Risk management in the private sector is about protecting yourself, your business or project and your employees against the probability of uncertain future events

“FERMA welcomes two more members”
20 September 2011

The risk management association of Malta (MARM) and Slovenia (SI.RISK) have been accepted as the latest members of the Federation of European Risk Management Associations (FERMA). They bring to a total of 19 the number of countries whose risk managers are represented in FERMA.

Peter den Dekker, the President of FERMA, said: “I am thrilled to welcome these new members to FERMA. Their enthusiasm shows the recognition of FERMA as the voice for the European risk manager and demonstrates the growing development and professionalism of risk management across Europe.”

The Maltese Association of Risk Management (MARM)
The enthusiasm of the members of the founding council of the Maltese Association of Risk Management has enabled them to build a new organisation to promote the knowledge and use of risk management within the private and public sectors in the Maltese Islands.

A dedicated LinkedIn group served as a catalyst.

The President of MARM, John Schembri, comments, “Malta is possibly the smallest European state with an effervescent economy. Risk management is an emerging area of management and the market signs are that it is now ripe for more focus and attention. The association intends to reach out to all sectors of the risk management market in the Maltese Islands. MARM shall be a very proud member of FERMA and all of us will endeavour to promote risk management in the best light possible within a growing market.”
The council members of MARM are John Schembri (President), Ian-Edward Stafrace (Vice President), Mario Genovese (Treasurer), Andre Farrugia (Secretary), John O’Dea (public relations officer) and Simon Grima (council member). They come from various business sectors including financial services, aviation, safety/security, manufacturing, retail and hospitality and public sector.

John O’Dea speaks to Martin Vella about the importance of developing exchanges of information and expertise to establish risk management as a natural and integral part of good public governance.

EDITOR’S NOTE
John O’Dea is President of PRIMO Malta and a member of the Executive Board of PRIMO Europe, a Pan-European organisation registered and domiciled in Brussels, was set up at a UDITE meeting in Dublin in 2007, to enhance public risk management as an integral part of public governance. He has had a varied career in top managerial and executive posts in the manufacturing, retail and hospitality industries and is currently employed as a consultant with Scotts Supermarkets.

COPORATE BRIEF
PRIMO Europe was created on the 6′th December 2005, by UDITE- the Pan- European Union of Local Authority Chief Executives of Europe with the aim of making risk management an essential part of good management in the public sector. Since its inception, PRIMO Europe has developed rapidly with chapters in Denmark, France, Nederland, Flanders and now also in Malta – a network which offers its members a comprehensive web library, guidance and counseling, as well as an introductory online course in risk management.

TEU: How would you define risk management and what are its benefits?
JO:Risk can be defined as the combination of the probability of an event and its consequences. Quite a mouthful! Basically, in every type of undertaking, there is the potential for events and consequences that constitute opportunities for benefit or threats to success. Risk Management is concerned with both positive and negative aspects of risk and looks at risk from both perspectives. In the field of safety it is generally recognised that consequences are only negative and therefore the management of safety risk is focused on prevention and mitigation of risk.

Risk Management is a central part of any organisation’s strategic management. It is a process whereby organisations methodically address the risks prevalent to their activities with the goal of achieving constant benefit within each activity and across the range of all activities. The focus of risk management is the identification and treatment of these risks. Additionally, it increases the probability of success, and reduces both the probability of failure and the uncertainty of achieving the organisation’s overall objectives.

TEU: What is PRIMO Europe’s philosophy towards financial risks?
JO: PRlMO stands for Public Risk Management Organisation. It was founded to enhance public risk management as an integral part of public governance. PRIMO is only concerned in financial risks, in so far as how the performance of banks (which were bailed out with public funds) affects the public sector. A case in point is how the global credit crunch has adversely affected and limited public spending on the infrastructure in local government all over Europe where budgets have been trimmed to the bone.

” Risk Management is concerned with both positive and negative aspects of risk”

TEU: What is the importance of risk management in the overall strategy of PRIMO Malta?
JO: PRlMO Malta’s mission is to inculcate and embed public risk management and best practice in both local and national government institutions. PRIMO is the offspring of UDITE, (Union des Dirigeants Territoreaux Europeans) the Pan European federation of local government chief executives. UDITE  is a professional networking organisation for local government chief executives across Europe. With around 15,000 members and working as the umbrella organisation across 15 EU countries, UDITE links with its members’ local government national associations to promote constructive relations between chief executives and senior managers.

