Despite UK local authorities undertaking unprecedented levels of increased outsourcing and partnership activity, senior managers and risk officers feel unclear and ill-equipped to manage the resulting risks, says Zurich Municipal.

A new report launched by Zurich on the issue of ‘supply chain’ risk in the public sector warns of the ‘potentially catastrophic’ implications on local government services as councils dramatically increase reliance on back office outsourcing and frontline partnership working.

The report, ‘Public sector supply chain: risks, myths and opportunities’ calls for urgent action to improve risk readiness in the sector. Without proper management, the potential financial, legal and reputational ramifications for local authorities of supply chain failure – such as supplier cost overruns, data privacy breaches or mismanaged social care contracts – could be disastrous.

A survey of risk managers conducted in tandem with the report shows that whilst the vast majority acknowledge that partnership and outsourced working have generated new types of risk, few are considering non-traditional risks before contracting a partner, changing practices to embrace these risks or amending their disaster recovery or risk management plans. Furthermore, risk managers confess to feeling distanced from the day-to-day management of partnerships and claim the issue needs greater recognition and increased integration at a senior management level, particularly amongst those heading-up partnership activity.

Independently authored by David Kaye, a leading global expert in supply chain risk, the report marks the launch of Zurich Municipal’s ‘New World of Risk’ campaign to provide local authority executive leaders, managers and service providers with leading edge advice and guidance about managing risk within the dramatically changing local government landscape. Local authorities are taking on new roles and responsibilities as well as an outsourced business model that, in many cases, is leading to an entirely new risk profile and serious challenges.

Andrew Jepp, Head of Local Government at Zurich Municipal commented: “The recent and rapid migration of local authorities from service providers to strategic commissioners has engendered initial cost and efficiency savings, but also given rise to new risks that could mean higher costs in the end. Outsourcing services or outcome delivery to a selected partner(s) does not automatically devolve contractual, legal or moral responsibilities; if anything it heightens the importance of direct and thorough risk management. Our research and discussions with customers reveals a disparity in current risk understanding and preparedness. To ensure local authorities continue to reap the benefit, rather than suffer the burden, of outsourcing, chief executives, risk managers and partnership directors alike need work together to manage risk at a strategic level.”

David Kaye, the report’s author, added: “Outsourcing a critical service need is so much more than subcontracting and delivery dates. It is a process littered with reputational and political pitfalls as well as statutory and legal risk. These risks need to be actively managed, early on in the process, with clear exit strategies and business continuity plans in place. Without imposing this sort of control environment, at a senior level, both the risk and cost of partnerships could spiral.”

According to the report, the most common supply chain risks encountered by local authorities are:
* Partner or supplier failure
* Hidden costs and budget overruns
* Losing control over service delivery and standards
* Potential loss of quality of service
* The ability to remain compliant with legislation
* Threats to reputation

Further information about the campaign and full copies of the report can be found at: www.newworldofrisk.co.uk

•Date: 31st July 2009• Region: UK •Type: Article •Topic: Operational risk
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