Datafile: Losing Ground on Risk Assessment

By Kristen Hodge-Clark    //    Volume 22,  Number 3   //    May/June 2014

After five years of change and upheaval, why is it that governing boards of colleges and universities continue to consider risk on a largely ad hoc basis? The findings from a recent survey, conducted by the Association of Governing Boards of Universities and Colleges (AGB) and United Educators (UE), indicate a modest increase in the use of risk assessment in high-level decision making over the past five years, but they also show that boards and administrators are not yet substantially committed to this process, which offers an approach for assessing threats and seizing opportunities.

In 2008 and 2013, AGB and UE jointly surveyed higher education leaders to track changes in the acceptance of, use of, and attitudes toward enterprise risk management (ERM) on college campuses. Unfortunately, a comparative analysis of survey results suggests that higher education is conflicted when it comes to ERM, despite having just come through a five-year period of momentous risks. In many cases, institutions are not following any formal risk-assessment processes. Yet nearly half of survey respondents consider their institution’s risk- management practices to be above average or exemplary, as they did in 2008.

Overall, while advancing ERM in important ways, higher education has lost ground or made no change to ERM practices on crucial fronts. The following summary of key findings illustrates the conflicted state of ERM in higher education.

  • Risk figures less in major institutional decisions. While institutional focus on risk has grown (73 percent of respondents report that their institutions have increased their focus on institutional or enterprise risk compared to five years ago), risk appetite and tolerance are less likely to be considered in decision making. In 2013, 31 percent “strongly agreed” that they are part of the institution’s culture, down from 47 percent in 2008.
  • ERM is a greater priority. In 2013, 45 percent of survey respondents “strongly agreed” that enterprise-wide risk management is a priority at their institution compared to 2008, when only 41 percent “mostly agreed.” However, ERM processes are not firmly established in higher education. Only 39 percent of survey respondents reported that their institutions have conducted an ERM process in the last two years; 61 percent have not or don’t know if they have done so. Of those who did not conduct ERM in the last two years, 48 percent have no future plans to begin an ERM process any time soon.
  • Governing boards are more often involved in risk discussions. The percentage of boards reporting that the full board is engaged in risk discussions has increased since 2008 (62 percent in 2013, up from 47 percent), and discussions are occurring across a greater number of board committees. However, while 60 percent of respondents reported that the risk information boards receive—particularly about financial risks—is adequate, only 39 percent strongly agreed that enough risk information is shared to fulfill their legal and fiduciary duties.
  • Institutions are less likely to use an ad hoc approach to institutional risks (44 percent in 2013, down from 51 percent in 2008). But, this “as needed” approach is still used in more than 40 percent of institutions, with crises on campus—their own or others—being the chief stimulus for risk discussions.

The state of ERM in higher education leaves many institutions unprepared for high-priority risks in the accomplishment of strategic plans and institutional mission. The continuing financial and competitive pressures on colleges and universities call for a more integrated and routine process, incorporating discussions of mission-critical risks and risk management into the strategic decision making and resource-allocation processes of boards and senior administration. Identification, mitigation, and continued attention to both upside and downside risks can help institutions navigate the volatile environment, reduce vulnerability, and build a platform for ongoing success.

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