NACUBO

My NacuboWhy Join: Benefits of Membership

E-mail:   Password:   

 Remember Me? | Forgot password? | Need an online account?

Business Officer Magazine
Loading

Business Briefs

Short news articles based on research surveys and peers’ business experiences that can benefit institutions

STRATEGIC PLANNING
Enterprise Risk Management Evolves Best With Support From President and Board

Effects of the Great Recession

18 mo.

The length of the Great Recession (December 2007 to June 2009), the longest economic downturn since the Great Depression.

-$12.3T

The dollar amount of the change in Americans' total net worth from 2007 to 2009.

-7.3M

The total number of jobs lost since 2007.

+6.3M

Increase in the number of U.S. residents in poverty since 2007.

Sources: Flow of Fund Accounts of the United States: 2005-2009 (Board of Governors of the Federal Reserve System); Income, Poverty, and Health Insurance Coverage in the United States: 2009 (U.S. Census Bureau, September 2010); “The Recession Is Over! So Where's the Party?” by Jeannine Aversa (Washington Post, Sept. 20, 2010).

An effective enterprise risk management (ERM) function can take six to seven years to build, even at financial services companies. It's no wonder that it is a work in progress, spanning multiple years at many colleges and universities. Appearing in higher education throughout the past decade, ERM is a more critical topic than ever.

ERM assumes an institution has a strategic plan and, therefore, associated risks that need to be mitigated. But, risk assessment is the easier task. The more difficult job is prioritizing and addressing risks once they are identified.

John Mattie, partner, Pricewaterhouse-Coopers LLP, and Janice Abraham, president and chief executive officer, United Educators, shared those and other perspectives at the EACUBO Forum on Enterprise Risk Management in Washington, D.C., on October 10. Mattie and Abraham have seen progress on ERM across higher education from their vantage points of interacting with many different institutions. “Overall, larger institutions are further ahead [with ERM] than smaller colleges, while some of the most advanced universities are public,” says Abraham, “and boards of trustees in many cases are driving the initiative.”

A Process That Begins at the Top

While many institutions have begun to address risks from an ERM perspective, the most successful process is top-down driven. “The president, board, and other senior academic and administrative leaders should be supportive,” says Mattie. The toughest challenges, he says, seem to be assigning individual accountability, measuring and rewarding performance, and gaining support from the academic leadership. “Obvious support from the president can help motivate faculty's involvement.”

The faculty often finds value in the risk-identification process, even more so than in taking action to prevent problems. The discussion with faculty, using terminology better suited for academic professionals, raises awareness and advances the ERM process. “It pays to develop a culture—beyond the CFO or a few board members who care about it—to find and share broad, enterprisewide risks and opportunities,” says Mattie. “This gets risk management into the DNA of the campus. A president and board of trustees are central to making that happen.”

Role Imperatives for the Board

A major challenge for trustees is not knowing the degree of risk the institution faces or whether there is a structure in place to address it. To be most effective, the board leadership must embrace ERM. Once the full board advocates the process, its members are ready to discuss the strategic angle of managing risks—looking at no more than 10 risks at a time, or ideally 5—that senior administration identifies.

In this way, enterprise risk management is slowly moving beyond being solely a discussion among board audit committee members. Although few boards are examining risks beyond the financial realm, other committees may want to consider addressing issues in such areas as student affairs, new academic programs, or international activities. It's also a good idea to make discussion about strategy and risk an element of new board member orientation, even though this practice does not yet appear to be common, based on an informal sample of 33 forum participants.

Workings of an Internal Risk Committee

While the holistic approach to risk management is evolving, many institutions already have measures in place to monitor activities and manage associated vulnerabilities. A gap analysis undertaken early in the ERM process can yield important information. “Determine what the risks are and the individuals already involved with risk management,” says Mattie. “This will actually help to reinforce ERM as an integral component of the institutional operating culture.”

Once the full board advocates the ERM process, its members are ready to discuss the strategic angle of managing risks.

At some institutions, an internal risk committee consisting of the CFO, general counsel, and a faculty champion is in place to mobilize the process. Based on Abraham's observation, “The most effective models include five to seven committee members with similar high-level positions. The CFO makes a good choice to chair the group because of his or her long-term perspective, broad operational expertise, strong ties to the board, and understanding of the total cost of risk. Adding this specific committee role to each member's job description also emphasizes accountability. This ongoing committee will ultimately prioritize the 5 to 10 risks to be addressed by the board.

Hiring a chief risk officer is not very common, although a large research university might have both a compliance officer and chief risk officer, noted participant Mike Gower, of Yeshiva University, New York City. While risk officers have previously existed within some departments, the level of effort and energy required has increased. Their work is more complex than it was even two or three years ago, considering the recent compliance requirements approved by such entities as the Internal Revenue Service and the Department of Education. Fortunately, institutions that have a compliance program in place may be able to leverage that knowledge to implement broader ERM efforts.

