Calculated risk needed to ensure public sector resilience

January 22, 2024 | 14:28
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Amid today's dynamic economic landscape, the imperative of effective risk management is more critical than ever. This holds especially true for countries like Vietnam, where the need for robust risk management processes in the public sector is paramount.

The ACCA’s latest report, “Calculated Risks: An introduction to finance professionals’ role in understanding risk and building resilience in the public sector,” sheds light on the challenges and opportunities faced by the public sector, drawing from a comprehensive survey of over 400 professionals globally.

The ACCA’s survey findings provide valuable insights into the multifaceted challenges encountered by public sector organisations. The guide emphasises the significance of clear objectives and a robust risk management process. Finance professionals, with their unique skill set, take centre stage in recognising and addressing risks in the public sector. By leveraging core skills and adopting innovative approaches, they contribute significantly to building resilience.

To Quoc Hung, country manager of ACCA Vietnam, underscored the transformative role of finance professionals.

“Amid the waves of economic uncertainties, finance professionals stand as architects of resilience, crafting a foundation that fortifies the public sector against the tempest of challenges,” he said.

“It is not merely about managing numbers; it's about orchestrating financial strategies that safeguard the foundations of our public institutions, ensuring they withstand the unpredictable tides of the global economy.”

Navigating the risk universe

Public sector risk management is essential for ensuring efficient governance and sustainable public service delivery, particularly in the current dynamic global environment filled with uncertainties. The process involves systematically comprehending the risk universe, prioritising risks, and implementing strategies for response, reporting, and monitoring. Financial pressures are a prevalent risk, consistently highlighted in the ACCA’s survey as the foremost challenge faced by public sector organisations.

The term ‘risk universe’ encapsulates all potential risks faced by an organisation, with financial challenges universally acknowledged by professionals in the public sector. The Office of the Accountant-General’s Risk Management Support Unit in South Africa offers a systematic framework for risk identification, emphasising internal and external factors. Categorising risks into internal and external, and focusing on strategic risks, helps organisations manage these complexities effectively.

Calculated risk needed to ensure public sector resilience
Each public sector organisation faces its own unique set of risks

Organisations must adapt to evolving circumstances, anticipate potential risks, and develop robust strategies to withstand and recover from disruptions. Resilience involves not only fortifying structures and systems but also fostering a proactive mindset, agile decision-making, and the ability to learn and innovate in response to shifting dynamics.

To build resilience in a volatile world, the focus lies on upskilling finance teams and prioritising technology, governance structures, risk assessments, and data quality. The ACCA's survey underscores that strengthening staff's risk management skills is crucial, with a significant emphasis on technology investment for robust contingency plans.

Clear leadership, aligned risk communication, and robust governance structures are highlighted as essential elements, emphasising the need for proactive risk management strategies. Additionally, risk assessments prioritising high-impact threats, strengthening data quality, and integrating financial professionals into the core of the risk management process are crucial steps for enhancing resilience in the public sector.

Embracing good risk culture

Hung emphasised behaviours associated with a good risk culture, including demonstrating a positive attitude towards the management of risk, considering risk in every business decision before it is made, strong and open communication channels, responsibility for risks and controls, honesty, and clear ownership of risk, as well as encouraging and educating others in the management of risk.

The ACCA’s report additionally outlines the Four Ts of risk management – tolerate, treat, transfer, or terminate – a widely employed approach in the public sector. These responses provide a framework for organisations to address risks carefully, considering legal responsibilities, value for money, and the unique nature of public accountability.

While transferring or terminating risks may seem appealing, the public sector's obligation to retain control and fulfill statutory responsibilities often makes treating risks a more pragmatic choice. The decision-making process involves weighing the cost, feasibility, and potential drawbacks associated with each response, with clear documentation necessary for understanding, monitoring, and reviewing the chosen approach for each risk.

Calculated risk needed to ensure public sector resilience
The Four Ts of risk

But more than any other response to emerging risks, there is a compelling call for enhanced preparedness and resilience, positioning finance professionals at the forefront of this crucial endeavour. As custodians of financial expertise and strategic acumen, finance professionals play a pivotal role in navigating the complexities of the evolving norm. Their ability to analyse, strategise, and implement robust risk management frameworks becomes paramount in fortifying public sector entities against potential disruptions.

The ACCA's conclusive report on assessing, responding to, reporting, and monitoring risks in the public sector not only sheds light on the pervasive challenges faced by organisations but also serves as a strategic guide for resilience-building. The document not only accentuates the indispensable role of finance professionals in navigating uncertainties but also advocates for heightened preparedness and adaptability.

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By Vy Bui

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