FEATURE
LOGORILLA/DIGITALVISION VECTORS/GETTY IMAGES
QC
FINANCE
Council’s Risk Management Role Are the risks you’re taking ones that you can afford? by Robert Inzer
R
isk management is one of those topics that is not important until it is important, and then it can be critical. It is the same as no one wants government until there is a problem, then government becomes critical. Look at any of the natural disasters including the pandemic, and you will see that even those individuals most critical of government will be right in line, shoulder to shoulder, for government services and support beside those individuals who understand the importance of government in their daily lives. The mayor/commission is ultimately responsible for managing the risk of the organization, and yet this is one area in which most elected officials have no background or training. No one expects commissioners to be an expert in insurance, self-insurance, risk controls, etc. … but your citizens expect you to take such action as necessary to protect them. Government is the ultimate safety net for society. The world we live in today requires us to be dependent upon others for our energy, water, sanitation, food, safety and the other necessities of a civilized society. One of your jobs as elected officials is to make sure all of these services continue to work smoothly and seamlessly. Nothing in life is certain (except death and taxes). We live with uncertainty and cannot avoid taking risks. Your objective is to know and understand the risks you are taking and make sure that they are risks you can afford to take. If they are too large, then you need to transfer those risks (purchase insurance) or mitigate the risks through reserves, policies,
40 QUALITY CITIES | SECOND QUARTER 2021
regulations, etc. An axiom of good risk management is: never take a risk where you can’t cover your losses. In our private lives, we buy auto, property and life insurance to protect us from those risks we can’t afford to accept. That same thought process should be applied to your government responsibilities. The problem is that understanding and measuring those risks are much harder. Risk management starts with you. You set the tone for your organization through your policies, votes and communications. Risk management is not just about buying insurance but includes the following: ‣ Programs to ensure employees and citizens are protected. ‣ Essential services provided especially during disasters and
other emergencies.
‣ Regulations adopted and enforced to mitigate flooding and
other environmental disasters.
‣ Investments that provide adequate protection against loss
of principal and provide adequate liquidity.
‣ Debt management programs that control the level and
structure of debt.
‣ Adequate cash reserves for emergencies.
It is analyzing all of your programs to examine the risk, determine whether those risks are acceptable and determine how to eliminate or mitigate those risks.
