Lars Løkke Rasmussen and Jesper Hjort | May 2007
In January 2007, PRIMO Danmark launched its national guide on (public) risk management, Risikoledelse – En Kommunal Opgave. The guide was endorsed by the Danish Minister of Interior, Lars Løkke Rasmussen, who wrote the first part of the preface to the guide.
Rasmussen: “Every day, local authority managers make decisions involving risks; that is, decisions involving significant uncertainty. It is important to note that these may be risks facing citizens, local communities or the local authority organisation itself.
Risk is simply a condition of life when the future is uncertain. To put it in another way: making important decisions on an uncertain foundation is also part of overall management. Executives can never be entirely certain about the foundations of their decisions. However, if entirely risk-proof decisions were possible, nothing would happen.
So, for executives, the whole secret is – in the words of Kierkegaard – to take upon one self this uncertainty. Executives in the public sector should, therefore, work systematically on minimizing the negative sides of risks and on maximising the positive sides.
The task of dealing with risks in society in general has, so far, been carried out reasonably well. From a historical perspective, the world – not to mention the average Danish municipality – has by no means become a more uncertain or risky place to live. To the contrary: we live longer, we live healthier lives and we have prospects of fewer losses of human lives and assets than ever before.
When we, nevertheless, see a need to focus on public executives’ ability to handle uncertainty, this is due to a number of essential changes of the conditions under which this management is carried out. It is not just a question of a more globalised world, or of a higher degree of complexity in the production of services and the exercise of public authority.
And, it is not just a question of an increasingly larger body of laws and regulations, nor just a question of the rapid technological developments and of the many opposing pressures from an increasing number of stakeholders with whom today’s executives need to deal. It is not least a question of the public’s very explicit and legitimate expectations that the authorities manage the part of our daily lives, for which they today – to a considerable extent – are responsible.
This leaves executives with an equally legitimate claim on having decision support; and a systemised decision support for dealing with uncertainties is exactly what risk leadership is about.
By working with corporate governance, the private sector has attempted to meet today’s expectations of good corporate governance from the public and from politicians as well as from national and international requirements and regulations. From the very start, risk management has been recognised as an integral part of corporate governance in international codes of conduct as well as in the (for example) Danish Nørby Report.
“I would argue that the public sector as well should include risk management as a natural part of good public governance.”
To earn the citizens trust everyday places a heavy responsibility on local authority top executives. Of course, public executives and organisations cannot guarantee certainty and progress. However, they can assist citizens, local communities and private enterprises in handling the risks which are connected with safeguarding the welfare of society now and in the future in a more thoughtful, yet also more proactive, way. Instead of letting ourselves be governed by fear, we should face the future in an intelligent way.”
From municipal perspective
Chairman of PRIMO Denmark Jesper Hjort writes in the preface of Risikoledelse: En Kommunal Opgave* (2007):
“Challenges lying in front of us. This guide aims to give top municipal managers a concise approach to risk management, thus providing them with decision support to systematically manage uncertainty. At the same time, it is hoped that other managers and specialists will also benefit from the reading and that the ideas and systems of risk management will achieve greater application in the public sector in Denmark.
Municipal leaders have a great responsibility—and after the municipal reform, it is no less. With its broad-spectrum scope, complexity of services, and number of employees, the average Danish municipality is at least as difficult to manage as most private companies.
For some years, private companies in Denmark have been able to get help with risk management through the Nørby report’s recommendations and other codes and standards. Something similar has not been worked out for the public sector, which has had to look to England in particular to find guidance in this area. With the assistance of several private companies, a contribution to a Danish model of risk management in the public sector is now available.
The guidance will show public leaders that, given their significant responsibilities, they are well served by a mental and methodical response to critical uncertainties when making decisions. The guide will primarily introduce the risk management philosophy and illustrate how risk management can be translated.
Risk management is well-known in most municipalities and other public organisations. If public leaders don’t improve some form of risk management, they will hardly be leaders for very long. However, this introduction is necessary because the terms of management, public and private, have changed on a number of key points. It challenges both traditional operational risk management and the more intuitive approach, not to mention the often indirect acceptance of risks in practice.
The guidance has been made from the recognition by the co-acting municipalities that the time is ripe for a strategic and methodical approach to managing risks. The European Municipal Directors’ Association, UDITE, has also recognised this by putting risk management on the agenda in the 15 Member States in 2005 and forming the Public Risk Management Organisation (PRIMO).
The starting point is that risk management does not require the reassurance of the municipal organisation or a change in a manager’s entire management philosophy and style. Instead, risk management is about completing ordinary work with practical knowledge and knowledge in relation to risk issues.
The guide is prepared in the spirit of public governance, and it is hoped that it will help meet the challenges that municipalities face following municipal reform. The guide is based on five key recommendations:
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- Put risk management on the executive board’s agenda.
- Review the overall organisation from a risk perspective.
- Insert risk and opportunity assessment as a form requirement in decision settings.
- Integrate risk management into the municipality’s information and management system.
- Establish a central controller risk management function.
Following these recommendations can really reap the benefits of risk management. The communities both clearly achieve greater planning and security while strengthening development and innovation. All in all, municipalities can better meet their social and social obligations.
All experiences show that good risk management increases confidence in management. It is my hope that the management boards of the new municipalities will follow these recommendations as much as possible, thereby making risk management a municipal task in the near future.”
This article was published in the Public Risk Forum in May 2007.
*Translation from Danish by Jack Kruf.
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