and innovation and how to apply them.
The report suggests some key questions which departments might ask themselves to assess whether they have a sound approach to managing risks: such as whether the management of risk is closely linked to the achievement of the department’s key objectives and whether the risks associated with working with other organisations are assessed and managed.