Ideally, an internal risk committee will have broad campus exposure and meet four to six times per year, suggests Abraham. Appointed subcommittees can coordinate with the various departments and schools and act as a technical resource to collect information, as well as provide guidance to the campus community [as opposed to enforcing rules]. Although the internal risk committee might identify 25 or more risks across the campus community, a key task is to prioritize a maximum of 10 to receive the board's attention. “Another measure of success,” says Abraham, “is seeing people throughout the campus using committee members as a resource just one year following the committee's formation.”

Other recommendations:

  • Separate strategic risk from all other risks. It is not necessary to take on everything at once.
  • Emphasize ownership. Each risk that is identified needs a champion to manage the threat. “If it belongs to no one, it will not get done,” notes Abraham.
  • Evaluate risks from two dimensions: (1) the probability of the risk taking place and (2) the impact on the institution if the negative outcome of the event is not effectively mitigated.
  • Keep risk and audit departments separate, even if it might be tempting to combine them.

EACUBO President Ken Cody, vice chancellor for financial affairs and treasurer, University System of New Hampshire, summed up the challenge faced by the internal risk committee by commenting that new things on campus happen so fast, it's hard to know about them all. CFOs need to tackle the biggest items, focus on them, and remember to award credit for the many risks already being handled or mitigated.

Multiple Measures of Success

The greatest value of ERM is improved budgeting and planning, resource deployment, and the ongoing discussion generated. Success is in the eyes of the president, the board, and the campus faculty and staff. Indications of an effective process can be a dean calling the CFO in advance of starting up a new program, the vice president of enrollment management laying out a strategy for changing the recruitment process to address shifting demographics, or an internal risk committee establishing a list of 5 to 10 risks as a regular board discussion item. From Abraham's and Mattie's perspectives, a successful ERM process becomes part of the culture, not an onerous one-time project. However, without a commitment from the board, president, provost, and other members of senior management, it is not likely to be effective.

NACUBO CONTACT Maryann Terrana, director of constituent programs, 202.861.2562

RESOURCE LINK Additional enterprise risk management information is available here.

^ Top

SPOTLIGHT: SMALL INSTITUTIONS
Above and Beyond the Post-9/11 GI Bill

During the past two years, affording a college education has become an even greater challenge for most students, including military veterans. Heeding advice from Republican Sen. Lamar Alexander of Tennessee to make higher education more affordable, Lipscomb University, Nashville, developed several initiatives designed to increase accessibility and affordability. A veterans' scholar program has proven to be quite popular in just one year's time. For a relatively small investment, we've brought to our campus new and welcome diversity while providing military families much-needed support.

Going Beyond Educational Basics

The Yellow Ribbon Enhancement Program is designed to go beyond the educational benefits administered by the U.S. Department of Veterans Affairs via the Post-9/11 GI Bill. With the bill's benefits, based on length of service, a veteran may already be eligible to receive the cost of tuition and fees, not to exceed those of the state's most expensive higher education institution.

Veterans are also entitled to (1) a percentage of monthly housing allowance (paid directly to the veteran) equal to the basic housing allowance payable to a military E-5 with dependents, in the same ZIP code as the school; (2) a yearly book and supplies stipend of up to $1,000 per year (paid to the veteran); and (3) a one-time payment of $500 paid to certain individuals relocating from highly rural areas.

At Lipscomb, for veterans who qualify for 100 percent of the Post-9/11 GI Bill, the university has committed to allocate the necessary funds to allow them to earn a tuition-free undergraduate degree. This applies to tuition only, as the VA's housing allowance and books/materials stipend has proven to completely cover those expenses. In addition, Lipscomb offers a number of tuition-free master's programs as well as selected graduate degrees at a greatly reduced tuition rate.

Additional Services

In addition to academic offerings, GI Bill participants may choose from a variety of services specially designed for veterans on campus. Along with the customary Veterans Liaison Office that helps facilitate the transition from military to university life, Lipscomb has established two other initiatives:

  • A Student Veterans of America campus chapter with programs that include service opportunities and a social network.
  • The Career Development Center, which offers guidance and services designed to facilitate the veteran's transition to the civilian job market. For example,Lipscomb staff created a “military smart book” that translates military jargon into corporate terms.

Mutual Benefits

The Yellow Ribbon Enhancement Program has been positive for both Lipscomb and the veterans we serve since we first offered it in fall 2009, with 21 veterans participating. One year later, 65 veterans are pursuing a tuition-free Lipscomb education. Part of this growth is the result of multiple marketing methods, including Facebook ads; radio and television spots; a partnership with the Fort Campbell, Kentucky, military base; and a daylong campus symposium to raise support for the program.

The program offers Lipscomb a pool of previously untapped potential enrollees whose tuition does not have to be heavily discounted, while it enhances the campus community with new and welcome diversity. It really is a win-win for both Lipscomb and veterans. For more information, visit the Lipscomb Web site.

SUBMITTED BY Danny Taylor, senior vice president, finance and administration, Lipscomb University, Nashville

^ Top