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The role of governors in strategic planning and risk management


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The role of governors in strategic planning and risk management

  1. 1. Ian Gross Head of Internal Audit & Projects The role of governors in strategic planning and risk management Higher Education Funding Council for England
  2. 2. Essential background - 1 <ul><li>The University’s objects: </li></ul><ul><li>To advance education . . . . for the benefit of the community in NI and elsewhere </li></ul><ul><li>To preserve, enhance and disseminate knowledge through teaching, research etc </li></ul><ul><li>To promote wisdom and understanding by the example and influence of corporate life </li></ul>
  3. 3. Essential background - 2 <ul><li>Council’s powers and functions are laid down in the Charter and Statutes </li></ul><ul><li>“ to do all things . . necessary . . for the efficient management and administration of the . . University . . “ </li></ul><ul><li>“ in particular, to govern, manage and regulate the finances, . . business and all affairs whatsoever of the University . . “ </li></ul>
  4. 4. Essential background - 3 G o v e r n o r s R e s p o n s i b i l i t i e s D u t i e s M a n a g e m e n t Retained duties GP&FC AC NC RC Other
  5. 5. Essential background - 4 <ul><li>“ All animals are equal, but some animals are more equal than others.” </li></ul><ul><li>(George Orwell, Animal Farm, 1945) </li></ul>
  6. 6. Essential background - 5 <ul><li>A key task is to challenge management, i.e. to be a critical friend </li></ul><ul><li>How you do this depends on your view </li></ul><ul><li>of the strategic priorities and risk </li></ul><ul><li>These determine your information needs </li></ul>
  7. 7. Essential background - 6 <ul><li>The risk-oversight continuum </li></ul>High-level More detailed Lower risk Higher risk
  8. 8. Strategic planning role - 1 <ul><li>The Charter and Statutes don’t specify Council’s role in strategic planning, therefore you have discretion </li></ul><ul><li>Recognised good practice is to take ownership of the mission and plan, to ensure they meet your obligations (mainly to fulfil the objects and maintain solvency) </li></ul>
  9. 9. Strategic planning role - 2 <ul><li>When determining Council’s role, consider: </li></ul><ul><li>Management strengths, weaknesses, culture </li></ul><ul><li>Level of assurance derived from quality of information provided by management </li></ul><ul><li>Assurances derived from independent sources on planning process and outputs (e.g. audit processes [IA, EA, QAA], 7-year review, benchmarking activity) </li></ul><ul><li>Extent of resource prioritisation necessary </li></ul>
  10. 10. Strategic planning role - 3 <ul><li>Further considerations: </li></ul><ul><li>Time availability of governors </li></ul><ul><li>Balance of involvement compared with management input </li></ul><ul><li>Balance of time spent on planning compared with monitoring </li></ul>
  11. 11. Strategic planning role - 4 <ul><li>Further considerations; do you: </li></ul><ul><ul><li>concentrate only on key areas or not (issues can sometimes become temporarily ‘key’) </li></ul></ul><ul><ul><li>limit participation to a sub-group of governors </li></ul></ul><ul><ul><li>use the results of own effectiveness review </li></ul></ul>
  12. 12. Strategic planning role - 5 <ul><li>The links between the plan and the use of resources should be made clear to governors. The extent of your interest depends on: </li></ul><ul><ul><li>identified risks + risk portfolio and appetite </li></ul></ul><ul><ul><li>financial strategy </li></ul></ul><ul><ul><li>other subsidiary strategies </li></ul></ul>
  13. 13. Strategic planning role - 6 - monitoring <ul><li>Monitoring is a key activity for governors: </li></ul><ul><li>There is a need for ongoing assurance </li></ul><ul><li>Some work is delegated to committees </li></ul><ul><li>Balance with monitoring undertaken by management </li></ul><ul><li>Decide on own information needs (KPI’s etc) </li></ul>
  14. 14. Strategic planning role - 7 - monitoring <ul><li>Use of detailed reports from management: </li></ul><ul><li>Most common method in the HE sector </li></ul><ul><li>Major strengths - advice in depth, allows for challenge, highlights risks </li></ul><ul><li>Potential weaknesses - may not be geared towards governors needs (e.g. may be unnecessary, inappropriate, provides low quality assurance over progress or fails to consider progress against agreed criteria) </li></ul>
