Public Risk Management: Development and Financing

By Qiao, Yuhua | Journal of Public Budgeting, Accounting & Financial Management, Spring 2007 | Go to article overview

Public Risk Management: Development and Financing


Qiao, Yuhua, Journal of Public Budgeting, Accounting & Financial Management


ABSTRACT.

Public risk management is a relatively new but important element of public management and public budgeting. As research in this area is limited, this study attempts to advance knowledge on two specific elements of public risk management based on a survey sent to the Public Risk Management Association (PRIMA) members in 2002. 1) How do public entities use various risk funding techniques (e.g., purchasing insurance, self-insurance, and intergovernmental risk pools)? 2) Have public entities implemented integrated risk management in their risk management practices? The survey found evidence that integrated risk management is emerging in public risk management practice. As this is an exploratory study, the author also identifies a series of questions for future research.

INTRODUCTION

The purpose of public risk management is to eliminate or reduce harm to persons and the threat of losses to public agencies through systematic organized effort (Reed & Swain, 1990). Its goals are three fold: 1) to create a safe workplace, 2) to prevent catastrophic financial losses, and 3) to ensure budgetary stability (Greifer & Schwarz, 2001). Emerging as an independent discipline in the late 1970s and early 1980s (Kloman, 1980), public risk management is a relatively new but important element of public management and public budgeting; consequently the academic literature on this topic is limited.

In this paper, the author will first review the development of public risk management both as a practice and as a field of study. Then the paper will examine risk funding and the use of integrated risk management among public entities based on a survey sent to the Public Risk Management Association (PRIMA) members. Finally, the author identifies a series of questions for future research and hopes these questions will generate more research interest among those who study public administration.

THE DEVELOPMENT OF PUBLIC RISK MANAGEMENT

While both private and public entities need to eliminate and reduce the harm and losses arising from their work, the stakes for the public sector are higher. According to Head and Wong (1999), most public entities undertake a larger number of diverse activities that often spread out over a wider geographic area and are performed by a larger number of employees than private companies. This, in turn, creates a wide range of loss exposures and renders risk management extremely challenging. In addition, private companies can avoid getting into a highly risky business, but government agencies simply do not have this option. Government is obligated to build and maintain roads, streets, parks and recreation facilities, and provide special events, law enforcement, utilities, and social services, all of which could result in a variety of property, liability, net income, and personnel risk exposures.

It is no exaggeration to say that "risk is a fact of life and a fact of government" (Greifer, 2001, p. 31). Risks come from all corners of life. In addition to the traditionally recognized risk exposures, new ones are emerging such as the terrorism attacks and the pending bird flu pandemics. Even information technology has created new sources of risk and brought new liabilities. Viruses and hackers can attack e-mail systems and government online transactions (Greiger, 2001).

The importance of effective risk management cannot be overstated. It plays an essential role in reducing and eliminating the cost of risk, in making the most effective and efficient use of taxpayers' money, and in protecting the well-being of the communities. Failure to implement an effective risk management program can financially jeopardize a community.1 Fone and Young (2001, p. 108) correctly state that a public entity's ability "to address these risks in a systematic and integrated way will provide a key difference between public organizations that succeed and those that fail."

Public Risk Management since the 1970s

While the importance of risk management is obvious, prior to the 1970s, it was seen as equivalent to purchasing insurance and the management of insurable risks.

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