Risk and opportunity management’s global profile has increased. At the most basic level, risk is about awareness and reaction to potential circumstances that could impede an entity’s ability to achieve its goals and objectives. When viewed from this perspective, it makes good sense for managers to formally identify those circumstances and develop steps to reduce or avoid the risks.

The owners of organisations want assurance that their managers have systems in place for managing routine or low risks, and for identifying early warning signals of potentially high risks.

The macro-influences that have contributed to the increased focus on risk management include:

• The increased separation of ownership from the management of entities
• The complexity of modern society, with its many inter-relationships and interdependencies
• The increased threat of litigation for perceived contractual and service failures
• Increased attention to environmental and sustainability issues, including the effects of climate change
• Governmental regulatory requirements for risk management processes, and regulatory penalties for non-compliance
• The presence of an influential standard setter, such as the Treadway Commission, promoting good governance and risk practices in major corporates.

During the past 15 years in New Zealand’s public sector, there has been a trend towards increased awareness of risk management as an important element of good governance. The catalysts for  this awakening have been:

• Public sector entities’ more accountable legislative footing
• Central agencies taking an active interest in overseeing public sector entities’ risk management
• Several tragedies and service breakdowns that have focused the public spotlight on risk management.

In the central government sector, the Cave Creek tragedy4 in 1995 prompted increased efforts in risk management, particularly in the areas of safety and asset failure. The State Services Commission prepared “good-practice guidance” on risk management and encouraged government agencies to introduce risk management frameworks and regimes. During this time, the A/NZ Risk Management Standard 4360:1995 was introduced, providing a solid foundation and methodology for risk management practices.

In local government, there is no legislative imperative for integrated risk management, and the development of risk management practices has been fragmented.

Some of the influences on risk management in local government have included the following:

• The Local Government Act 2002. Local authorities are required, in their 10-year plans, to “identify all the significant forecasting assumptions and risks underlying financial estimates” (clause 11, schedule 10). This linked risk management with financial management, rather than isolating it as a separate required council policy along with investment policies, funding policies, and the like.
• “Risk management for local government handbook” (NZS HB 4360:2000). This was developed to provide more detailed guidance on the A/NZ Standard 4360. It listed various areas of risk typically found in local government. However, the handbook has not found widespread favour or uptake.
• Asset management planning. The introduction, from 1996 onwards, of formalised integrated asset management has probably been the most significant springboard for enhanced risk management. Risk management is seen as an important element of asset management.
• Legal compliance good-practice modules. The Society of Local Government Managers (SOLGM) has developed, under a risk management umbrella, a series of good-practice modules to help
  local authorities navigate their way through complex processes and avoid legal pitfalls. These modules mainly relate to consents-type processes.
• Public Health risk management plans. The plans specifically relate to the security of water source, treatment and reticulation.
• NZ Transport Agency (NZTA) risk requirements for managing transport projects. Several years ago, Land Transport NZ (now NZTA) introduced a requirement for Road Controlling Authorities (RCAs) to identify and manage potential risks for those projects that were above a given financial threshold and to which NZTA funding was attached.

The above points illustrate that the path to integrated risk management in local government has not been smooth or direct, and there is no solid foundation of legislative certainty. There are a number of risk side paths that have been added to the main path by various agencies for their own particular purposes and needs. No one doubts that integrated risk management is important in local government, but it is not yet a fundamental precept that is recognised in statute, carried out in practice, or monitored by a central agency.

In 2002 the then retiring Auditor General, in a valedictory report to Parliament on local government issues, said, “Unfortunately integrated risk management in local government has not developed as quickly or broadly as in central government.” Perhaps that observation is still pertinent seven years later.