Central government with its modernising agenda has long flown the flag for the creation of partnerships between public and private sector organisations. This is evidenced by the evolution of public and private partnerships (PPPs) as a means of maximising efficiency in service provisions, and private finance initiatives (PFIs), in which private organisations can contribute capital to the development of a new asset, which in turn is leased back to a public organisation.
Traditionally, there have been reservations about the benefits and constraints surrounding such a wide-reaching partnership approach, but PFI and PPP contracts now account for billions of pounds every year and have become a way of life. Improvements to hospitals, schools, social housing, highways and many other areas traditionally provided for from public sector budgets have been the result. But, as with every major project, there are both upsides and downsides, and the risk manager can often be the one to see both sides of the coin.
For risk managers to ensure they are in position to assess both the opportunities and the risks can be a tricky business. ALARM firmly believes that risk managers should be one of the key players in the initial stages of such projects, and must always be represented at the debating table.
Risk management is well-established as an implicit discipline of any organisation's strategic management and governance arrangements, and this should extend to individual project and partnership management. Risk management adds sustainable benefit to the activities of an organisation and could do exactly the same for partnership projects, with a common understanding being established early, and ownership of risks clearly assigned. It is therefore imperative that all public sector organisations see the benefit of using a risk management methodology as a fundamental part of planning, and bring in the risk manager at the earliest possible time to identify the opportunities and risks associated with any partnership project.
Upsides and downsides
Major issues include the fact that, while responsibility for management and delivery may transfer to a partner, the risk does not. For example, where statutory duties are placed on a public sector organisation, their partners' inability to deliver would not nullify the breach of duty. In the case of a PFI established for a new school, where the opening date cannot be met or the building does not meet required standards, it is the local education authority that retains the statutory provision to educate children. It is of small comfort if financial penalties within the PFI contract are enforced - there is still no building in which to provide education.
Similarly, if as a result of a failure in a PPP provision of IT support, housing benefit cheques cannot be paid, it is again the local authority that retains the risk and must find a means of meeting its statutory commitments.
These are just some of the potential risks of a partnership project arrangement, but for every risk, there can also be a benefit if managed properly. Partnerships create genuine opportunities to obtain something that would otherwise be unavailable. Examples include significant investment from a PPP in desktop IT applications and software development, or replacing old and unsuitable school buildings with modern premises capable of delivering a modern curriculum.
Important aspects of maximising the benefits and minimising the risks include reassurance of the service continuity plans of any partner organisation.
If a service or facility is provided by the private sector in its entirety, and there is a dependence on that service, the provider should have plans to sustain the provision, and the recipient should have their own services continuity plans in the event of a total failure.
Consider also the potential for reputational risk. Few risks are creeping up on public and private sector organisations with such rapidity as reputational risk. Studies show that reputation loss is rated as the second highest risk after business interruption. Indeed, approximately 2,000 public/private organisations consider it the biggest risk.
In the public sector in particular, any failing or misjudgement will reflect badly upon the organisation. While the failure may be the partner's, the reputation on trial will be that of the commissioning public body.
A local taxpayer would not be interested in the cause of the failure, but would simply place the fault with the local authority. Early warning systems for problems that could damage reputation, and a robust media and publicity strategy would be a risk-managed method of mitigating such events.
ALARM believes that risk managers have the responsibility to ensure that they make the relevance and added value of their discipline known, and that early engagement of risk management principles are essential. To quote the recent Good Governance Standards for Public Services, an essential principle includes taking informed, transparent decisions and managing risk.
The answer to the question of which table risk management should sit at is a simple one - every table. Risks are inherent at every stage of every partnership project, and the risk manager must be invited to the table.
ALARM chairman Carolyn Halpin comments: "The role of the risk practitioner continues to expand, and areas of partnerships have proved to be a minefield of problems and failure in the past. The risk practitioner's role is to think outside the box with an enterprise risk management methodology, to ensure all risks are identified, controlled and understood."
- Gemma Rogers writes this on behalf of ALARM - The National Forum for Risk Management in the Public Sector, Tel: 01395 223399,