Risk and Reward: local government and risk in the new public realm

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The report, entitled Risk and Reward, argues that there is a great need for innovation in local government service delivery. A tough spending settlement, a rapidly changing policy environment and increasing pressure on council services all call for greater collaboration between state and citizen. Issues such as population movement, climate change, an ageing population and global financial interdependence cannot be resolved by governments alone, but will require a new level of engagement with citizens.  At the same time, the renewal of the localism debate and reduction in central government targets has left a space for solutions to be sought locally. New and innovative approaches are needed to meet these unprecedented challenges.

But with new approaches come new risks. Risk and Reward assesses the implications of citizen and community involvement for local authorities. It argues that the need for greater collaboration will bring with it the need for investment in capacity and resilience building, and a more flexible understanding of risk management.

Briefing in full

In researching this project, the LGiU surveyed an opinion pool of local government leaders, senior councillors, chief executives and policy managers. A focus group of senior councillors, an in depth roundtable of council Leaders, and individual interviews also contributed into the research. The answers reflected a high level of concern about the future of risk management and illustrated some of the potential pitfalls in facilitating greater community involvement in service delivery. 

  • Councils are concerned about low-levels of demand and capacity in their local communities. 64 per cent said the capability of the community sector in managing services or assets was ‘low’ or ‘very low’. 66 per cent said they would be ‘unmotivated’ or ‘very unmotivated’ to take on such responsibilities. Over half of all respondents said that the Community Right to Buy was ‘not at all important’, or ‘not very important’. Just under half reported the same for Right to Challenge and of ‘mutuals and cooperatives’. However, under 20 per cent had formally assessed the community’s appetite for more involvement.
  • Councils limit opportunities for community sector involvement as a result of their pre-occupation with controlling risk. Half of respondents rated their council as ‘risk averse’ or ‘very risk averse’. Although 50 per cent said their authority was ‘risk tolerant, they were predominantly prepared to take risks in discretionary services such as arts and sports development. Two fifths of respondents said they were ‘unlikely to take any risks’ in commissioning children’s services.  A third reported the same for adult social care.
  • Councils limit opportunities for community sector involvement as a result of their complex structures.  Over 60 per cent said that their commissioning and procurement processes would be ‘difficult’ or ‘very difficult’ for the community to access;
  • Councils are not prepared for managing the risks created by greater community involvement in service delivery.  Nearly 99 per cent had not considered a strategy for managing risk associated with the new community powers.  65 per cent of respondents said that elected members were ‘ultimately responsible’ for risk in their organisations. However, over half said their scrutiny panels were ‘not very’, or ‘not at all’ effective in managing risk.

While some authorities were found to be taking a more radical approach to community involvement, there were still high levels of risk avoidance. Councils are often pre-occupied with controlling risk, and consequently limit opportunities for community collaboration. A more flexible approach is required, involving building resilience in the community, and a more prominent role for elected members.

While any review of risk management will need to relate to the local context, the report makes a number of recommendations for councils.

1)    Establish a scrutiny panel dedicated to corporate risk management and the voluntary/community sector. As our research identified, 65.1 per cent of respondents identified elected members as being ultimately responsible for organisational risk, but nearly 50 per cent felt that scrutiny panels were ineffective in managing such risk. Only 4.8 per cent felt they were ‘very effective’. The risk management panel would take on a strategic role in relation to risk across the whole authority, including identifying the parameters for risk tolerance within which services are delivered. Rather than regarding risk as a product of service delivery to be controlled, the panel would establish the council’s risk appetite across a range of services, and would also be responsible for taking the lead in recommending potential areas for increased community involvement.

2)    Produce a risk appetite assessment for services across the council, determining the authority’s appetite for risk, and which areas are most appropriate for community involvement. The assessment should seek to address the following questions.

  • How much risk is the authority willing to take on?
  • How much are they willing to pass to the community?
  • What services have the greatest capacity to tolerate risk?
  • Where will a capacity to tolerate risk return the greatest rewards?
  • To what extent does the organisation support Community Right to Buy and to Challenge?

Included in this assessment should be a model for deciding where, and if, the transfer of services and assets to the community will be most appropriate.

As part of this assessment, local authorities should audit their local communities’appetite and capacity for risk. Less than 20 per cent of surveyed councils had addressed this issue and their assumptions about the interest and ability of local community groups to take part in the delivery of services may not therefore be accurate. By assessing where the strengths and weaknesses of the community sector lie, councils can more effectively target capacity building and market stimulation.

3)    Develop a strategy for managing the impact of the Community Right to Buy and Community Right to Challenge. Only 1.2 per cent of respondents to our survey had considered their response and this has two implications. Firstly, as the majority of councils have not assessed their local communities’ appetite for increased engagement, the response to this legislation cannot be predicted and councils could find themselves unprepared to deal with groups initiating a challenge to local services, particularly where services and buildings are facing closure. This could expose authorities to a completely new set of risks. Secondly, councils need to decide whether they are prepared to support the community in using the new powers and to what extent.

4)    Review procurement and commissioning policies. Our research demonstrated that over 60 per cent of respondents felt that it would be ‘difficult’ or ‘very difficult’ for the community sector to access current commissioning and procurement procedures. Although EU procurement regulations will remain in force, there is scope for local authorities to re-assess their current policies in partnership with the local community and voluntary sector with reference to the risk tolerance assessment above.

5)    Clarity of communication is needed about the council’s aspirations for community involvement in the local area, and about the distribution of risk when community groups are involved. If the risk is to be shared, clear communication of the risk appetite and tolerance of all partners around shared objectives is critical, as is an honest approach to the benefits for each partner and potential sources of discord in the relationship.

6)    This links closely to the need for investment in capacity and resilience building.  Investment in resilience should be recognised as an efficiency measure in the long term, particularly given that 52.4 per cent of respondents to our survey saw ‘problems with sustainability’ as a high risk in relation to service or asset transfer to the community. The risk associated with any service transfer is distributed between the risk profile of the delivery partner and the actions of the local authority. Paradoxically, by trying to squeeze the most out of a contract with the community sector rather than investing in their resilience, a local authority could actually increase the risk of service failure.

Of course capacity building needs to take place within both the community sector, and local authorities. If councils and communities are to collaborate effectively, it is essential that they share an understanding of risk and of risk management. With this in mind, there is a fundamental need for risk education among local government officers and elected members and their community sector partners.

Comment

The research in this report has revealed a varied landscape in local government risk management. Many councils admit they are risk averse, and even those that claim a level of risk tolerance display aversion to risk in the delivery of some of their largest service areas. Most importantly, risk management practice is still very much focused on minimising risk across the board, rather than assessing strategically where risk can be tolerated, and where it cannot. When it comes to engaging with the community sector, a strategic evaluation of risk appetite will be crucial, as well as an audit of the local community’s capacity for risk and the need for resilience building. 

To read the full report, please go tohttps://member.lgiu.org.uk/whatwedo/Publications/Documents/Risk%20and%20Reward.pdf, or for more information please contact Lauren Lucas at lauren.lucas@lgiu.org.uk.