Viewpoint: Reducing headcount? How to manage risks from staff cuts
According to a joint survey conducted by the Washington-based National League of Cities, the United States Conference of Mayors and the National Association of Counties, local governments are facing a fiscal crisis that could result in as many as 500,000 job losses. How can municipal and county managers and executives ensure that vital services are maintained with job losses looming in the near future? An effective risk management process could be the answer.
Risk management tools have been used in the private sector for many years. One particularly effective method is the Failure Mode and Effects Analysis (FMEA). A FMEA is a quick way to assess the degree of risk inherent within organizations’ systems. Through collective brainstorming by experienced staff, potential modes of failure are identified within critical processes. Those risks are then assessed using a numerical scale (generally 1-10) to determine the:
- Severity of occurrence (S),
- Likelihood of occurrence (O), and
- Likelihood the occurrence will not be detected by existing controls (D).
The three ratings are then multiplied together to identify a Risk Priority Number (RPN = S x O x D). Process failure modes with a high RPN should be reviewed to determine an appropriate risk management strategy. The most common risk management strategies are:
Accept: Do nothing to change the risk and develop contingencies to be employed if the risk is realized.
Transfer: Make the risk the responsibility of another entity that is better able to manage it.
Mitigate: Manage or monitor the risk with additional controls.
Avoid: Eliminate the risk through process re-design or 100 percent monitoring.
As an example, a city public works department may assess its engineering processes and determine that a failure in the design section could cause the loss of a significant portion of federal funds for a critical infrastructure improvement. Because of recent staffing reductions, the agency determines the likelihood of the event to be high. After analysis of potential risk management strategies, the agency determines the following options are available to address the risk of the failure:
1. The agency could accept the risk and develop contingency plans to identify different funding sources for the improvement in the event federal funding is lost.
2. The agency could mitigate the risk with additional controls by hiring engineering consultants as contract employees to help manage the design of the improvement.
3. The agency could transfer the risk to another entity by using a public private partnership.
The decision as to which risk management strategy to deploy will require a great deal of analysis and sound judgment by the team. The benefit of using the FMEA approach is that by assessing the level of risk across the entire department, managers can focus their limited resources on the areas that are most vulnerable, and use data and information as the basis for more effective decisions. A robust risk management process provides local government managers and executives the tools and resources needed to ride out the current economic hurricane while continuing to ensure the integrity of vital services for residents.
Download a free FMEA spreadsheet to evaluate the potential failure of a product or process and its effects. Use the results to determine actions that could eliminate or reduce the occurrence of the potential failure.
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John Baranzelli is ISO Quality Assurance Officer for the Illinois Department of Transportation and is the author of “Making Government Great Again: Mapping the Road to Success with ISO 9001:2008,” available at www.asq.org. A portion of proceeds from the book will benefit the Make a Wish Foundation.