The commercialism agenda through the eyes of a risk manager

Jane O’Leary, vice chair of Alarm risk management association, discusses the opportunities and challenges of new local authority service delivery models, and the role of risk practitioners in ensuring their organisations remain resilient in an ever evolving public sector

As a risk manager working within the public sector our remit, historically, was all about risk management relating to risk we all understood and, to a certain extent, could influence and control. Highways, social care, waste management, leisure centres and elderly residential care. All bread and butter stuff with risk management techniques and mitigations that are tried and tested.

Then came the era of austerity and over the last few years a change from ensuring delivery of the typical public sector services to the ‘do or die’ mentality. Venturing into areas of business that causes the cautious public sector risk manager to shudder from head to foot. But we are resilient and adaptable, keeping a cool head and offering that all important challenge, facilitation and support. Using risk management as the valuable tool it is to ensure that the commercial agenda reaches its full potential.

Members of Alarm are largely professionals who manage risk and insurance in organisations serving public services and their communities and who are seeing a sea change in the areas of risk they are involved with. We have experienced challenging times and, with events over the last year, can only envisage that this will continue for some time to come. We must support our organisations to adapt and change, seek opportunities and create innovative solutions to ensure we can continue to deliver services to our community.

By 2015 local authority budgets had been cut by 40 per cent compared to 2010, and most councils in England were only halfway through the cuts needed to meet reduced budgets by 2020. Future resilience will be determined by how much income is raised locally, and it follows that public services must seek innovative solutions to achieve this. We already see local authorities running energy companies, building commercial property portfolios, running airports and hotels, to name a few. Outsourcing and partnering are now commonplace. New arrangements and collaborations in delivery throw up new risks; including those that have not previously appeared on public sector risk registers. Contract and supply chain management are two areas where knowledge and expertise remain elusive. The opportunity for councils to become commissioners rather than deliverers was seized and continues to be developed in different ways.

In addition, governance arrangements of new models of delivery may also give rise to new risks. With shared services, local authority trading companies, community interest groups and combined authorities the traditional local government model and associated risks are a thing of the past.

New ventures, new risks
Recognising the future challenges and opportunities of public services self-sufficiency, Alarm has launched a guide to the risks arising from new service delivery models titled New Ventures, new risks. New ways of working present some of the most challenging risk management issues for today’s risk and insurance managers. The guide describes a number of different service models, identifying the most common risks together with insurance management considerations.

New delivery model opportunities are the positive side of risk and can be assessed in similar ways to risks when undertaking options appraisals. It brings less cumbersome trading opportunities enabling greater opportunities to trade across the whole of the public sector without the restrictions imposed by conditions inherent in the well-known Teckal procurement case, which is concerned with public entities trading with each other. Consideration should be given however to the types of services to be delivered and whether the new entity could successfully compete with the private sector, having regard for existing skills, experience and market knowledge.

New delivery models provide the opportunity for public sector organisations to stretch their resources and earn additional income. This may arise from external trading, development of shared service centres and other innovative commercial entities. Public bodies should consider the potential for external income generation. There is a finite level of demand for services nationally and there are many examples where new service delivery entities have ceased trading because the expected level of demand has not materialised.

New delivery models may enable simplified governance arrangements resulting in speedier decisions. There is a view held by many in the public sector that: ‘bureaucracy stifles innovation’. New entities would be able to respond quickly to market changes and customer requirements. Revised governance arrangements should however, not be oversimplified and there should be proper accountability, compliance and assurance provision.

Service delivery
There are significant differences in the skill-sets of private and public sector employees. Public sector experience is in short supply in private sector organisations. Public sector bodies procuring services prefer to deal with organisations with appropriate experience and expertise, improving the marketability of public sector providers. In addition public sector employees benefit from opportunities to improve their personal skill-set when embarking on new delivery models.

Skills concerned with commercial matters, negotiation, relationship management, customer service, marketing and dispute resolution are crucial in the establishment of new delivery entities. Both public sector employers and employees benefit from reputation enhancement as well as expansion of community and local third sector roles.

The development of new service delivery models provides opportunities for the local community to become involved in service delivery. This may promote community cohesion and civic pride through local asset ownership, especially if those new delivery models reach out to areas of the community the public sector has not engaged with.

The onset of combined authorities also presents significant opportunities for the public sector organisations in their area to shape the strategy and delivery of regional services so they appropriately match the demographics, nuances and demand of local areas.

Regardless of the type of new delivery model under consideration, risk management is a key tool to support delivery and risks of a similar nature will exist. Good management practice determines that the development of any new delivery model should follow an agreed programme plan with aligned risk management arrangements.

Typically there will be three distinct phases identified within the programme’s risk management arrangements: the conception phase, where risk based options appraisals may be undertaken and risks identified concerned with the development and approval of the programme; the post approval or pre start-up, where risks concerned with the application of the preferred option and start-up would be identified; and the post start-up or operational phase, where the new delivery model has commenced operations and risks impacting on ongoing service delivery. Risks described in the following categories may apply within each phase. Public sector leaders may benefit from checklists for each risk category to prompt identification and management of risks within each risk area.

Finance and governance risk, human resources and performance management are all key risks. Gaining and keeping skilled people is paramount to successful delivery. Should we be seeing on all corporate registers risks around skills, expertise, pay and rewards and retention of those working within the new look public sector?

The final message is related to insurance provision for new ventures. The public sector insurance market knows the range of public sector risks traditionally insured but may not be aware of changes regarding new models of service provision. New ways of working need to be properly underwritten and insurers need full disclosure of all the facts to provide appropriate insurance cover, otherwise existing cover might be compromised or nullified. Alarm is concerned that public sector employees who embark on new delivery methods and are not closely involved in insurance matters might not know the typical ‘blanket’ type of insurance cover is insufficient to insure new delivery models.

The key message from Alarm in this rapidly changing world of public services is to be ever vigilant as to what the organisation is planning and respond with advice in a timely fashion. Keeping pace, understanding the changing role and developing the right skills in our ever increasing commercial world are vital to ensure the risk manager plays a core part in the future delivery of services to the community.