Public Risk Management: Development and Financing
Qiao, Yuhua, Journal of Public Budgeting, Accounting & Financial Management
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. There had not been much study or writing on it. A series of events that occurred in the 1970s and 1980s changed government officials' perception of the importance of risk management. The erosion of governmental immunity to third party liability2 made governments the target of a growing number of lawsuits and exposed them to liability in new areas. Absence of attention to loss controls and the complexity of providing services within budget constraints brought increasing risks to public entities. Insurance companies saw governments as undesirable clients and were unwilling to insure many government risks at any cost. …