A risky business

Third sector in a new world of risk.

15th June 2010David ForsterVivian GumbleZurich Municipal

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Agenda

Introductions Kevin

What this session is about Kevin

Contributor input David/Vivien

Q&A so far Kevin

Group work Yourselves! +K,V&D

Feedback Kevin

Actions for NAVCA Kevin

Wrap. Kevin

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Quick overview

Why this topic

Barriers to risk management

What risks

Commissioning risk (inc risk allocation and exit strategies)

Current operation risk issues

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Business Risk

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Why be interested in risk management?

Significant crisis impacting on an organisation’s ability to continue are now becoming a one in five year event.

Biggest recession since the war.

With funding resources scarce partners want confidence that you understand and are managing your key risks.

The charity sector is become the major supply to Local Government in terms of Commissioned services (estimated at over £12bn)

Society is less forgiving of failure.

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Why is it then….

Risk management is a paper exercise in a majority of charities?

Most charities feel they gain limited benefit from undertaking risk management?

For most charities it is a once a year process with limited involvement the Board.

What are the barriers to risk management in your experience?

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What risks?

The practical exercise

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What risks?We’ll have a look at these later!

No Risk

1 Recessionary impact - loss of funding both short term and longer term. This creates sustainability issues especially for the smaller charity.

2 Reputation and brand management. The reputation of many charities is the biggest asset they have. All too often it can disappear in the blink of an eye caused by a unforeseen crisis, breach or service failure etc

3 Skills shortages in key areas. Notable skill shortages are around fund raising, quality trustees

and strategic planning. The skill shortages vary dependent upon the size of the charity. This risk is also linked to staff turnover.

4 Stakeholder management has taken a marked change for the worse. The biggest relationship

risk issue is internal with the relationship with trustees followed by relationships with national government.

5 Commissioning / competition between charities (many Charities used to work together – in

many cases they are now direct competitors). Despite the COMPACT many charities fail to maximize commissioning opportunities or struggle to engage with larger public sector partners.

6 Compliance with law and regulation- eg breach of trust law, employment law, and regulatory

requirements of particular activities such as fund-raising or the running of care facilities. 7 Negative policy shifts in key areas at both a local and national level. This normally places extra

burdens on medium to small charities. 8 Governance challenges. These will often be unique to the charity concerned but include Board

CEO relationship issues, Board competency and performance management issues. 9 Secondary recessionary impact of increased demand / coping with demand for services and

amenities. 10 The third sector is not immune from being over taken by crisis and business continuity

events. These range from staffing issues, property access, I.T reliance and adverse weather events.

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New world of risk

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We’ve written this out in a lot of detail in….

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Building resilience

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What do we mean by resilience?

A definition;

‘The ability to survive and thrive in the face of unexpected events and a changing risk landscape’.

How ?

A ‘whole risk’ approachIntegrated risk management and response.

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Designing a resilience approach to risk

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And integrating the disciplines and functions….

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Commissioning Risk

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One of the top risks?RISK No 5 - Fail to maximise public sector commissioning and procurement opportunities

Analyse Plan

Review Do

Commissioning

Purchasing/Contracting

Purpose and guidance Market Analysis Resource Analysis Needs Analysis Risk Analysis

Gap AnalysisJoint Commissioning

StrategyService Design

Strategy Monitoring & Review

Change Management

Budget & MarketManagement

Contract Monitoring & Review

Tendering & ContractManagement

Resource User NeedsProviders

Specification Contract/SLAPurchasing Plan

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Root cause analysis

What are the real risks and issues?

W hy?

W hy? W hy? W hy?

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B e cau se .... . . . . . . . . . . . . .

B e cau se .... . . . . . . . . . . . . . .. . . . . . . . . . . . . . .

B e cau se .... . . . . . . . . . . . . .

B e cau se .... . . . . . . . . . . . . .

B e cau se .... . . . . . . . . . . . . . .. . . . . . . . . . . . . . .

B e cau se .... . . . . . . . . . . . . . .

