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Business and Policy Areas
Business and Policy Areas

Study Looks at the State of ERM at Colleges and Universities

July 16, 2009

College and university leaders may be lagging behind industry in systematically evaluating risks, according to a recent report from the Association of Governing Boards (AGB) and United Educators (UE). "The State of Enterprise Risk Management at Colleges and Universities Today" reviews the results of a survey on attitudes, practices, and policies on strategic risk management. Resources, including worksheets designed to help boards and institutional leaders begin the process of systematic risk assessment, are also provided.

Five best practices are identified.

  1. Define risk broadly. Traditionally, institutions focused on financial risks covered by insurance. Current thinking defines "risk" as any impediment to accomplishing institutional goals. In a 2000 report, the National Association of College and Business Officers (NACUBO) discussed the "new language of risk" and identified five types of risk: strategic, financial, operational, compliance, and reputational.
  2. Recognize both the opportunities and downsides of risk. Many colleges focus only on the downsides of risk. In addition, they should weigh risks against potential rewards. All successful organizations take risks, and the most promising opportunities often involve heightened risk.
  3. Develop a culture of evaluating and identifying risk at multiple levels. Presidents and board members rarely see the first warnings of risk. Institutions need to identify and assess risks regularly at multiple levels so that the most critical ones filter up to top decision-makers.
  4. Look at the total cost of risk. Risk is not just about dollars and cents. Institutions must consider all the consequences of risk. For example, in a lawsuit over denial of tenure, there are litigation costs, but there are also non-monetary costs such as lost productivity, distraction from mission, and negative publicity.
  5. Boards and presidents should collaborate. They need to engage in candid discussions at the strategic level. By working together, presidents and boards can fulfill their shared responsibility for ensuring the success of the mission and stability of the institution.

A number of action steps also offer practical advice for college and university leaders, including requiring all top administrators to prioritize risk, and requiring annual written reports on each high-priority risk. Presidents and boards are advised to reassess priority risks annually and to "look for blind spots."