From Quality to Risk: Local Government’s Journey

Guest Post by James Kline (first posted on CERM ® RISK INSIGHTS – reposted here with permission)

This piece will examine how the move away from quality management to risk management in United Kingdom local governments developed and how risk management became a mandate. It will then move to the specific by looking at Cheltenham Borough Council’s risk management policy and aspects of the 2018 Audit Committee Annual Risk Management Report. It will close with some observation on where risk and quality management are being used together.

Quality Management in Local Government

From 1990 to 2000 the use of quality management techniques in local governments around the world, was substantive. It was particularly prevalent in the United States. (1,2) Many local governments in the United Kingdom (UK) adopted these techniques. For instance, Clark and Appleby (3) discussed four local government in the United Kingdom which were using quality management. These were Braintree District Council, London Borough of Brent, London Borough of Hackney and London Borough of Lewisham. Of these, two Braintree District Council (1993) and Brent (1994) were winners of the PA Consulting Group (PA) and the Society of Local Authority Chief Executives (SOLACE) Quality Award. Another PA/SOLACE Quality Award winner was the Borough of Cheltenham (1994).

Thus, the use of quality management in local government was firmly established by the mid 1990’s. However, a review of the websites of these and other UK local governments indicates no substantive use of quality management techniques such as Lean Six Sigma, Lean Management, and Continual Improvement. What it does show is that local governments in the UK have moved to risk management.

The movement away from the use of quality management in local government was gradual. It occurred between 1997 and 2007 during the Blair administration. The shift to risk started in 2004.

Independent Commission 

In 2004, The Independent Commission on Good Governance in Public Services in UK, issued a report. It was entitled ‘The Good Governance Standard for Public Services’. The Commission was organized under the auspices of the Office for Public Management with participation from The Chartered Institute of Public Finance and Accountancy (CIPFA).  Its purpose was to establish standards which would guide public service organizations.

The report listed six elements which it believed constitute good governance or best practice.  These are:

1. Good governance means focusing on the organization’s purpose and on outcomes for citizens and service users.
2. Good governance means performing effectively in clearly defined functions and roles.
3. Good governance means promoting values for the whole organization and demonstrating the value of good governance through behavior.
4. Good governance means taking informed, transparent decisions and managing risk.
5. Good governance means developing the capacity and capability of the governing body to be effective.
6. Good governance means engaging stakeholders and making accountability real. (emphasis added) (4)

The inclusion of risk management represents a recognition of the volatile environment public service organizations face.  What is not listed is quality management. Thus, by 2004, quality management was not considered a best or necessary practice for good governance.

While the commission only established a guide for public service governance generally, this guide was used in 2007 to develop a standard specifically for local government.

SOLACE and CIPFA 

In 2007, the Society of Local Authority Chief Executives and Senior Managers (SOLACE) in conjunction with CIPFA issued a report based on the Commission’s good governance elements.  The report was entitled: “Delivering Good Governance in Local Government: Guidance Note for English Authorities”.

The formal endorsement of a Good Governance Framework by SOLACE added professional weight. It also signaled that local government Chief Executives were on board with the idea of a good governance framework. The 2007 report was still a guide. That changed in 2016.

Good Governance Framework Becomes Mandate 

In 2016, CIPFA and SOLACE issued a new edition of Delivering Good Governance in Local Government: Framework.  The seven elements are same as 2007. The these are:

1. Behaving with integrity, demonstrating strong commitment to ethical values, and respecting the rule of law.
2. Ensuring openness and comprehensive stakeholder engagement.
3. Defining outcomes in terms of sustainable economic, social, and environmental benefits.
4. Determining interventions necessary to optimize the achievement of the intended outcomes.
5. Developing the entity’s capacity including the capability of its leadership and the individuals within.
6. Managing risks and performance through robust internal and strong public financial management.
7. Implementing good practices in transparency reporting, and audit to deliver effective accountability. (emphasis added)

The use and the annual reporting on these elements were mandated.  “In England the Accounts and Audit Regulations 2015 stipulated that the Annual Governance Statement must be ‘prepared in accordance with proper practices in relation to accounts.’ Therefore a local authority in England shall provide this statement in accordance with Delivering Goof Governance in Local Government: Framework (2016) and this section of the Code.” (5)

With the issuance of this framework, every local governments must now provide an assessment of the action taken under each element. The Cheltenham Borough Council April 2018 Annual Risk Management Report and Policy Review provides an example of such a risk report.

Cheltenham Borough Council Risk Management

Cheltenham adopted its risk management policy in 2009. The policy is based on the International Organization for Standardization’s Risk Management ISO 31000. The ISO 31000 lays out the process for risk management implementation. The responsibility for overseeing the process, generally called Enterprise Risk Management (ERM), belongs to the Borough’s audit committee.

The 2018 Annual Risk Management Report in Sections 1.1.and 1.12 indicate how risk management helps the Borough. Section 2.14 indicates the need for risk management.

Section 1.1. Risk management is the culture, process and structures that are directed         towards effective management of potential opportunities and threats to the Council         achieving its priorities and objectives.

