While progress is being made, the government has a ways to go before it can claim to have fully embraced Enterprise Risk Management (ERM), subject experts said at a panel discussion on the topic yesterday.
Attending the 2008 AFFIRM CFO Summit were Douglas Webster, chief financial officer at the Department of Labor; Jim Martin, chief financial officer at the Department of Housing and Urban Development; and Mark Krzysko, an acquisition executive in the Office of the Secretary of Defense. Each spoke about the unique challenges of trying to implement newer risk assessment and mitigation strategies to the federal arena.
According to COSO, ERM is defined as a process to identify, assess and mitigate potential risks across an enterprise. The approach has been gaining steam in the private sector and has started to cross over into the federal workspace.
Webster said that one of the problems with the current approach is the focus on audits and internal controls, which he called a foundation on which better risk management practices must be built. "Internal controls are largely operational, while audits are backward looking. ERM focuses on projected risks,â€ Webster said. â€œIdentifying all risks is not enough. You must balance those risks with the amount of monetary investment they require.â€ He added that the government should look to the private sector for those best practices.
The concept of risk vs. return is an interesting one, and one highlighted a Government Executive article on the Census Bureau's rationale and later contract problems in switching to handheld computers to support the 2010 Census. According to Krzysko, such risk/reward calculations are a critical part of ERM. â€œI believe the dialogue has shifted; we are now asking â€˜What value does this (project) bring the taxpayer, the warfighter, or the community at large?â€™â€
As an example of how ERM could improve the acquisition process, Krzysko referred to Defense's success in establishing a new software program that allows senior decision makers to instantly view on a computer the critical pieces of information on major weapon systems. â€œWithin 45 days, we were able to access the programs of 12 major weapon systems worth over $103 billion in nanoseconds," he said. "Before that, you had to go through multiple services and someone had to prepare and walk the data through the process. It has helped us move from a focus on compliance to one on responsibility.â€
Still, there remains much to be done. â€œNot to be negative, but thereâ€™s a good ways to go in terms of best practices when compared to the private sector," Webster said. "You still donâ€™t hear the risk part of the equation in the daily vernacular of decision making."
When asked who was leading the charge in the government towards ERM, Webster said the only agency to enforce COSOâ€™s definition of ERM is the Federal Deposit Insurance Corp. â€œThey got it. It would be worthwhile if more organizations did the same,â€ said Webster. â€œThere are difficulties in applying ERM to the federal government, but they are not so great that we shouldnâ€™t attempt moving in that direction.â€
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