Managing Risk and Performance: A Guide for Government Decision Makers

Chapter 10

Risk Management and the Dynamics of Budget Cuts

Thomas H. Stanton

Fellow, Center for Advanced Governmental Studies, Johns Hopkins University

To the extent that today's budget pressures turn into budget cuts, some agencies and programs may face substantial reductions. Active risk management, already important, will become even more essential to guard against major unexpected consequences as resources become constrained. The process of extensive controversy over agency budgets, such as has been seen in the years since the financial crisis, brings its own risks as managers find it difficult to make good-quality decisions in the face of protracted uncertainty.

Past experience of budget constraints and cutbacks suggests that they may be accompanied by buyouts and other staff reductions, deferred investment in information systems and other program infrastructure, and, if cutbacks are not implemented well, management confusion and low workforce morale. One consequence may be that agencies and departments try to spread resources thinly across multiple programs and activities, thereby skimping on many of them.

The first section of this chapter discusses the dynamics of budget uncertainty and the risks that these can create. The second section looks at past federal experience with budget cuts. Budget constraints hit different agencies and programs differently according to budget factors and the strength of program constituencies. Agencies funded by user fees or with access to ...