There is a growing body of research around evaluations of the efficacy of risk management in both the public and private sector. The Research School of Accounting’s Distinguished Honorary Professor Pat Barrett AO has drawn on these resources to explore the current culture of, and obstacles to, risk management in the Australian Public Service (APS).
The APS has long relied on rules and controls associated with administrative processes to reduce the impact of risk on the programs they deliver. In recent years, there has been a stronger focus on measuring the outcomes of programs and therefore on the acceptable level of risk involved in improving those performance metrics.
But are organisations all speaking about the same thing when they discuss their approaches to risk management?
In Pat’s analysis, he found that it is important to distinguish between risk appetite and risk tolerance.
“Risk appetite is simply defined as the amount of risk an entity is willing to accept, or retain, in order to achieve its objectives. Risk tolerance, on the other hand, is the level of risk-taking to achieve a specific objective or manage a category of risk,” he said.
With an increasing reliance on the private sector to deliver programs, the Commonwealth Government needs to consider how the different approaches to risk appetite and risk tolerance between the two sectors affect their outcomes and accountability.
The Independent Review
Pat was the Commonwealth Auditor-General between 1995–2005 and published this work just prior to the release of the Independent Review of the APS in 2019. Since then, he has reflected on the outcomes of the review in relation to risk management.
“I think the Review shed vital light on many areas of the public service, but was conducted at a high level of generality and lacked a proper treatment of risk management. This is a lost opportunity to stress the importance of strong risk policy and management as an integral part of transformational management. By stressing this importance, the Review would have enhanced the report's focus on achieving better program outcomes and real accountability for those outcomes," Pat said.
The Review does identify that by limiting delegation of authority to senior levels, the APS is not making use of its frontline and middle-management employees. This can lead to a weaker capacity for leadership in the future and a stifled culture of innovation.
“Those responsible for Governance have an important leadership role to play in risk policy and risk management, whether in the private or public sector. In the public sector, that has to include the Minister or even the Cabinet for particular programs, such as in foreign affairs and defence areas,” said Pat.
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