Managing risk is innate in individual and every society. Noah’s ark and prehistoric tools are evidence of managing risks of flood and extinction. Managing risk became a formal discipline in 1980s. It evolves into a regulatory requirement in 1990s and, today a standard function in financial institutions. From a segment of Finance it grows into a separate specific discipline honed & allocated with people and resources . It grew stronger with robust capital and practices sharpened by 1998-2010 global financial and political crises. With Risk Management as a discipline, financial system is better equipped in the recent situations of abrupt lock downs. With Covid-19, future pandemics and other risks, it is time for government institutions to establish risk management discipline and use its tools and processes.
Covid-19 has two-fold risk: health and economy. As of this writing, worldwide confirmed cases is about 18 million and deaths is about 700 thousand. In the report released by Asian Development bank, the global economy could suffer between $5.8 trillion and $8.8 trillion in losses—equivalent to 6.4% to 9.7% of global gross domestic product (GDP). In addition per latest reports, Europe’s GDP contracted by -3.6 percent in the first quarter of 2020 . In United States, the lock down triggered massive unemployment with predicted contraction of -5 percent. The deaths and economic impact trickles down from global down to the smallest group in society – county, small and medium enterprises, service professionals and families.
With Covid-19, minister or secretary of health is in charge of hospital, medical mobilization and coordination, planning and formation of surveillance units. On other affected areas it depends on what activity and purpose. If economy and liquidity, Treasury or Exchequer or Trade. If opening of school classes, Education. If business resumption, Trade. Often, these results in misalignment. As a default, the Prime Minister or the President should handle the risk holistically. However, he is most likely fully occupied by other governance functions. His decision could be based on information gathered through different methodologies and perspectives. This was manifested in various countries . US President Trump immediately closed the airport traveling from Europe (except UK) in March 2020, but ‘walk the talk’ of wearing mask in June 2020 only. China was not quick enough to warn the world. It takes a lone physician to stress the importance of the immediate warning. The surge of cases and deaths in Italy and Spain could have been prevented earlier if the heads of the government are properly informed. In Singapore, it was supposedly the model approach, but the City-State nation of 5 million has more cases than those with 100 million populated countries. In UK, there were reported misalignment on date of re-openings. Given these situations, it is necessary to have an agency who will have an enterprise and holistic point view and forward looking perspective of risk. Implementation of risk management tools has been proven to aligned risk taking views and appetites, cultivated transparencies and unified purposes.
Role of Risk Management Agency
Similar to Science and Technologies, Risk Management Agency can be primarily advisory function, with execution activities limited to risk identification & forecasting , assessment, monitoring, mitigation and measurement. The agency will not supersede the functions of other agencies. Rather, will compliment and armed them to ensure that present and future risks will be managed as a whole, not per silos or affected area. The agency will ensure uniform execution of risk tools from national to local governments, implement streamlined and faster reporting from highest to lowest executive branch and launch a comprehensive risk awareness campaign. The risk management agency will provide guidance based on its data and independent analysis. The execution of tool will remain with each existing agencies and their areas of responsibilities. The risk management agency will provide tools and processes guidance to every other agencies to ensure alignment. It will ensure awareness within the government and, ultimately the people.
Activities and Tools
The risk management agency will have its unique activities and tools. The first activity is risk aggregation, measurement and forecasting. The risk agency will aggregate risk data, measure and forecast what are the most imminent risks and the loss and opportunities for any course of actions. To ensure data integrity and accuracy, the risk agency will independently verify results and outcomes. Any agency or department accountable to metrics that they will be measured is likely to be tempted in window-dressing. A southeast Asian country has instance of incorrect reporting causing further issues and problem. The risk management agency can come up with dashboard validated and align with other agencies. Risk Forecasting and Data quality will be a must.
Risk Awareness and Communications is another important activity. The agency will roll out risk awareness program jointly with the government communications group. The agency will measure risk awareness of the people based on sampling methodologies. If people are aware, rules will be voluntary followed and their execution would be better. No need for military force for people to comply. Cooperation will be easily elicited. At minimum resources, losses will be minimized, prevented and no surprises on the results of actions. With Risk management Agency program of risk awareness, buy-in of health protocols will be easier than forced lock downs. The agency will establish tools and processes balancing health and economic activities. Risk identification, monitoring and controlling using escalation methods, risk assessment, key risk indicators and risk awareness indexing, will be among them.
Would there be any duplication? At the onset of the implementation there might some overlapping. However, once fully rolled out – the risk management agency functions will be clearly defined and unique on its own. In fact, there are already functions in existing agencies which the risk management agency can utilize. For example, in database build up, the nation’s statistic office can be tapped and collaborated with rather than establishing separate management information system unit. Another is in the execution of the tools, instead of hiring new people in the local government, the functions can be carried out as additional tasks by related offices such as Finance or Treasury. Risk Management Agency will not ‘reinvent the wheel’. The agency can use existing resources in transforming risk management from centralize to decentralize and embed the tools in each every office. The Risk Management Agency can ensure its use not only during crisis, but in the normal day to day operations.
What Difference The Risk Management Agency Can Make
If Risk Management was implemented before Covid19, the approach of the governments and the impact to their respective countries would have been different. Currently, the reporting is focus on confirmed cases, recoveries and deaths. With Risk Management discipline, the reporting would include not only confirmed death and cases, but also number of breakdown on health protections protocols and risk awareness index. It would also include granular impact per local economy and household income loss per confirmed cases in the area of lock down. There would be leading indicators, lagging indicators and control breakdown indicators (elaborated in Part 2).
Another difference the Risk Management discipline would have contributed is alignment and co- awareness of views. Conflicting views are displayed among leaders such as in Brazil by the resigned Health Ministers vs President Jair Bolsonaro and in US, Dr. Fauci’s view is highly different with Pres. Trump’s tweets. A high risk for health minister, may it be number of bodies or jobs loss would not be the same for the economic ministers or had of state. Risk tools would have address situations where a certain level of losses is acceptable to the Prime Minister or President, but intolerable to the health sectors. Reconciling and aligning risk appetite is very important in every organization.
Risk Management could have quantified the risk, triggering early detection and prevention. It could have launched risk escalation to immediately address deviations from health protocols. Risk assessment measures, per national and local government units could have been established to have a logical view and decision whether and when to re-open or not. Using the Risk Management tools, recommendations could have been provided early to narrow the gap between confirmed cases and economic resiliency, achieving the North Star in handling the pandemic.
Overall, using Risk Management tools and processes. through a focused Risk Management Agency in government institutions is not yet late. While vaccines are under trials, applying risk management principles, tools and process would surely make a difference in managing the worsening conditions of increasing deaths and deterioration of the overall economy. Risk management agency will not replace any existing government unit or department. It will facilitate the integration of the risk management tools among departments to ensure alignment in managing risks (this pandemic and future’s). Risk should not be managed per silo – per function or per area, rather on enterprise-wide basis. Risk Management tools can elicit easier participation not only from governing bodies, but also from the governed – the people. It will produce transparency and alignment of risk appetite, purpose & actions.
Similar to history, risks repeat itself. Implementing risk management discipline, its tools and processes via a focused agency can reduce impact and shorten recovery periods.
Jorge Dioneda / Jurgen Jorgensen