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AUTHOR: CONOR WYNN, PHD

The following article is republished from Sein with permission.

We like to think that big policy decisions are made thoughtfully, informed by data, with careful consideration of the facts and after a deliberate weighing of the options. Not so it seems.

It turns out that the political elite use ‘rules of thumb,’ also known as heuristics, to make the big decisions1. So who are these people, why do they decide that way, and is it OK that they do so?

The elite is a small group of individuals who occupy prominent positions in society, and who have preferential access to resources and an outsized impact on events. They tend to recognise one another, act and think alike. The political elite is a subset, comprised of politicians, senior bureaucrats, and advisers. Politicians in power face a 24/7 news cycle, deal with complex problems and divergent opinions. And though this is what they signed up for, it can lead to the political elite relying on heuristics to cope.

Which heuristics do the political elite use and why?

The literature shows that the political elite are prone to use heuristics such as, being more sensitive to losses than gains, also known as prospect theory, status quo bias, overconfidence – leading to poor decision-making, which when combined with escalation of commitment could help explain why once having made a poor decision, the elite are also prone to doubling down on previous commitments and stereotyping2 to name a few.

There are seven factors that influence the political elite in using heuristics:
  1. Experience: the greater the experience the more effective use of heuristics3.
  2. Context: Greater experience in similar contexts appears to allow the more experienced to get to an acceptable outcome more quickly than those with less experience4.
  3. Complexity: More complex issues are associated with the greater use of heuristics5.
  4. Urgency: The greater the urgency the more likely the use of heuristics6.
  5. Self-interest: For example, gaining or remaining in office.
  6. Ideology: Political ideology such as conservatism or socialism can be used as a heuristic.
  7. Emotion: For example, the British prime minister Herbert Asquith’s decision to enter World War One was thought to have been influenced by anger and fear7.

The issue is though—is that OK?
Is it good enough, for example, that a decision to go to war is influenced by heuristics, or should we expect a more thoughtful approach before placing troops in harm’s way?

Is it OK to use heuristics for political decision-making?

There are two leading schools of thought around the use of heuristics. The heuristics and bias (H&B) school lead by the Nobel laurate Daniel Kahneman, and the fast and frugal (F&F) school led by Gerd Gigerenzer.

The H&B school argues that there are two styles of decision-making—either quick or deliberate8, however there are a few caveats. These decision-making styles could be thought of as being at opposite ends of a spectrum, and by implication, a blend of these two decision-making styles is likely, as is a sequencing of different decision-making styles, e.g. using heuristics to narrow down the range of choices, then a deliberate approach to choosing between them. But when it comes to political decision-making Kahneman argues that heuristics should not be used9, whereas Gigerenzer allows for their use in political decision-making10. So, which school is right? Unfortunately, it’s not that straightforward.

The problem with political decision-making is that often the answer to a question is unknown in advance, because the problems are complex. The lack of a “correct” answer makes testing alternatives impossible. To make matters worse, decision-making by the political elite make can be motivated by their desire to stay in office11. And so, it’s not possible to test motivated decision-making in an objective sense, because it is subjective—by definition.

Notwithstanding the impossibility of a binary solution to the debate about the use of heuristics in political decision-making, we wanted to learn more. So, we managed to secure rare access to 21 senior ex state politicians, their advisers, and senior former bureaucrats discussing an innovative but politically difficult transport pricing policy proposal.

Transport pricing reform

Road congestion in large cities is a significant issue in Australia. Charges for road use are levied upfront (e.g. vehicle registration tax) and do not reflect actual road usage. An alternate approach to transport network pricing (TNP) would be a user pay system where those who travel during peak times, for greater distances or into highly congested zones would pay more than those who didn’t. And so, there was political risk.

The discussion forum

There were 21 participants, six of whom were current or former senior politicians (from both major political parties), seven current or former senior bureaucrats (i.e. heads of departments), and eight current or former political advisers. Participants were drawn from the two major parties, for balance. And as the participants were no longer in positions of executive power, we hoped to minimise the risk of presentation management overlaying the decision-making process. An extensive briefing document was provided to all participants in advance, including a detailed business case, economic modelling, pricing recommendations, traffic projections and demographic analysis.

