Emerging Best Practice Risk Management in the Private and Public Sectors
PRM002
Speakers:
David B. Dolnick, Risk Manager, The Brady Companies
Joseph J. Mazza, ARM-P, Director, Risk Management, MiraCosta College
Learning Objectives
1. Understand the risk management functions and responsibilities in both public and private sectors
2. Be able to discuss how these differences affect risk management activities in each sector• Risk Management Process
• Best Practices
• New and Emerging Risk
3. Be familiar with the necessary differences in: • Duties
• Liabilities
• Management styles
Public vs. Private Sector Risk Management
• Some Contrasts in Organizational Objectives
• Political Climate• Political purposes may influence Risk Professional
actions
• Public Entities are always under scrutiny• Both the Media and the Public.
• The Risk Professional must examine all constituencies
• Public Entities are more widespread, partisan, and subject to more accountability than private entities
Public vs. Private Sector Risk Management• Tolerance for Risk
• Good public policy means assumption of certain risks.
• Elected public officials must recognize that RM cannot guarantee survival or achievement under all circumstances
• Conflicts with other goals
• Level of uncertainty about potential losses needs to be minimized.
Public vs. Private Sector Risk Management• Tolerance for Risk
• Insure against rather than retaining serious losses
• Increases costs but reduces uncertainty
Public vs. Private Sector Risk Management• Obligations to Provide Services
• Services must be provided even if risks are high.
• Public Entities may not always be able to subcontractor a service out.
• Essential government functions are needed:
• Police
• Fire
• Streets & Roads
• Sanitation. & sewer services
Public vs. Private Sector Risk Management• Obligations to Provide Services
• Even non-safety related operations may be considered necessary
• Parks
• Public education
• Justice & crime prevention
• Standard of Living/Quality of Life related services
• Private entities are mission (non-profit) or profit driven and oriented with their business purpose and initiatives.
• Avoidance is generally not an option in Public Sector
Public vs. Private Sector Risk Management
• Obligations to Provide Services• Avoidance is more common in private entities
• Goal of Private Entities is to generate maximum profits or fulfill a mission
• Goal of Public Entities strive to maximize output of specific programs or services within limited budget.
Public vs. Private Sector Risk Management
Legal Requirements
• Public Entities must carry out legal duties or be subject to lawsuits.
• Most governments are established, bound and limited by:
• Strict charters
• Ordinances
• State Constitutions
• Statutes
CALIFORNIA CODES
Business and Professions Code Civil Code
Code of Civil Procedure Commercial Code
Corporations Code Education Code
Elections Code Evidence Code
Family Code Financial Code
Fish and Game Code Food and Agricultural Code
Government Code Harbors and Navigation Code
Health and Safety Code Insurance Code
Labor Code Military and Veterans Code
Penal Code Probate Code
Public Contract Code Public Resources Code
Public Utilities Code Revenue and Taxation Code
Streets and Highways Code Unemployment Insurance Code
Vehicle Code Water Code
Welfare and Institutions Code
Public vs. Private Sector Risk ManagementLegal Requirements
• Public Entities can often rely
upon sovereign immunity defenses
• Little immunity in Private Sector - only for some limited purposes
• Some types of building inspection
• Some vaccine manufacturing
• Some public-private enterprises
Public vs. Private Sector Risk Management
Budgetary Concerns
• Public Entities face multiple demands on funds.
• Budgets are used to run program and help entity meet financial goals.
• Public Entities Power to Tax • Unique ability to generate revenue via taxing and
fee assessments
• Some limitations (i.e., California’s Prop 13)
Public vs. Private Sector Risk Management
Budgetary Concerns
• Most Public Entities’ activities and operations are exempt from state and federal income taxation
• Risk Professional must compete for funding with other services the Public Entities provides
Public vs. Private Sector Risk Management
• Budgetary Concerns
• In private work, effects of taxation on a risk management alternative may be significant
• Taxation rarely comes into factor for Public Entity decision making
• There are always unique or special circumstances
Public vs. Private Sector Risk Management• Contrasts in Organizational Structure: Hierarchy
• From large corporations to small Public Entities, there is a chain of command with employees at the lower levels traditionally having the most contact with the public.
• As entities grow, the Risk Professional for front-line employees becomes more important.
Public vs. Private Sector Risk Management
Contrasts in Organizational Structure: Hierarchy
• Risk control programs become more difficult to implement with long chains of command
• Know your position and level of authority
• Work effectively with senior management
• Work with lower-level employees for implementation and compliance
Public vs. Private Sector Risk Management
Contrasts in Organizational Structure: Hierarchy
• Division of Labor
• Break tasks down into simpler components
• Task specialization leads to expertise and efficiency
• Claims
• Loss Control/Safety
Public vs. Private Sector Risk Management
Contrasts in Organizational Structure: Hierarchy
• It matches the authority with responsibility and accountability.
• From Risk Professional viewpoint, it presents problems as subdivisions carry out their own tasks making monitoring of activities and exposures across the entity more difficult.
Public vs. Private Sector Risk ManagementContrasts in Organizational Structure: Span of
Control
• Refers to the number of different risks the risk manager supervises
• Limiting the number of direct reports to about 6-8 can be optimum
• Ease of compartmentalization
• Easier decisions on in-house or outsourcing
Public vs. Private Sector Risk Management• Contrasts in Organizational Structure: Span of
Control
• Private sector span of control works fine in finance, Human Resources and administration.
