Best Approaches for Managing Risk for Your Municipality

Lena Eisenstein
5 min read
Municipalities aren't immune from many of the risks that face other types of organizations. They also face different types of risks because of their unique structure and operational goals. Private and public companies need to make money to survive, thrive, and meet their bottom lines. On the other hand, the public sector exists to serve the needs of the public interest. Success for local governments is measured by the overall weight of their citizens' satisfaction. Local governments are responsible for providing the continuity of operations and for restoring services after a power outage, main water break, or other catastrophe that affects the quality of life for the people in their community and that places urgency on processes for managing risks.

Local governments are structured differently than for-profit companies and nonprofits. Despite the differences, most local governments will benefit from having a risk manager because they're required to do more with less.

Local governments have to focus on the municipality's needs which is often influenced by citizen opinion. Many other things also influence a local government's goals and those can change quickly. Every election also brings changes. One local government council may favor making improvements in law enforcement, road improvements, or public safety and the next regime may turn things around completely and shift the focus to building new parks and making improvements in the schools.

Another important difference for local government risk managers to consider is that many of the services that companies provide are mandated by the government. Local governments have to provide law enforcement, emergency services, public safety services, health services, human services, and jails. Many of the services that municipalities offer pose substantial exposures to risk. Even when municipalities can't justify certain risks from a financial standpoint, they have no choice but to assume certain risks for the good of the public.

Limitations on the sources of finances make it challenging for municipalities to manage risk. The most common sources of revenue are generated through taxation, licensing fees, and bonds. Budget constraints, along with public scrutiny require checks and balances. Transparency in local government helps to increase the public's trust level, which helps governments gain the necessary financial and other support from their communities.

The Importance of Having a Risk Manager at the Local Government Level

A risk manager can be instrumental in ensuring that a municipality's limited financial and human resources that are available in the area are directed toward the public's benefit. By managing risk as well as possible, municipalities will spend less on litigation, losses, and claims.

Being Aware of the Types of Risks Facing Local Governments

City managers, risk managers, and city councils need to be aware of the common types of risks that local governments typically face. Health and safety for community members is typically a top priority for local governments. The city's infrastructure and financial sustainability runs a close second to health and safety concerns.

Unfortunately, many local governments aren't preparing well enough risk management for one reason or another. A report by AON insurance in Australia states that about half of municipalities aren't giving enough attention to human and environmental issues. According to the 2018 Local Government Risk Report, a fifth of local government councils don't have a process for risk profiling. As a result, they're more inclined to rely on insurance claims to address risks after they happen.

The key risks for local governments in 2018 were:

  1. Infrastructure
  2. Financial sustainability and stability
  3. Health and safety
  4. Cyber risks
  5. Reputation
  6. Human resources
  7. Asset protection
  8. Funding
  9. Planning decisions
  10. Weather

Municipalities with a forward-thinking mentality use data-backed risk profiling and gap analyses to motivate employee engagement and protect the well-being of employees. Informed data helps municipalities measure and manager their risk appetites. By conserving on other parts of the municipal government's budget, it frees up financial resources to invest in risk management and other projects for the benefit of the community.

Tips for Local Governments to Minimize Risks

One of the commonalities that local governments have with other types of organizations is that creating a positive risk culture helps to minimize risks. Creating a positive risk culture entails clearly defining and communicating risk appetites and tolerances throughout the office and ensuring that staff has the capacity to stay within the parameters of the company's appetites and tolerances.

A positive risk culture gives the municipality the ability to identify, assess, monitor, and manage risks across all levels and learns from their own mistakes and the mistakes of other regions and municipalities.

Modern Governance for Municipalities Addresses Risk Management

Community by Diligent is the modern governance solution for local governments, public school boards, special districts. The platform builds on Diligent's technology and capabilities in offering digital governance software solutions to corporate boards to offer local governments and public educational institutions with the same streamlined approach to modern governance but customizing the platform to the unique needs of local governments.

Many local governments continue to rely on paper-bound processes or outdated technologies that no longer meet the needs of today's digital age. Such inefficient processes create governance gaps which create problems such as inclusion, transparency, and security.

Cybercriminals are aware of the pressure that local governments are under with tight budget that don't allow for proper risk management solutions. This is causing local governments to be increasingly sought after as targets for cybercrime. A single cyberattack can cost local governments millions of dollars, as well as the loss of trust and reputation by their citizens. In a time where risk and disruption are rampant, it's important for local governments to have the right information to be able to address red flags. Community by Diligent has highly secure features built directly into the program.

Modern governance empowers local government leaders with the right technology, insights, and processes to fuel good governance. Community is a mobile-first platform that encourages accessibility, inclusivity, and collaboration among council members and the community through multi-platform mobile availability. Community by Diligent helps local governments to maintain a strategic advantage so they can continually drive success for student, parent, seniors, and all other citizens.