By Jennifer Hills
Jennifer Hills, Director of Risk Management Services for King County, Washington, has evolved the King County, Washington, Risk Management Program from advanced risk management, proactive on preventing and reducing operational risk, to enterprise risk management (ERM), aligning risk management with the County’s mission and values. King County’s ERM program is integrated with budget and strategic planning processes. It includes upside risks and opportunities, and addresses risk appetite and risk optimization. Ms. Hills’ ERM program has changed the shape of risk in King County. This concept allows an organization to take on measured risk and increase value within a risk optimization zone. As illustrated in the diagram, continued risk-taking beyond an optimal zone could result in value decline and a possible crisis.
The risk-value curve diagram on the right depicts the relationship between risk and enterprise value. The risk-value curve comes from King County’s membership and Ms. Hills’ leadership in the Consortium for Advanced Management International (CAM-I). CAM-I is an international consortium of private sector and government organizations working cooperatively to solve management problems and critical business issues that are common to the group.
In the first zone, risk is low, but so is value. The organization has placed too much emphasis on mitigation and avoidance of risks, and is therefore bypassing potential investments that could yield a positive return for the organization. In the second segment of the diagram, risk is optimized—the organization is taking risk up to its tolerance level. Key risk indicators are important in this zone so the organization can engage risks that might otherwise be avoided, thereby increasing enterprise value. Once the high point of the curve has been passed, the organization is in a higher risk interaction zone and must apply both risk and crisis management tools to avoid a potential crisis. The organization may be overly susceptible to unexpected events, and a flash point could be reached requiring risk and crisis management tools (e.g., insurance, active monitoring, public relations, and increases to reserves).
King County has been a risk-averse government, sometimes prioritizing risk mitigation and avoiding negative outcomes over pursuing positive outcomes and opportunities. Ms. Hills uses the risk-value framework to support King County leaders’ ability to take on the right risks to advance enterprise value. Ms. Hills models this effort in her office with a new approach to contracts in alignment with the County’s equity and social justice commitment. Insurance requirements are carefully evaluated in connection with contract exposures and, where possible, they are adjusted to expand contracting opportunities to smaller companies and community-based organizations. Ms. Hills is also leading King County agencies through active efforts to take on additional risk where in order to increase value. An example comes from the Public Health Department.
For decades the Public Health Department offered internships to college students in various medical fields. To participate in an internship, a student’s college or university had to agree to the insurance and indemnification requirements in King County’s contract. One clause requires the educational institution to indemnify King County for the negligent acts of their student interns. Four-year universities would agree to the language, but two-year community colleges would not. Public Health examined the demographics of students who attend four-year and two-year programs in consideration of King County’s commitment to equity and social justice. The County decided it was time to review the contract language, and it asked Risk Management for assistance.
Upon analyzing student intern loss data, the value to be gained by students’ interest in public health as a career, and the additional risk to King County from eliminating the indemnity protections, everyone agreed to take on the risk in pursuit of value.
Under King County’s historic view of risk, which only considered the downside aspects, risk optimization would not have resonated with County leaders. Ms. Hills’ success with ERM gave King County the tools to apply risk management principles to take risks in the pursuit of uncertain opportunities to increase enterprise value.
Jennifer Hills is the Director of Risk Management Services for King County, Washington. She may be contacted at Jennifer.Hills@kingcounty.gov.