Section 1.12. The identification and assessment of risk is part of the annual Corporate       Strategy and Action Planning process. The Council’s Senior Management Team considers and reviews strategic risk on a monthly basis. Both of these activities include the             development of risk mitigation actions designed to reduce the likelihood and/or     consequences of adverse events occurring. By understanding risks, the council can be more confident about undertaking ventures which produce larger gains, such as jointly providing services with other councils.

Section 2.14. The challenges facing Cheltenham Borough Council continue to intensify    and the way that we meet those challenges creates the potential for increased opportunities        and risk. The way that we address and mitigate the risks requires effective governance arrangements. (6)

The audit makes it clear Cheltenham’s concern is for risk management.  Risk management helps the council operate more effectively, efficiently, and economically. Quality management is not mentioned. It is not considered a management process which helps the organization to effectively manage activities.  In this respect, risk has replaced quality management as a dominant concern in U. K. local governments.  But is this necessary? Can risk and quality management work in tandem?

Below are some observations. They are based on the above, as well as additional research. This research provides an answer to the two questions.

Observations

1. Key players in the recommending, implementation and auditing of the risk management process are the accountants and auditors. This trend occurs through out the Commonwealth. (7)
2. The use of ERM by local government in the United States is negligible. Quality Management, however, continues to have a solid base. (8)
3. There are examples which demonstrate the compatibility of risk and quality management.
   1. The Canadian State of New Brunswick, and the city of Oshawa use both Lean Six Sigma and ERM together. (9)
   2. The Good Governance Guide for local government in Tasmania Australia, includes both a risk management and a continuous improvement element. (10)
   3. Section 7.2 of the Tasmanian Council of Break O’Day’s risk management framework describes the linkage.
      1. Continuous Improvement. Break O’Day Council is committed to continuous improvement and the pursuit of excellence – in service delivery and business processes. The Framework complements the methodology of continuous improvement by consider of:
         1. Consultation and Communication
         2. Cost/Quality;
         3. Effective resources use;
         4. Financial sustainability; (11)

Conclusion

The Break O’Day Council’s risk management approach is based on the belief that it is better to be aware of and prepare for potential risks. Rather than being caught unaware and suffer the loss or failure and potentially be held responsible.

Since quality management is viewed by local governments in the United States, as a valuable management tool, and it is viewed as compatible with ERM by local governments in Canada and Tasmania, there is no reason to believe that rekindling the use of quality management by local governments is beyond the relm of possibilities.

In the COVID – 19 environment, local governments will find themselves increasingly looking for ways to improve services and processes. The demand for services, especially health and police, will increase. At the same time, the economic shutdowns stall economic activity and strain local tax revenue. This provides a perfect environment for the increased use of Lean Management and Lean Six Sigma.  Consequently, risk and quality management ought to be viewed are two compatible tools which can help management navigate a more volatile, risky and resource deprived environment.

End Notes

1. Total Quality Management in Local Government, Government Finance Review, August 1992.
2. Selected Reading: Total Quality Initiative In Specific Local Governments, in Total Quality Management Participant’s Handbook ICMA Washington DC, February 1993.
3. Clark, Antony and Alex Appleby, 1997, “Quality Management In Local Government: four case studies”, Leadership and Organization Development Journal, 18/2, pages 74-85.
4. The Independent Commission on Good Governance in Public Services, 2004, “The Good Governance Standard for Public Services, https://www.jsf.org.uk/sites/default/file/jsf/migrated/files/1898531862.pdf.
5. SOLACE/CIPFA, 2016, “Delivering Good Governance in Local Government Framework 2016 edition”, https://www.cipfa.org/policy-and-guidance/publications/d/delivering-good-governance-in-local -government-framework-2016. Page 14
6. Cheltenham Borough Council Audit Committee, 2018, “Annual Risk Management Report and Policy Review”, April 18, https://democracy.cheltenham.gov.uk/documents/525582/GDPR%20Committee%20DSU%20copy.pdf.
7. Kline, James J. and Greg Hutchins, 2019, “Auditors, Accountants and ERM”, Journal of Government Financial Management, Winter 2019, pages 33-37
8. Kline, James J., 2020, “Quality in Local Government: A Reinvigoration”, Quality Digest, 09/08.
9. Kline, James J., 2019, Enterprise Risk Management in Government: Implementing ISO 31000:2018, CERM Academy, Portland OR, available on Amazon.
10. Tasmania Local Government Division, 2018, “Good Governance Guide for Local Government in Tasmania”, June, dpac.tas.gov.au/_data/assets/pdf_file/006/380427/Good_Governance_Gide_June_2018.pdf
11. Break O’Day, 2020, Risk Management Framework, August 20, https://www.bodc.tas.gov.au/wp-content/uploads/2018/06/LG32a-Risk-Management-Framework-1.pdf.

Bio:

James J. Kline, Ph.D., CERM, is the author of numerous articles on quality in government and risk analysis. He is a senior member of the American Society for Quality and Six Sigma Green Belt with experience consulting for the private sector and local governments. His recent book, Enterprise Risk Management in Government: Implementing ISO 31000:2018, is available on Amazon. He can be reached at jeffreyk12011@live.com.