Why is Risk Management Important?

Risk needs to be embedded in work activities at all levels as part of day-to-day business activities.  The intent of risk management in the workplace is to reduce uncertainty in the way we undertake the business of government, with the intention of minimising loss and maximising opportunity.

The identification and management of risk is fundamental to the procurement process to ensure that we meet local government objectives when spending money.  Failure to identify risks and manage them where possible, and to do this cost effectively, may result in increased costs, delays, poor outcomes and complaints.  The aim is to try and prevent the occurrence of risks that can hurt us, and maximise the opportunities that may exist, where it is appropriate to do so.

Therefore, we need to consider the risks that may impact at all planning stages in the procurement process and monitor and adjust them throughout the procurement lifecycle to identify where we may need to change or alter our approach.

Risk Management is the identification, assessment and prioritisation of risks followed by coordinated and economical application of resources to minimise, monitor, and control the probability and/or impact of unfortunate events or to maximise the realisation of opportunities.

Risk management should be entrenched in everyday work practices, rather than be seen as a separate, and possibly onerous, task.  Within your organisation, staff work at different levels and therefore consideration of different aspects of the organisation’s business should be explored.  For example, senior staff may consider overall risks to the organisation and reputation of local government but will not necessarily be focused on the impacts of day-to-day operational projects.  Therefore, risk should be managed by all staff, at all levels, with effective communication and reporting between the strategic and operational levels.

The best time to undertake risk management planning is when you are planning any activity.  This means you can be proactive in your approach, rather than reacting to possible disasters.

Case Study: The Maintenance Department at the Shire of Fitzroy Falls

 

David works as the maintenance manager for the Shire of Fitzroy Falls. He contracts the services of a local painter, Christopher, to undertake painting works. David does not undertake checks of Christopher’s credentials nor does he check to see whether Christopher has a Work Health and Safety policy.

While undertaking works, Christopher neglects to place barriers around his ladder. An elder lady trips on the ladder leg, breaking her hip.

Her family successfully sues the council for negligence. The local paper prints a disparaging article about the council.

In this situation, David’s failure to act resulted in:

  • injury;
  • legal action;
  • financial costs;
  • loss of reputation.

In some cases, individuals and organisations will choose to take risks that may result in positive outcomes. This type of risk is known as positive risk.

The following example illustrates a situation where a work team made the decision to take a positive risk.

Case Study: Department of Sustainability

 

Peter works as a senior manager for a state government department in charge of environmental sustainability. After consultation with others, including the minister in charge of the environmental portfolio, he initiates a controlled burn-off.

The risks of a controlled burn-off include damage to property and people. This endeavour will also cost money, require the use of specialised equipment and man power.

It is likely that some members of the public will object to the burn-off for environmental reasons.

Peter and his work team believe that taking action to prevent a bushfire from causing widespread damage is a positive risk.

There may still be negative outcomes associated with making the decision to take risks. In the example above, the risks are quite serious. However, the risk associated with failing to act, is much higher.

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