B e cau se .... . . . . . . . . . . . . .

B e cau se .... . . . . . . . . . . . . .

B e cau se .... . . . . . . . . . . . . . .. . . . . . . . . . . . . . .

P rob le m ..... . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . .

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Conduct a root cause

analysis to understand

the Commissioning

risk

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Strengths, Weaknesses, Opportunities and threats

StrengthsKnowledge to service areaLinks to community / grassrootsPassionExperienceAbility to innovate / flexibilityCommitment to the causeIndependence (trusted)Volunteer base

Weakness Lack of visibility to

Commissioners Risk adverse Lack of evidence to support

results No “walk away” price Lack of key skills Lack of USP Resistance to change

Threats Seen as cheap Funding cuts Sector competition Losing identity of the sector Government initiatives Lack of public sector “penetration” Commissioning / tender timescales Public sector attitude

Opportunities Funding pressure creates the

need for innovation Partnership working Outsourcing by public sector Personalisation Sharing and working across

sectors

Source: Zurich workshops into Commissioning risks run for ACEVO

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Key risk issue: risk allocation

There needs to be clarity at the outset of any arrangement not only what the key risks are but who is allocated the key risk.

There are three options when faced with a risk– Retain responsibility / ownership of the risk [Council]

– Share responsibility / ownership of the risk [Shared]

– Pass responsibility / ownership of the risk [Charity]

Risks are generally transferred through– Use of wording within any agreement

– Agreement of particular elements within the payment mechanism

– Seeking of particular implements such as bonds

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Exit strategy - why?

You shouldn’t go into a partnership with the fear or expectation of failure - however you should have thought through the implications.

Need for a plan B (exit strategy)Minimal disruptionSmooth transitionNo nasty surprises

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Operational Risk

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Why should you be concerned about Health& Safety?

Stop accidents, injury and ill healthFinancial reasons

Costs of claims are on the increaseLegal costsIncreased insurance costsDeductibles/Excess Investigations costs/Other down timeSick pay/Replacement CoverProsecutions/Fines

Reputation including recruitment and retention of staffMoral obligationsLegal obligations – Health and Safety at Work Act 1974 etc, Corporate Manslaughter

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Health and Safety - Corporate Manslaughter

Controlling Mind Principle

High Profile Failures; Lyme Bay, Barrow in Furness

Public Pressure

Adverse Media Attention

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How did we get here?

Courts have always had problem with “controlling (or directing

mind)” in larger organisations

“Controlling Mind” more obvious in smaller organisations

July 2006 the new Bill was published

April 2008 - Corporate Manslaughter and Corporate Homicide

Act 2007

Provision for a new offence of Corporate Manslaughter

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Barrow in Furness

Legionella outbreak in Summer 2002 from Council Leisure CentreHead of Councils Design Services Group accused of Manslaughter of 7 people.Barrow cleared of Corporate Manslaughter, pleads guilty to breaches of the Health and Safety at Work Act.Mrs Beckingham fined £15,000 and Council £125,000 plus £90,000 costs.Judge highlighted that “failings had not only been at the lowest level of the council, but all the way to the top in terms of its serving officers”. What could happen to you now the law has changed?

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The Corporate Manslaughter Act

Gross BreachAn organisation is guilty of a offence if the

way in which any of its activities are managed or organised by its senior managers-(a) causes a persons death, and(b) amounts to a gross breach of a relevant duty of care owed by the organisation to the deceased.

The test asks whether the conduct that constitutes the failure falls far below what could reasonably have been expected.

XYZ Corporate Killer

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Sentencing Guideline

Early in 2010, the Sentencing Guidelines Council published guidelines for ‘Corporate manslaughter and health and safety offences causing death’.

FineRemedial OrderPublicity Order

Fines for organisations found guilty should seldom be less than £500,000 in order to act as a deterrent.

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Sentencing Guidelines – The Fine

Aggravating factors?– More than one person killed or seriously injured.– Failure to act on advice– Profit before safety– Corporate culture encouraging breaches– Failure to listen to employees

Mitigating factors?– Remedial actions– General responsible attitude to safety– Previous good safety record– Guilty plea

In the case of Public Sector, the likely effect of a very large fine on public services may be weighed against the above.

