Facing a Changing Risk Landscape

All Local Authorities are facing a very real and prolonged financial conundrum. The pandemic has been a huge disruptor in what was an already unstable fiscal landscape. The backdrop pre-pandemic featured austerity, with record PWLB (Public Works Loan Board) borrowing levels. The systemic rise of “commercialisation”- usually in the form of commercial property investment and acquisition, with separate local authority trading companies (LATCs) being established. A lot of retail space was already purchased in a deflated retail / High Street sector hit by on-line migration. All of these contributory factors underpin the current and ever-growing financial instability. A balanced budget is a key objective of every annual financial statement.

Cost of Covid-19

Treasury documents suggest the pandemic could cost £337bn. Local Authorities have received £3.2bn in emergency pandemic funding. Local reserves are being depleted, assets locked in, treasury margins dipping and return on investments aren’t 100% guaranteed. Council Leaders and Section 151 Officers are facing a huge challenge: how do they balance commercial activities / financial solvency / service provision / changing delivery models / performance of partners / changes to working environments and more importantly health and wellbeing of the workforce?

The good news is that these issues are being debated. “Survive and thrive” has to be the priority; the timeline however is fluid. The pandemic has been a positive force majeure in some ways proving that:

  • technology can be relied upon
  • people can be trusted to work at home
  • services can be delivered remotely or using a reduced staffing model.

Risk management is key

So, what does this mean in terms of resiliency? Having a sound risk management framework is key in flagging and dealing with risks and events as they arise. It allows operational, thematic risks to percolate to the top table for resolution. The Finance Team are also an essential cog in ensuring the numbers are known, understood, tested and re-run. Silos have been broken as people have had to communicate and work remotely using TEAMS, Skype, Webex, all invaluable digital tools in keeping vital communication channels open.

At the heart of any risk mature organisation is embedded governance: regular horizontal and vertical risk reporting, setting the right risk appetite. An essential building block is a risk culture set from the top down and understood throughout the organisation. Only once risk culture is set, embedded and deemed effective, can you become classed as “risk mature and resilient”. Board level horizon scanning becomes normal, long term financial planning, not just 3-5 years, but 10, 15 years including realistic budget setting, stress modelling and monitoring. The pandemic will also instill perennial agility in both terms of risk management and financial stability – a new regime of self-regulated austerity and fiscal management backed by sound governance and oversight.

Key thoughts & questions:

  • Resilience and business continuity plans were written for how services were delivered before the pandemic. Do these need to be updated: g. what does a socially distanced rest centre look like?
  • Have we identified the expected impacts of multiple incidents? This will aid consequence management if the incident(s) happen.
  • Have we shared with key decision makers, and partners, expected impacts and that we are planning for more than one incident?
  • Will we be able to make the same decisions about reduced services as previously?
  • What will the priorities be in different combinations of incidents? How will you continue to prioritise, shift resources etc.?
  • Review the lessons learnt. Which need to be acted on quickly to prepare for the next event?
  • How confident are you about your capacity, and partners’, to deal with more than one major incident at once?
  • Update plans and communicate the changes.
  • Don’t forget about the medium to longer term strategic risks that could disrupt the organisation. Horizon scanning will help identify the changing nature of risks that need to be managed

An organisation that can position itself in that balanced risk sweet spot will survive and move forward.

For more information about how Zurich help our customers through risk management, click here.