What we found — whether to engage and how to engage

We found that the political elite used heuristics in two ways.

First, to decide whether to engage with an issue, using the “wait-and-see” heuristic. And second—having decided whether to engage—how to engage, using political empathy to guide their actions on TNP.

Whether to engage — the “wait and see” heuristic

The primary concern of the elite we observed was not judging the TNP in isolation on its merits, rather whether they ought to engage with the TNP at all. In other words, they didn’t act as judges, considering the facts of each case brought before them. Instead, they behaved like investors, deciding which stock to invest in from a broad market.

So, the first question they asked was – are voters demanding action? They sensed that though there was dissatisfaction about traffic congestion, community sentiment hadn’t crystallised to the point where action was being demanded. The issue wasn’t making headlines, and so, the answer to the first question was “no”, the issue wasn’t urgent and didn’t demand action. This led to the second question; if this issues wasn’t urgent, yet they pressed ahead with implementing the TNP regardless – would there be much resistance?

In a telling comment, a senior politician summed up the situation, based on his experience of trying to change car usage behaviour through pricing signals alone:

“Pricing hasn’t worked. [It] takes a lot of fiscal pain for someone to get out of a car.”

Politicians representing outer suburbs feared community pushback from increased costs which cast a shadow of self-interest over their decision-making.

So, the calculation was – “yes”, there was a risk of strong resistance to those proposals from segments of the community. At this point they thought – the matter isn’t urgent, there’s likely to be pushback and so they asked the third key question – if we impose this policy against the wishes of the electorate…

“are we prepared to spend the political capital needed to overpower that resistance”

This strategy, characterised as the “political strong man” approach had been used in New York, London, and Singapore for example. A former adviser summarised the group’s dilemma at this point in the decision tree.

“It’s [political] suicide analysis, how much damage are you going to do to yourself?”

A former senior bureaucrat summed up the three step decision tree with a pointed question:

“Does any politician think that the big problem is congestion and that the answer is pricing?”

The matter was decided quickly with the answer to this question by a senior former politician:

“No. Not yet.”

How to engage — political empathy

To identify the heuristics voters might use to judge the proposal, the political elite used political empathy – putting themselves in voters’ shoes to identify which heuristics voters would use when judging a policy.

To help them with political empathy they used:

And so, the complex issue of whether to engage with the TNP was decided. It was a decision not to engage, or a decision to make no decision. A previously identified12 but not observed heuristic of “wait-and-see” was used to decide the fate of an innovative policy proposal.

So what?

While we identified seven factors that influence the use of heuristics by the political elite, we saw five in play at our forum – experience, context, issue complexity, and urgency. Though our forum members were highly experienced, they were not experts in transport pricing policy and so context was key. The matter was highly complex, and as there was no pressing need to decide, urgency was low. The combination of those factors influenced decision-making style, and caused them to use both styles of thinking, not either.

The politicians we observed made a decision about a decision, which could be considered deliberate decision-making based on elaborate thought, so supporting the F&F school. However, in arriving at that decision they did not consider the details of the extensive briefing materials, rather they used a three-step process to reach an acceptable answer quickly – the hallmark of heuristic decision-making, preferring to “wait-and-see”.

While it looks like an important question – is it OK for heuristics to be used for political decision-making, it turns out that this isn’t a good question after all. This forum showed that both styles of decision-making can be appropriate, rather than one or the other. And while most studies of political decision-making focus on decision-making, few address political non-decision-making. For the first time to our knowledge, we found evidence of the use of heuristics for avoiding a decision, and the shaping of public policy by inaction.

How to avoid indecision or “irrational” decisions from the political elite

When dealing with political elite, there’s a real risk that there either won’t be a decision, or one that “doesn’t make sense”, so what can be done to avoid those poor outcomes?