  15. 15. Strategic planning role - 8 - monitoring <ul><li>Overview assurance: </li></ul><ul><li>Completeness requirement </li></ul><ul><li>Openness requirement - acknowledge areas of slow or no progress </li></ul><ul><li>No surprises requirement (reliance on management to advise governors) </li></ul><ul><li>Periodic report on progress against all actions in the operating statement (at least annually) </li></ul>
  16. 16. Strategic planning role - 9 <ul><li>Subsidiary strategies can be key to success: </li></ul><ul><li>Identify the important sub-strategies (e.g. L&T, R, WP, IT/IS, HR, Estates) </li></ul><ul><li>Consider how they are integrated with strategic plan and how they are resourced </li></ul><ul><li>Consider governor involvement in them (consultation; help develop; receive for information; approve; monitor implementation formally or not; define information needs) </li></ul>
  17. 17. Risk management role - 1 <ul><li>Background: </li></ul><ul><li>Recent development in corporate governance </li></ul><ul><li>Now established as good business practice </li></ul><ul><li>HEFCE has made it a requirement for HEIs and issued supporting guidance </li></ul><ul><li>Good risk management cannot eliminate risk but can significantly enhance the chance of success in meeting objectives </li></ul>
  18. 18. Risk management role - 2 <ul><li>Risk management is defined as: </li></ul><ul><li>“ the systematic application of management policies, practices and procedures to the task of analysing, assessing, treating, monitoring and reporting on risks” </li></ul><ul><li>i.e. it is primarily a ‘management’ activity </li></ul>
  19. 19. Risk management role - 3 <ul><li>Relationship between strategic objectives and their risks: </li></ul><ul><ul><li>A risk is the threat or possibility that an action or event will adversely or beneficially affect an organisation’s ability to achieve its objectives </li></ul></ul><ul><ul><li>There will always be a residual risk that a strategic objective will not be achieved </li></ul></ul>
  20. 20. Risk management role - 4 <ul><li>Risk v control </li></ul><ul><li>The nature and effectiveness of the controls in place to manage a risk will determine the extent of residual risk </li></ul><ul><li>The strategic risks will be subject to many management controls; some of these will be ‘key’ controls </li></ul>
  21. 21. Risk management role - 5 <ul><li>Set tone & culture: </li></ul><ul><li>Determine the risk policy </li></ul><ul><li>Risk-taking/risk-averse (at University or project level) </li></ul><ul><li>Balance of high-level risk portfolio </li></ul><ul><li>Expectations of management and staff e.g. accept that taking risks might result in failure, but not managing key risks is unacceptable </li></ul>
  22. 22. Risk management role - 6 <ul><li>Determine risk appetite: </li></ul><ul><li>At University or project level, consider how much residual risk you will accept or tolerate </li></ul><ul><li>Alternatives if risks are unacceptable: </li></ul><ul><ul><li>More or less control </li></ul></ul><ul><ul><li>Sharing risk e.g. partnerships, joint ventures </li></ul></ul><ul><ul><li>Transferring risk e.g. PFI, insurance </li></ul></ul><ul><ul><li>Not accepting some risks at all </li></ul></ul><ul><ul><li>Monitoring more closely e.g. establish EWI’s </li></ul></ul>
  23. 23. Risk management role - 7 <ul><li>Ensure key risks are drawn to your attention: </li></ul><ul><li>Review and agree the key strategic risks </li></ul><ul><li>In agenda papers on projects and progress against strategic objectives </li></ul><ul><li>Receive periodic report on all key risks </li></ul><ul><li>Actively consider Audit Committee reports </li></ul>
  24. 24. Risk management role - 8 <ul><li>Understand the role of the Audit Committee: </li></ul><ul><li>It needs to be well-informed about and influence the approach to risk management </li></ul><ul><li>It needs to test the effectiveness of the risk management arrangements in place </li></ul><ul><li>It needs to consider the various assurances it receives on risk management and key risks </li></ul><ul><li>It needs to formally report to Council annually </li></ul>
  25. 25. Risk management role - 9 <ul><li>All governors should therefore: </li></ul><ul><li>Understand the policy and how risk management works at the University </li></ul><ul><li>Ensure they focus on key risks at Council and Committee level </li></ul><ul><li>Challenge management about risks </li></ul><ul><li>Seek and receive assurances about risks and risk management </li></ul>
  26. 26. And finally, in summary . . . . <ul><li>Determine your own involvement in strategic planning and risk management; </li></ul><ul><li>Seek assurance about risks & objectives; </li></ul><ul><li>Focus on what is important; and </li></ul><ul><li>Allow management to manage, but challenge them and hold them to account for their actions. </li></ul>