The executive board of UDITE, of which I was a member, had long discussed the need to set up an independent organisation to promote public risk management; PRIMO was set up at a UDITE meeting in Dublin in 2007.

TEU: How will the PRIMO Academy promote risk management and how will it provide a competitive edge?
JO: The PRIMO Academy is still in its formative stage. The PRIMO Board unanimously agreed to set up an academy to foster and promote risk management to its members and to members of UDITE. I contacted Maven Training – a private organisation that provides training in MoR (Management of Risk) for ALARM – the British national forum for risk management in the public sector and similar European organisations. The PRIMO Academy, will offer training courses, seminars and briefings that attract PDUs (Professional Development Units), which provide evidence of continuing professional development and help maintain professional certification. The PRIMO Academy will enable risk, project and change professionals to gain PDUs via its accredited training courses (foundation and practitioner), workshops briefings and special interest forums.

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Source: International Journal of Environmental Research and Public Health

“We used data from nationally representative surveys conducted in the United States, Canada and Malta between 2008 and 2009 to answer three questions: Does the public believe that climate change poses human health risks, and if so, are they seen as current or future risks? Whose health does the public think will be harmed? In what specific ways does the public believe climate change will harm human health? When asked directly about the potential impacts of climate change on health and well-being, a majority of people in all three nations said that it poses significant risks; moreover, about one third of Americans, one half of Canadians, and two-thirds of Maltese said that people are already being harmed.”

“About one third of Maltese (31%) said they were most concerned about the risk to themselves and their families.” Read more >

The economies of southern Europe and the Mediterranean, including Malta, are forecast to suffer the most adverse effects of climate change, according to a new report drawn up by the European Environment Agency, the European. Read more >

On 27 November 2007 the European Commission approved the Operational Programme for cross-border cooperation 2007-2013: Italy-Malta. This Operational Programme comes under the European Territorial Cooperation objective in Italy and Malta and has a total budget of about 35 million euros.

The financing provided by the European Regional Development Fund (ERDF) amounts to some 30 million euros. The programme involves the provinces of Agrigento, Caltanisetta, Ragusa, Siracusa and Trapani and the provinces of Catania and Palermo adjacent to the eligible areas in Sicily, together with the whole of Malta, including Gozo and Comino.

The Operational Programme is divided into three priority areas. Priority 2 is about Environment, energy and risk prevention [about 45% of total investment]. The aim of this priority is to promote the protection, management and best joint use of natural and cultural resources and protection against natural and technological risks, with a view to establishing a joint programme for sustainable development and cultural promotion in the cooperation area. Support will also be given to projects for energy saving and the use of alternative energy sources, especially wind power.

“Distinguished guests, Ladies and Gentlemen,

Governance is the exercise of authority – political, economic, administrative, or otherwise – to manage the resources and business operations in the best public interest, be it at national or at local government level. Governance is also the process of decision-making and the process by which decisions are or are not implemented.

Every government strives for good governance. The doctrine of good governance combines three basic principles, namely: democracy, (political) development and public management.

“Good governance” ensures that decisions are accomplished in a manner which is free of abuse and corruption, and with due regard for the rule of law. Good governance also presupposes political development, which comprises accountability and transparency through the adoption of mechanisms for scrutiny. Political development also involves social, economic and cultural development. It also calls for efficient and effective delivery of services, entrepreneurial encouragement, and the adoption of managerial tools for the effective and efficient delivery of services.

Modern management discourse centres on the concepts of efficiency, effectiveness, economy, customer-orientation and the elimination of bureaucracies. In public administration, goods and services are financed by the public coffers, and an ever-increasing knowledgeable and exigent citizen exacts good value for money and quality in the delivery of services.

Today’s public administration is characterised by a myriad of statutory obligations that have been necessitated by political, economic, social, technological and management development. These include both national and international regulatory obligations.

Recent developments in public management include: emphasis on management skills, better utilization of information technology, more knowledgeable workers, emphasis on customer care and customer satisfaction, elimination of bureaucracies, new legislation that ensures the protection of personal data, gender equality, the elimination of discrimination and assurance of accessibility to all persons. In addition, Malta’s
accession to the European Union and other regulatory actions that increase responsibilities and obligations on government, the impact of accelerating technological developments and the feeling of vulnerability and insecurity have given rise to the need for managing the risks related to such developments.