  1. Try to re-engage the decision makers on the detail, so forcing deliberate thinking, but there are problems with this approach. The likelihood of success is low – we know the political elite like to use heuristics13. And secondly, as there are some situations where heuristics are preferable to elaborate thinking14, so it’s possible that for instance now is not the right time for the proposal.
  2. Encourage decision makers to become aware of their biases possibly through leadership development programs. Once again there are problems with this approach. Telling someone important that their decision-making is biased, and they should re-train could be career limiting. And including de-bias training in general leadership development training programs, so that when leaders do emerge into senior roles they rely less on heuristics is a very long-term play. Worse still, there’s evidence that such training programs are either useless15, or can backfire16.
  3. Use the decoy heuristic by adding an obviously inferior alternative to the one you prefer. While this might have the desired effect it’s ethically questionable. At minimum you could be accused of libertarian paternalism, or at worst manipulative.
  4. Take a portfolio view of all your policy proposals and put them to the “wait and see” heuristic test to spot which ones might struggle to get leadership engagement. This has legs. It recognises that the political elite use heuristics rather than pushes back against it, and so is a pragmatic choice. It provides feedback on which of your proposals is likely to be successful and which could end up in deep freeze. Armed with that information, you could re-allocate your resources to those proposals with greater chances of success, becoming more effective in the process. And, in looking at those proposals that didn’t pass the “wait-and see” test, you might discover which conditions need to change or be changed for them to pass the test.

In summary, there’s evidence that heuristics have their place in decision-making, and that a blend of deliberate thinking and heuristics is effective. 

But the issue is not the theoretical one of whether important people ought not use heuristics, it’s the pragmatic one of how to cope with the fact that they do. The “wait-and-see” heuristic is alive and well among the political elite, understanding how to deal with it is key.

 

  1. Stolwijk, S., & Vis, B. (2020). Politicians, the Representativeness Heuristic and Decision-Making Biases. Political Behavior. https://doi.org/10.1007/s11109-020-09594-6
  2. Bordalo, P., Coffman, K., Gennaioli, N., & Shleifer, A. (2016). Stereotypes. Quarterly Journal of Economics, 131(4), 1753-1794. https://doi.org/10.1093/qje/qjw029
  3. Hafner-Burton, E. M., Hughes, D. A., & Victor, D. G. (2013). The Cognitive Revolution and the Political Psychology of Elite Decision Making. Perspectives on Politics, 11(2), 368-386. https://doi.org/10.1017/s1537592713001084
  4. Klein, G. (2008). Naturalistic decision making. Human Factors, 50(3), 456-460.
  5. MacGillivray, B. H. (2014). Fast and frugal crisis management: An analysis of rule-based judgment and choice during water contamination events. Journal of Business Research, 67(8), 1717-1724. https://doi.org/10.1016/j.jbusres.2014.02.018
  6. Chaiken, S., & Trope, Y. (1999). Dual-process theories in social psychology. Guilford Press.
  7. Young, J. W. (2018). Emotions and the British Government’s Decision for War in 1914. Diplomacy & Statecraft, 29(4), 543-564. https://doi.org/10.1080/09592296.2018.1528778
  8. Kahneman, D. (2011). Thinking, fast and slow. Macmillan.
  9. Kahneman, D., & Klein, G. (2009). Conditions for intuitive expertise: a failure to disagree. American Psychologist, 64(6), 515.
  10. Gigerenzer, G. (2008). Why heuristics work. Perspectives on Psychological Science, 3(1), 20-29.
  11. Bowler, S., Donovan, T., & Karp, J. A. (2006). Why politicians like electoral institutions: Self- interest, values, or ideology? The Journal of Politics, 68(2), 434-446.
  12. Walgrave, S., & Dejaeghere, Y. (2017). Surviving information overload: How elite politicians select information. Governance, 30(2), 229-244.
  13. Stolwijk, S., & Vis, B. (2020). Politicians, the Representativeness Heuristic and Decision-Making Biases. Political Behavior. https://doi.org/10.1007/s11109-020-09594-6
  14. Gigerenzer, G., & Goldstein, D. G. (2011). The recognition heuristic: A decade of research. Judgment and Decision Making, 6(1), 100-121.
  15. Noon, M. (2018). Pointless diversity training: Unconscious bias, new racism and agency. Work, employment and society, 32(1), 198-209.
  16. Atewologun, D., Cornish, T., & Tresh, F. (2018). Unconscious bias training: An assessment of the evidence for effectiveness. Equality and Human Rights Commission Research Report Series.

