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A new approach to risk management

General Motors’ famed innovation chief Charles Kettering once observed: “If you have always done it that way, it is probably wrong.”

His brutal logic is seemingly being transported to local government in 2012: councils are being tasked with rethinking services to meet the needs of an ageing population while working within a tightening fiscal straitjacket. But his words could also apply to local government’s suppliers.

Despite waves of cost cutting, authorities face a £16.5bn a year shortfall by 2019-20; many calculate that adult care will consume entire operating budgets if present systems are maintained.

Councils have to engineer radical innovations and crucially, find ways to manage the risks associated with them, for local services to survive and prosper.

Successful service remodelling cannot be achieved by town halls simply targeting new outcomes and overcoming aversion to risk. It requires councils’ partners to also be more willing to adopt a new attitude to risk, enabling a more effective approach to the design and funding of service reforms. Without both partners changing their ways, councils will struggle to drive changes and transform costs.

Councils and their partners have little option but to apply new risk management and procurement thinking to workloads. Authorities need to more clearly identify demand for services in conjunction with private sector specialists, agree outcomes over specific time frames and delegate services accordingly. They will need to close procurement cycles from months to weeks to make tendering more sustainable for suppliers.

Suppliers will have to accept longer-term risk, through different reward structures and longer payment cycles - both for themselves and their own supply chains - to deliver desired outcomes and help give councils financial breathing space.

Authorities could delegate wider tasks such as enhancing council tax revenue collection and debt recovery rates. Suppliers would mitigate the risk with programmes funded by new incentives such as retaining a proportion of additional revenues generated.

This approach will enable suppliers to invest in the latest analytical and processing tools, with their supply chains in turn reconfigured to accept long-term or results-based, rather than upfront payment to finance this work.

This rethinking of risk by authorities and their partners would see performance and finances transformed. But these results will only happen if councils and their suppliers focus on mutual outcomes that can be delivered within today’s service and budgetary constraints.

Paul Bradbury, business development director, Civica

Special feature supplied by Civica

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