What about the third sector?

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“Board level involvement is an essential part of the21st century trading ethic. Attitudes to health and safety are

determined by the bosses, not the organisation’s size.”

“An organisation will never be able to achieve the higheststandards of health and safety management without the active

involvement of directors. External stakeholders viewing theorganisation will observe the lack of direction.”

“Health and safety is a fundamental part of business. Boardsneed someone with passion and energy to ensure it stays at the

core of the organisation.”

Quotes from health and safety leaders in the public and private sectors.

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“Leading health and safety at work” www.hse.gov.uk/leadership

DELIVER

REVIEW

PLAN

MONITOR

Leadership Actions Directors

& Board Members

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A sensible approach?

Sensible Risk Management is:-Employees are properly protectedBalancing benefits and risksInnovation and learningThose who create risks manage themEnable individuals to understand the right to protection but must act responsibly

Sensible Risk Management is NOT:-Creating a totally risk free societyGenerating paperwork mountainsScaring people with trivial risksStopping important recreational and learning activitiesReducing the protection of people from real risks

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“Reasonably practicable”

Likelihood that someone will be injured

Seriousness of the injury

Social value / positive result of the activity

Cost of preventative measures

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Summary

So will Risk Management reduce the possibility of any accusation

of Corporate Manslaughter?

Almost certainly - Yes

Why? - because you will be able to show a provable documented

prioritised approach to all risks

- this means from the setting of overall corporate strategies

right through to the front line operational requirements.

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Agenda

Introductions Kevin

What this session is about Kevin

Contributor input David/Vivien

Q&A so far Kevin

© Z

uri

ch

37

Agenda

Introductions Kevin

What this session is about Kevin

Contributor input David/Vivien

Q&A so far Kevin

Group work Yourselves! +K,V&D

© Z

uri

ch

38

What risks?

The practical exercise

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What risks?We’ll have a look at these later!

No Risk

1 Recessionary impact - loss of funding both short term and longer term. This creates sustainability issues especially for the smaller charity.

2 Reputation and brand management. The reputation of many charities is the biggest asset they have. All too often it can disappear in the blink of an eye caused by a unforeseen crisis, breach or service failure etc

3 Skills shortages in key areas. Notable skill shortages are around fund raising, quality trustees

and strategic planning. The skill shortages vary dependent upon the size of the charity. This risk is also linked to staff turnover.

4 Stakeholder management has taken a marked change for the worse. The biggest relationship

risk issue is internal with the relationship with trustees followed by relationships with national government.

5 Commissioning / competition between charities (many Charities used to work together – in

many cases they are now direct competitors). Despite the COMPACT many charities fail to maximize commissioning opportunities or struggle to engage with larger public sector partners.

6 Compliance with law and regulation- eg breach of trust law, employment law, and regulatory

requirements of particular activities such as fund-raising or the running of care facilities. 7 Negative policy shifts in key areas at both a local and national level. This normally places extra

burdens on medium to small charities. 8 Governance challenges. These will often be unique to the charity concerned but include Board

CEO relationship issues, Board competency and performance management issues. 9 Secondary recessionary impact of increased demand / coping with demand for services and

amenities. 10 The third sector is not immune from being over taken by crisis and business continuity

events. These range from staffing issues, property access, I.T reliance and adverse weather events.

© Z

uri

ch

40

Agenda

Introductions Kevin

What this session is about Kevin

Contributor input David/Vivien

Q&A so far Kevin

Group work Yourselves! +K,V&D

Feedback Kevin

Actions for NAVCA Kevin

Wrap. Kevin

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Question time?

Thank you for listening

David Forster Vivien GumblePractice Leader Risk Consultant

Zurich Risk Engineering126 Hagley Road, Birmingham B16 9PF

Email vivien.gumble@uk.zurich.comDavid.forster@uk.zurich.com