This article is based on an article published in the Australian Journal of Public Administration, the peer reviewed journal of the Institute of Public Administration Australia.

AUTHOR: JOSIE LOPEZ

With the increasing focus on environmental, social and governance (ESG) issues, mandatory climate disclosure reporting is being introduced around the world to provide information on an organisation’s progress towards their ESG goals. To demonstrate their commitment to acting on climate change in their own operations, the Commonwealth Government has introduced Climate Disclosure Reporting for Commonwealth entities and Commonwealth companies.

Like the introduction of Performance Statements into Commonwealth Government reporting, the introduction of Climate Disclosure Reporting will be applied in a phased approach to allow entities to develop their maturity over time. However, do not let this phased approach lull you into a sense of false security, for entities and Accountable Authorities to properly discharge their responsibilities under Climate Disclosure Reporting entities must invest in the relevant resources and take the time to develop and implement the appropriate infrastructure to support this reporting.

What is expected of entities under climate disclosure reporting?

There will be two streams of disclosure requirements for Commonwealth entities and
Commonwealth companies:

The Department of Finance expect to finalise the Commonwealth Climate Disclosure requirements for Stream 2 in mid-2024. Therefore at the time this paper was written, only the requirements for the Pilot had been released. However, the Department of Finance notes that the requirements will align with climate disclosure standards set internationally by the International Sustainability Standards Board (ISSB), nationally by the Australian Accounting Standards Board (AASB), and be tailored for government and the regulatory and policy environments under which they operate (e.g. APS Net Zero by 2030).

The pillars of Climate Disclosure reporting within International Financial Reporting Standards Sustainability Standard S2 Climate-related Disclosures that will be featured within the Department of Finance’s disclosure requirements include:

It is noted that the pillar of ‘Strategy’ is not included in the Pilot for Departments of State, however this pillar will be included in the required disclosures by the Department of Finance from 2024-25.

How do I prepare for Climate Disclosure Reporting?

Similar to the introduction of Performance Statements and the new Australian Accounting Standards for Revenue and Leases, entities that are not aware of their requirements and adequately prepare for climate disclosure reporting will get caught out in the first year of reporting.

For an entity, and therefore an Accountable Authority, to properly discharge their responsibilities under Climate Disclosure Reporting, an entity must take the time to ensure that they have the right resources and infrastructure in place. To report on the four pillars, this will include:

Although capacity building support is being provided to Commonwealth entities and Commonwealth companies to help them meet their climate disclosure obligations, entities need to ensure that they have dedicated resources with the capability and experience to be able to properly report on their climate disclosure requirements. In addition, employee engagement and staff led initiatives will be important to achieving net zero grassroots climate action and broader sustainability. Dependent on the size and nature of the entity, to ensure that there is the appropriate infrastructure, frameworks and level of executive involvement, this may require the establishment of a Chief Sustainability Officer, a Climate Sustainability and Assessment Team, a Risk Management Team and an Environmental Contact Officer Network (a volunteer-run network of staff committed to reducing the environmental footprint of the entity’s operations).

When do I have to report?

The following table details the tranche and initial year of reporting for all Commonwealth entities under Stream 2:

Will my sustainability report be audited?

The Department of Finance will be developing a verification and assurance regime in consultation with the Australian National Audit Office (ANAO) to be applied to Stream 2 entities. Like the initial Performance Statement reviews conducted by the ANAO, the focus of the regime will be on improving the quality of climate disclosures. We believe that over the years as the maturity of climate disclosure reporting increases within the Commonwealth, like the Performance Statements there may be a move to mandatory audits which will include the issue of an audit opinion in the form of positive assurance over compliance with the Commonwealth climate disclosure reporting requirements. With this in mind, entities should develop their climate disclosure reporting frameworks to ensure that there is rigor and robustness within processes to identify and capture applicable data, and ensure that the governance around this function supports the complete and accurate reporting of the climate disclosure requirements of the entity. This will also provide the Accountable Authority with comfort over what the entity is reporting as well as their progress in line with the Commonwealth Government’s commitment to Net Zero in Government operations.

Should Internal Audit get involved?

