Operational Risk Management in Social Services Contracting

Abstract

Governments are increasingly contracting with not-for-profit providers to deliver on policy objectives. These organisations are perceived to be cost-effective, flexible and close to their communities. Yet contracting out raises financial, service and reputational risks. Public sector funders receive a plethora of advice on how to balance their operational risks when contracting; however not-for-profit organisations state that funders’ tight control limits their autonomy and effectiveness. This research, into how funders assess and manage risk, links public sector risk management to a dichotomous risk theory. While some funders practised process-based risk management, others practice performance-based risk management. Central government advice, organisational culture, and experiences are the main contingent factors that appear to influence a funders’ risk management choices. As a dynamic model, these factors have their strongest affect when there is a risk failure, or when the factors combine so that public funders recognise their interdependence with private not-for-profit providers.