Risk Management Discipline in Government Institutions

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.    

Risk management tools can support mitigating the risks of Covid-19.

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.

The North Star in Handling Covid-19 and Future pandemics

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