Internal Audit should play a significant part in an entity’s preparedness for Climate Disclosure Reporting, and now is the perfect time for Internal Audit to get involved! Internal Audit should be making contact with the line areas responsible for Climate Disclosure Reporting and integrating into an assurance program over the four pillars of reporting. Real time assurance as the entity progresses around the framework for Climate Disclosure Reporting, as well as assurance over results to be reported, will provide relevant governance committees and the Accountable Authority comfort in what the entity is reporting to both government and the public.

Conversely, line areas responsible for Climate Disclosure Reporting should be reaching out to Internal Audit to provide them assurance around the rigor and robustness of their processes for Climate Disclosure Reporting.

 

 

AUTHOR: JO CARROLL

In both the Public and Private sectors, it is important that individuals, programs and
organisations are held to account to deliver performance outcomes. Within the
private sector, profitability is the measure most often used, however we are seeing
an evolution with the increased focus and priority given to Environmental, Social
and Governance (ESG) reporting. Within Government the Annual Performance
Statements is the way in which performance is measured and reported,
implemented with the introduction of the Public Governance, Performance and
Accountability Act 2013 (PGPA Act) which established the system through which
accountability for public resources is to be governed.

In the public sector Annual Performance Statements is a regular audit topic on
Internal Audit Work Programs. As the Australian National Audit Office (ANAO)
continues to expand its external audit program, internal audit functions can help
their agencies to prepare for external audit, and address findings and
recommendations from ANAO work program.

Audits of Annual Performance Statements started to find their way onto our work
programs around 2019 when the ANAO commenced its pilot program. These audits
were focussed on the accuracy of the data presented in the statements. As time
progresses, we are seeing more value being added by audits that assess the
measures themselves and flesh out grey areas beyond prescriptive rules. Providing
assurance that agencies have coverage of material or key activities, an appropriate
balance of efficiency, outcome and output measures and a rigorous approach to
measuring qualitative aspects of functions such as the provision of policy advice
can provide a richer and more complete performance story to the public.

Off the back of a number of years of these rolling audit programs and ANAO
insights, we are seeing Government agencies continuing to refine their measures,
moving towards quality over quantity to tell a more compelling performance story.
For example, the Department of Infrastructure, Transport, Regional Development,
Communications and the Arts (DITRDCA) has reduced their measures from 85 in the
2021-22 Corporate Plan to 45 in 2023-24 and the Department of Treasury
consolidated its key activities from five to three in 2023-24 to allow for a more
long-term strategic view on its performance. The processes supporting the
planning, selecting, monitoring, reporting and validating of measures are also useful
for Internal Audit to provide insight and their process expertise.

But what is the next iteration of these audits? As we move beyond accuracy and
grey areas within the process, how can we continue to drive better performance
outcomes?

Value can be added by Internal Audits with objectives to assess how the
performance measures and statements are being used drive to better performance.
This is harder to quantify and evaluate than when we assess the measures
themselves and the processes that support them. As internal auditors, we have an
obligation to bring value through our audits, identify performance improvements
and look for opportunities to continue to mature.

Critical to achieving performance outcomes is the concept of accountability and
who is accountable to drive performance of an organisation, function or capability.
Internal Audit can consider how are individuals held to account, how they are using this performance information to make decisions that lead to better performance
outcomes (or are they waiting for the end of the reporting period with a rearward
facing view)?

Accountability refers to the obligation or willingness of individuals to take
responsibility for their actions, decisions, and the outcomes resulting from them. It
involves acknowledging and accepting the consequences—both positive and
negative—of one’s actions and fulfilling commitments made to others. In a broader
sense, accountability is a fundamental aspect of ethical and responsible behaviour
in personal, professional, and organisational contexts. It implies a commitment to
transparency, integrity, and the understanding that actions have an impact on
individuals, teams, and the overall performance of an organisation. In an
accountability-driven environment, team members are free to share knowledge,
provide constructive criticism, and own their successes and failures without fear of
repercussion.