• Public sector employees in law enforcement, education and social services work outside the standard office and cannot be supervised directly on a constant basis.
• Longer/wider spans increase risk
Public vs. Private Sector Risk ManagementRules and Regulations
• Many bureaucratic hurdles in public entities
• Requires communication with all levels of staff
• Risk professional provides guidance on Risk
• Resource for development of Risk Control.
• Support and guidance to address Safety and Health issues.
• Risk Management does NOT own the risk
Public vs. Private Sector Risk ManagementContrasts in Financial Management: Sources of
Revenue
• Public Entities levy taxes and charges fares, fees, tolls, etc.
• Relatively stable and enforceable.
• Bonds can raise funds for specific purposes
• Private sector bills fee for service (profit) or received donations/grants (not-for-profit)
Public vs. Private Sector Risk ManagementContrasts in Financial Management: Sources of
Revenue
• Public Investments are restricted by law.
• Private Entities pay taxes and fees to Public Entities
• Tax stream is difficult to interrupt in the short term
Public vs. Private Sector Risk ManagementBudgeting
• Public Entities use different accounting procedures which affect
• Budgeting
• Investment funding
• Tax considerations
• Zero-balance budgeting - where expenditures match up with revenues (Except the US government!)
Public vs. Private Sector Risk ManagementBudgeting
• Goal of Public Entities is to stay within budget
• In the Private sector, that means balancing cash flow
• Return on Investment (ROI) is common to both
• Return on equity (ROE) applies only in private sector
Public vs. Private Sector Risk ManagementFinancial Reporting
• Public Entities are heavily documented and discoverable.
• Government Accounting and Standards Board (GASB).
• Both must account for all losses, tort claims, theft, damage and destruction of assets
Public vs. Private Sector Risk ManagementContrasts in Managerial Accountability
• Civil Service rules can impose limits on personnel actions
• Unionized workforce can both help and hinder disciplinary action (true in both)
• Accountability can depend on corporate culture as much as on established rules
Public vs. Private Sector Risk ManagementCommonalities in Political Environment
• Both sectors have ‘politics’
• Both sectors have ‘corporate culture’
• Both sectors have multiple stakeholders on any given issue
• Both sectors require Risk Management to work within those constraints
Public vs. Private Sector Risk Management
• Distinctive Exposures Within the Public Sector
Public vs. Private Sector Risk Management
Property Exposures
• Public Entities have a wide variety of unique exposures:
• Skate board parks, dog parks
• Water treatment plants
• Courthouses
• Civic centers
• Gymnasiums
• Clinics, hospitals
• stadiums.
• Maintain roads, bridges, buildings, fleets. Etc.
• Responsible for private property
Public vs. Private Sector Risk Management• Employment-Related Exposures
• Diverse workforce, police, fire
• Trades, various occupations
Public vs. Private Sector Risk Management• Roads and Streets
• Construction either with employees and Public Entities owned equipment or subcontract.
• Usually operates within a geographic area based on taxing body.
Public vs. Private Sector Risk ManagementParks and Recreation
• Safety concerns for citizens, Workers’ Compensation for employees.
• Property and liability exposures
Public vs. Private Sector Risk Management
Law Enforcement
• Police
• Violent suspects
Public vs. Private Sector Risk Management• Special Events
Public vs. Private Sector Risk Management
Utilities
• Power transmissions, water
Public vs. Private Sector Risk ManagementDistinctive Exposures Within the Private Sector
• Property Exposures
• Less infrastructure, building/facility
• Contingency planning is critical for survival
• Chain of commerce strict liability is unique to Private Sector
• Sovereign Immunity is unique to Public Sector
Public vs. Private Sector Risk Management• Employment-Related Exposures
• Fewer rules (no Civil Service) increases breadth of risk for harassment, etc.
• No presumptions under Workers’ Compensation
Public vs. Private Sector Risk Management• Shareholder exposures
• D&O & Indemnification of Directors
• Important (or critical) issues
• Closely held AND publicly traded
• Partnerships – buy/sell and contingency governance planning
• Form of the entity (e. g., GP, LLP, LLC, S-Corporation, C-Corporation, etc.) can be critical
Public vs. Private Sector Risk Management
• Changes in Legislative and Regulatory Requirements
Public vs. Private Sector Risk Management• Defining Legal Duties for Public and Private Sector
Entities
• Legal Element for Negligence Same for both –(Duty, Breach, Proximate Cause, Damages)
• Basis Standard of Care Similar in both
• General and Specific Immunities of Public Entities including myths
• Common Duties imposed on Public and Private Entities
• No Punitive Damages in Public Sector
Public vs. Private Sector Risk Management
• Transparency in Public Sector
Public vs. Private Sector Risk Management
• PATIENCE IN PUBLIC SECTOR!!!
Public vs. Private Sector Risk Management
• PATIENCE IN PRIVATE SECTOR!!!
Public vs. Private Sector Risk Management
Public vs. Private Sector Risk Management
Public vs. Private Sector Risk Management
• PATIENCE IN PUBLIC SECTOR!!!