The political environment has also undergone dramatic developments, such as globalization, speed of exchange of information, climate change, and the issues of international terrorism. Governments have realized that in order to address the threats posed by these developments, a systematic approach to addressing threats should be adopted in all its business process. Central Government’s strategy in the field of irregular immigration is a clear example of the adoption of a balance between statutory obligations and the elimination of risks to our community. At national level, a systematic evaluation of risks is made as part of central government’s strategy to protect the interests of the community whilst respecting the values of human rights, non-discrimination and democracy.

The Public Administration has, for a considerable period of time, been associated with a culture of risk avoidance. This has brought about a culture in our public administration which was built on traditions and past praxes rather than risk taking and experimentation.

This Public Service culture started to shift following the Public Service Reform in the early 1990s, when new management processes and structures were introduced, amongst which were the Management Efficiency Unit and Staff Development Organisation. In addition, IT hardware and training for all Government public officers
was introduced.

It was also at this time that the present Government introduced Local Government in our Islands. Government adopted a “migration strategy” that would facilitate the introduction of this new administrative system with as smooth as transition as possible. This included: the allocation of premises to serve as administrative offices to
all the (then) 67 Local Councils, the supply of ICT hardware, including PCs. In addition, an extensive training programme for potential Council Executive Secretaries was organised by the Management Efficiency Unit in conjunction with the Staff Development Organisation. This programme included modules on financial, IT,
operational and other matters needed in the Executive Secretary’s daily work. In short, the preparatory work done in connection with the introduction of local government, was one aimed at the smooth migration of responsibilities from central to local government as well as at minimizing the risks involved in the administrative work
of the executive secretary. One can, therefore, define the introduction of local government in Malta in the early 90s not only as a political realisation of the principle of subsidiarity, but also as an administrative exercise that included a structured series of actions aimed at avoiding the risks in the operational process for change.

Risk Management is defined as a management tool adopted by an organization to systematically evaluate and address threats and opportunities. It is also a formal, planned response to the existing opportunities and threats.

It is pertinent to apply the principles of Risk Management to the field of local government by relating it both to the political and the executive functions. At the political level, Local Councillors (who are the legally elected representatives of the local citizen to represent his interests within a given locality) need to evaluate each
proposal put before them both within the legal parameters as well as with a view to avoid future prejudice to the Council (be it financial or otherwise). In addition, the Local Councillor, as leading citizen, should also be well informed of the political and other developments taking place in the country. The adoption of the Euro as Malta’s
currency as from January of next year, for example, should put forward an opportunity for the Local Councillor to offer value added services to the local citizens by providing them with the necessary opportunities for information, thus being instrumental in the avoidance of misinformation or undue hassles to vulnerable groups within the locality.

Examples of good practice abound, such as: the development of playgrounds for children in areas that were formerly abandoned, dilapidated or fertile grounds for drug pushers; the establishment of day centres for the elderly, thereby assisting in the social wellbeing of this vulnerable group; the establishment of Youth Councils, thereby giving the opportunity to young people within the locality to train in important decision making; the realisation of an infrastructure project that would benefit the community, such as civic centres; the administration of government property after successful granting of devolution, in line with a well planned financial and operational proposal; and so forth. On the other hand, the unwise spending of certain Councils on items
that are either not within their remit or of no value added to the citizens is equally an example of bad governance.

At management level, the Executive Secretary (as administrative, financial and executive head of the Council) should ensure that he is kept up-to-date with all the legal and administrative developments, including EU legislation that affects the operations of local government, in order to be in a position to give sound advice to the
Council. The preparation of the Budget is one of the areas within the responsibility of the Executive Secretary that should be done with a spirit of loyalty towards the political will of the Council as expressed in the Business Plan, as well as with a view to ensure that the Council operates, at all times, with no negative balance in its working capital.

The preparation of cash flow projections, for example, is one area where the Executive Secretary assists the Council in its financial planning. In so doing, the Executive Secretary should give due consideration to visible risks as well as latent ones. Contingency planning is one of the tools that can be used to cater for different
scenarios. The role of the Executive Secretary, therefore, is a crucial managerial and advisory role, which the Councillors need to acknowledge and respect.

Government’s emphasis on the promotion and development of education, the environment and the economy is also part of a wider strategy that addresses both the opportunities and threats on a national level. The establishment of the Petitions Board early last year and the Local Enforcement Committee towards the end of last year, was another step towards addressing the credibility threat to the local enforcement system by providing a remedy to a justified complaint against an erroneously issued notice of contravention, and the executive management of the system based on a long-term strategy aimed at strengthening people’s trust in the system.

At local government level, each Local Council should also identify the opportunities and threats specific to the particular locality and whilst maximising the opportunities available in order to enhance value, evaluate the risks and make a comprehensive effort to assure that these risks are managed to the best advantage.

