Managing Risk and Performance: A Guide for Government Decision Makers

Chapter 4

Risk Management and Challenges of Managing in the Public Sector

Paul L. Posner

Professor and Director, Centers on the Public Service, George Mason University

Thomas H. Stanton

Fellow, Center for Advanced Governmental Studies, Johns Hopkins University

Enterprise Risk Management offers promise for refocusing public management improvement and reform initiatives at all levels of government. It is healthy for any large enterprise, whether public or private, to periodically inventory and assess its risks. This can lead the organization to make strategic decisions about which kinds of risks should be eliminated, tolerated, mitigated, or transferred to other entities in the organization's environment (Benjamin 2008).

The field of Enterprise Risk Management was developed in the private sector for business managers. The Treadway Commission (Committee of Sponsoring Organizations 2004) defined the framework in terms of the calculus of private business decisions:

All entities face uncertainty, and the challenge for management is to determine how much uncertainty to accept as it strives to grow stakeholder value. Uncertainty presents both risk and opportunity, with the potential to erode or enhance value. Enterprise risk management enables management to effectively deal with uncertainty and associated risk and opportunity, enhancing the capacity to build value.

Innovators often pilot new approaches for the private sector that then sweep over the public sector, adopted by government ...