A culture of accountability can be very difficult to build. Within Government, with
less reliance on profit as a means of measuring performance and there are often
less tangible measures of performance. Arguably accountability can still be difficult
in the private sector, how individuals are held to account for driving performance
isn’t always easy while maintaining a positive and healthy work culture. Successful
performance goes beyond financial results and companies are starting to more
actively measure and monitor other aspects of performance through ESG reporting.
A culture of accountability in an organisation requires a number of conditions to be
present. Listed here are some criteria you can assess to form a view on the culture
of accountability that in turn supports performance outcomes:

Leadership Role Modelling

Leaders should consistently demonstrate and model accountability in their actions
and decisions. When employees see leaders taking responsibility for their actions,
it sets a positive example for the entire organisation.

Clear Expectations and Communication

Clearly communicated expectations for individual and team accountability. Ensure
that everyone understands their roles, responsibilities, and the impact of their work
on the overall success of the capability, function and organisation.

Regular monitoring of Performance Metrics and KPIs

Regularly track and communicate progress, holding teams accountable for meeting
these performance standards or to make decisions and adjustments when
performance is lacking.
Recognise and reward individuals and teams for their accountability and successful
outcomes. This can be through both formal recognition programs and informal
acknowledgment of a job well done.

Accountability Framework

An accountability framework that outlines the consequences for both meeting and
not meeting expectations that is transparent and consistently applied across the
organisation.

Training and Development

Training programs that focus on accountability, teamwork, and communication to
help employees develop the skills they need to take ownership of their work and
collaborate effectively across silos.

Cross-Functional Collaboration

Collaboration across different departments and teams is encouraged and
facilitated, fostering a culture where individuals understand the interconnectedness
of their work with others and the overall performance of the organisation.

Feedback Mechanisms

Regular feedback mechanisms, such as performance reviews and 360-degree
feedback, to provide individuals with insights into their personal performance in
relation to their accountabilities for the organisations performance. The link
between individual role and performance measure is clear and constructive
feedback is provided to foster a culture of continuous improvement.

Conflict Resolution Training

Training on conflict resolution to help teams address issues constructively. A
culture that addresses conflicts openly and seeks solutions promotes
accountability.

Continuous Improvement Culture

A culture of continuous improvement where mistakes are seen as opportunities to
learn and grow rather than as reasons for blame where employees are encouraged
and expected to share lessons learned from both successes and failures.

Employee Involvement

Involve accountable employees in decision-making processes and give them a
sense of ownership to take action to achieve in the organisation’s goals. When
employees feel a connection to the organisation’s mission, they are more likely to
take accountability for their contributions.

With these elements present, performance reporting can be more than just a tick
the box exercise, it can drive performance outcomes that are achieved through the
performance reporting and its supporting processes.

When setting the objective for your next audit of Performance Statements, think of
performance measures beyond an exercise for corporate reporting or to prepare for
an ANAO audit – consider how you can build upon the maturation of measures and
processes to factor how performance measures can and should be used by the
organisation to reinforce accountability and support decision making the improve
the performance outcomes.

AUTHOR: MARK HARRISON

In a recent Insights publication, the Australian Government Auditor-General has recently reported that since 1 July 2021, only 31% of audit findings relating to risk management were positive.

This forced us at Sententia Consulting to think about whether risk management in the Australian Government really is that bad.

We have concluded that the answer is yes… and no.

The fact is that the Australian Government (and government generally) is responsible for some of the most complex and risky ventures and activities in the country.  Defence of the nation, operating healthcare systems that must cater for every citizen, delivering environmental outcomes in the face of massive environmental headwinds, all are ventures that can just as easily be unsuccessful as be successful … as well as being just plain difficult. Yet there are plenty of (often unheralded) successes by Government in all of its responsibilities.

It’s easy to look at some of the more challenging episodes in the Australian Public Service and attribute those to poor risk management – Robodebt, the “pink batts” scheme, any number of Defence materiel design and construction projects, and the 2013 lost ballot papers in the Federal Election, amongst others.  Further, most agencies and public servants have experienced their own challenged procurements, failed programs, poor grant decisions, and policy implementations which in hindsight could have gone better.

While there is almost inevitably some truth to the comment that all of these are a result of poor risk management, that is simplistic and only part of the circumstances.  (Note here, we are not seeking to misinterpret the Auditor-General’s comments, which were not that simplistic.)

