Take a risk and reap a reward

A report by the LGiU and Zurich Municipal (pdf) published late last year found that councils are increasingly concerned about their management of risk.

In a national survey undertaken with over 90 councils, 50 per cent of respondents described their organisations as ‘risk averse’. You might say that a certain level of risk aversion is healthy for an organisation holding responsibility for large sums of public money, and undoubtedly councils cannot afford to cultivate a laissez faire attitude to risk. Equally however, complete aversion to risk can stifle innovation.

Risk and Reward argues that in 2012 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 and an ageing population 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.

But with new approaches come new risks. Our report suggests 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.

In researching this project, the LGiU spoke to senior councillors, chief executives, policy managers and local government partners. The responses 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. However, under 20 per cent had formally assessed the community’s appetite for more involvement.
  • Councils may 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 may 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.

Some authorities were of course taking a more radical approach to community involvement, but overall there was a perception that risk was regarded as something to be avoided rather than managed.

What are the implications of this approach for community collaboration in service delivery? Firstly, if councils are not prepared to take a more flexible approach to procurement and commissioning, they may prevent community groups from participating. Secondly there will be an opportunity cost to this if community groups become disillusioned by the process and less likely to participate in future.

Risk and Reward argues that a flexible, strategic approach to risk management is required to deal with the challenges facing councils in future. Increasingly this may involve building resilience in the community, and developing a more prominent role for elected members in managing risk.

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. The risk management panel would take on a strategic role in relation to risk across the whole authority, establishing the council’s risk appetite across a range of services.

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?

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 made this assessment. By establishing the strengths and weaknesses of the community sector, councils can 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

4)    Review procurement and commissioning policies. Over 60 per cent of respondents to the survey 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.

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. 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 need for risk education among local government officers and elected members and their community sector partners.

The research in this report has revealed a varied landscape in local government risk management. 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.

To read the full report, please go to https://member.lgiu.org.uk/whatwedo/Publications/Documents/Risk%20and%20Reward.pdf

For more information on our Risk and Reward work, please contact project lead Lauren Lucas on lauren.lucas@lgiu.org.uk.