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Although some people may view public sector risk managers
as less sophisticated than their corporate counterparts, government risk managers often handle risks more complex and more diverse than their private sector colleagues tackle, say public entity insurers, brokers and risk managers.
Furthermore, public entities must provide essential services that have huge liability exposures, such as police and fire protection.
And, public entities often must operate within tighter budgets and other constraints from which private corporations are free.
In the end, experts say public and private sector risk management share more similarities than differences.
Cities with populations of 100,000 or more commonly have full-time risk managers, said Dennis Kirshbaum, executive director of the Public Risk Management Agency in Arlington, Va. If a city does not have a risk manager, often an assistant city manager, the finance department or the personnel department handles risk management.
Several experts noted that one of the most significant differences between risk management in the public and private arenas is that public entities must offer certain services even though they are very risky, while the private sector can decide not to offer a service or product if it is unsafe.
"Risk avoidance is often not an option for risk managers in the public sector," Mr. Kirshbaum said. "That means that public sector risk managers often have to be a bit more creative in coming up with solutions" to risk management challenges.
"A private entity can simply choose not to do something because it's not safe or profitable, whereas the public sector doesn't have that luxury," agreed Carol Zoellner, director of risk management for Florida's Palm Beach County.
The public sector "starts off with the icky jobs that no one wants to do," quipped Mark Ferraro, vp of J&H Marsh & McLennan Inc. in Dallas.
Public entity risk management experts said the risks associated with running a government are much more diverse than those of a private corporation.
"The people I know in the public sector usually have more diversity that they have to deal with" than risk managers in the private sector, stated Sheila Stuckey, risk manager for the New Airport Project in Austin, Texas. Ms. Stuckey previously worked in a safety capacity for Procter & Gamble Co. in Cincinnati.
For example, Austin has 23 departments the risk manager must work with, including police, fire and utilities. "The diversity of what we do forces us to look at more varieties of risks, and the risks that we do have are less controllable," she said.
While government risk managers may have a greater diversity of risks to manage, they often have fewer financial resources to employ.
"By the very nature of public sector budgets, they are more limited in terms of the resources they have available," said Richard Thomas, president of the American International Group Inc.'s public entity division in New York. "The public sector really has to make do with a lot less."
For example, a private company may buy $6,000 articulated arm workstations for employees who use computers all day to prevent carpal tunnel syndrome, whereas a public sector employer would not be able to afford them, Mr. Thomas said.
"There are probably more dollars thrown around" in private sector risk management, agreed David Randall, senior vp in the national public entity division of Sedgwick Inc. in Columbia, S.C.
Another difficulty government risk managers must accept is working in a fish bowl.
Public sector risk managers "have to be very concerned about third-party perceptions," pointed out Steven Kahn, principal of Lake Forest, Calif.-based Advanced Risk Management Techniques Inc., a risk management and actuarial consulting firm.
Requests for proposals must be scrutinized carefully, as must the awarding of contracts. As a result, these activities can take longer and be less efficient in public entities, he said.
Mr. Thomas pointed out that governments often have more investment constraints than private companies.
"Any of the more adventuresome investment strategies are out," particularly after the investment debacles involving Orange County, Calif., and Bridgeport, Conn., he said. Orange County fell into bankruptcy in 1994 after taking large losses on derivative financial instruments, and the city of Bridgeport declared bankruptcy in 1991 following a huge budget gap.
Public entities must "be able to take their financial strategy and explain it on the front page of the paper," Mr. Thomas said.
There are some advantages to public sector risk management over private sector risk management, though.
Government risk managers often have more influence over the operations of other departments in their entities than private sector risk managers have over the operations of other departments in their companies, suggested J&H M&M's Mr. Ferraro.
For example, if a public entity's yard waste collection is causing damage to cars parked along the collection route, the public entity risk manager likely would have an easier time altering the collection route than a corporate risk manager would if the endeavor were a money-making enterprise, Mr. Ferraro said. Operating departments in the private sector-"the ones that make the money-tend to get their way."
The public sector "has much more opportunity to have a holistic approach" to risk management, Mr. Ferraro concluded.
The public sector also has access to some more advantageous insurance products than the private sector, ARMTech's Mr. Kahn said.
For example, public entities can buy a single occurrence form liability insurance policy covering public officials errors and omissions liability, police professional liability, general liability and automobile liability, he said. "It's a real advantage" to governments dealing with only one insurer for these coverages, he said.
Private sector concerns generally cannot buy this same broad-scope coverage, he said.
Also, the geographic spread of many large companies can make risk management more difficult; a public entity's much smaller radius of operations also can be advantageous, Mr. Kahn pointed out.
Still another advantage is that some public entities have limited immunity from liability under law.
Despite all these differences, several experts said public sector and private sector risk management are more alike than they are different.
"The basic job responsibilities are pretty consistent," stated Sedgwick's Mr. Randall. He estimated that 80% of a risk manager's tasks are the same, regardless of the kind of organization.
Austin's Ms. Stuckey said the techniques risk managers use to identify, analyze, control and shift risks "would be the same whether you would be in the public sector or the private sector.'