I wish you well for the proceedings of this conference.”

Download Speech by Dr. Tonio Borg

“All public sector organisations, similar to private ones, have objectives and targets which must be attained. They also need to add value to their services. On the other hand, while meeting their outputs, organisations are bound to safeguard their assets – whether tangible or intangible (which would include reputation).

In the last few years, organisations have witnessed an increased interest into the practices of risk management. Organisations see risks as dangers and opportunities associated with uncertain future events.

In this regard the principles of corporate governance are being applied across the public service. Risks have, of course, always been managed in the past. It
now follows that the public sector services systematically consider the handling of risk management in all its forms.

This study is presented with the aim of furthering awareness regarding the need for Government departments and institutions to have risk management systems in place, and thus help public service managers better understand their role in this regard.”

Website National Audit Office Malta

Download report

“Risks are simply a fact of life when the future is uncertain and making important decisions on an uncertain foundation is part and parcel of what management is all about. The secret is to take on and manage this uncertainty.”

John O’Dea:
“On behalf of PRIMO Europe, The Department for Local Government, The Association of Local Government Executive Secretaries and the Association of Local Councils, it is my privilege to welcome you to the conference on Risk Management in the Public Sector. Risk Management is as old as Methuselah. Although there are no records in the book of Genesis that indicate that Adam and Eve carried out a risk assessment, their world and ours might have been a different place had they given it some thought. The world might also have been a different place had the developed nations – with their reputedly state of the art management tools – applied them with the base integrity assumed in any formalized risk management process.

We might have avoided or at least mitigated the shocks of BSE, bird flu, environmental change, 9/11 and other recent and not so recent crises that have reshaped the world that we live in. Government and by extension the public sector is perhaps best characterised as avoiding risk and adopting a bastion mentality that has delayed acceptance and implementation of new processes and technology that ultimately strangled performance.

We have a fragmented, unnecessarily differentiated and inconsistent approach to management in the public sector. This results in gaps, overlaps and lack of an institution wide analysis which unnecessarily reduces our public sector institution’s effectiveness and exposes it to considerable reputational risk.

In this context, Government has three roles: As a regulator of others who create risk, as a steward of risks not attributed to others and as a manager of the risks arising from its own services. We need to develop a new approach to public sector management of risk by:
1. Embedding risk handling in all decision processes.
2. Establishing new risk management techniques.
3. Creating the organizational structure and responsibilities
4. Creating a comprehensive quality standard

The main strength of enterprise wide risk management (EWRM) is that it forces underlying assumptions out into the open, where they can be explicitly challenged. It also enables management to make better decisions based on calculated risks. It enhances communication, and transparency, more reflection of public values and concerns, more information about risks and responses – all aimed at winning back public trust in public institutions, which has been in decline during the past few years.

EWRM offers the possibility of a broad buy-in by all stakeholders, including the political, the executive, the administrative, and the public and focuses on accountability and best practice. Every day, Directors, Managers and CEOs in the public sector make and execute decisions involving risks – decisions involving elements of considerable uncertainty, affecting the lives of the public, communities and the country as a whole.

Risks are simply a fact of life when the future is uncertain and making important decisions on an uncertain foundation is part and parcel of what management is all about. The secret is to take on and manage this uncertainty. This conference and the launch of PRIMO Malta is an important step in that direction.”

Conference Programme

Speech John O’Dea

The conference was held by the Department for Local Government in conjunction with the Local Councils Association and the Association of Local Councils Executive Secretaries (Malta).

Opening speeches were made by Justice and Home Affairs Minister Tonio Borg on Risk Management as a Tool for Good Local Governance and the Opposition Spokesman for Local Government, Chris Cardona, on Risk Management as a Tool for Public Accountability.

The keynote speaker was Jack Kruf, who spoke about Risk Management on the Edge of Worlds. Other speakers were Joe Galea, auditor general, Ing. Fredrick Azzopardi, consultant, Ing. Vincent Attard, senior manager (Eng.), Occupational Health and Safety Authority and Mr David Pike, consultant, MSB Valletta Ltd.

At the end of the conference, an agreement was signed by Jack Kruf, president of PRIMO (Public Risk Management Organisation) Europe, Adrian Mifsud, president of ASKLM and John O’Dea, chairman of PRIMO Malta, launching the local PRIMO chapter.

The long-term aim of PRIMO is to establish risk management as a natural and integral part of good governance.