Risk management represents just one part of good governance, or good project management, or good procurement management, or good program management, or good contract management, or frankly any model or framework for effective execution of aspects of public administration.  Each of these have frameworks with multiple components that all need to work together to create good outcomes.  Typically, those frameworks involve having good people doing the right jobs, good planning, effective process design, strong stakeholder engagement, tight legislative compliance, and clear accountability mechanisms.

While risk management definitely is important in contributing to all of these components of effective management, it is not the only discipline that needs to be in place and operating to support good outcomes.  Put another way, good risk management does not guarantee a good outcome, but poor risk management does expose agencies to poor outcomes, and reduces defensibility when those poor outcomes occur.

In my 20-something years of working with the Australian Government, I have seen plenty of examples of really good risk management, and I have seen just as many examples of poor (or non-existent) risk management.

That 20 years of experience has taught us that the key ingredients to good risk management are:

Note here that I have not mentioned risk registers once.  I have not referenced the Commonwealth Risk Management Framework once.

Each of these are important tools – tools that support good process and each of the ingredients I have referred to above. For all projects I lead or contribute to, I ensure I do follow the Framework, and I do maintain a focussed risk register.

But, where agencies miss the point with risk management is that they focus all of their energy in connection with risk management on the register and having a register that is “complete”, and a process for risk management that follows all of the steps in the manual or the policy or the Framework.  And insufficient energy on some of the ingredients outlined above – and therefore on actually preventing or responding to risk.

To close this article I am reminded of two quotes that are influential in my approach to risk management:

AUTHOR: JO CARROLL & NATHAN EDDY

Implementing wholesale process redesign in a compressed timeframe is a daunting task. Add political interest and an Auditor-General’s report to respond to and the pressure is really on. This is what we faced when presented with the redesign significant business process for a NSW Government Agency.

Context

The NSW Auditor-General handed down a report in May that identified significant deficiencies in the management of a process that required remediation and made a number of recommendations to address the process deficiencies, address identified risk and provide greater control of the agency’s powers. The Secretary of the Agency committed to implement a new, organisation-wide, process by December – less than eight months from the release of the report.

We commenced this project on 1 July, giving us and our client only six months to deliver a wholesale redesign of a complex and critical business process.  We were engaged to work side by side with the department to implement this significant project, working closely with teams across NSW.

We faced resistance and challenges to implementing such a complex program of work from the start. Some key challenges included:

Our strategic approach was successful and ultimately allowed us to turn around a program of work that would normally take more than 12 months in a 6-month timeframe.

Facilitative Approach

Our facilitative approach worked well to engage large groups of stakeholders through workshops to understand their current processes and challenges, map and step through critical process steps, and identify opportunities to improve and better practices within the agency.  It allowed us to leverage their experience and expertise to design a future process that met their needs, supporting compliance with the legislated requirements and addressing the required outcomes for the project. This approach was used throughout the project starting with defining the high-level process design, down to developing individual operational steps within the process to ensure that those impacted by the change could be informed and contribute to the project, improving project outcomes and stakeholder buy-in.

Defining the End-State Early

There were many documents to be produced as part of the project and it was not feasible for Senior Management to be across them all in detail. To address this, workshops were held with Senior Management to establish design principles and articulate the desired future state before starting to redesign the process. Twenty design principles and 14 future-state statements were endorsed by Senior Management and the Steering Committee and communicated widely to stakeholders. They were used to frame discussions and were introduced at the start of each design workshop to guide the participants towards the desired end state endorsed by Senior Management. These statements were also used at the end of the project to measure success of the program of work.

Leveraging Project Governance to Maintain Momentum

As the pace of delivery of key documents picked up, we increased the frequency of working group meetings to engage directly with the management team, resolve issues efficiently, and make time critical decisions. We also utilised these meetings as needed for workshops or detailed walk throughs of the process documentation. For example, we used one meeting to step through in detail two different proposed process flows to resolve conflicting views between stakeholder groups and come to a resolution.

Lessons Learnt

Like all high intensity and complex projects, the lessons learned provide valuable insights to inform our future strategies and planning. We paused at critical milestones throughout the project to reflect on what has worked well to date and what could be improved or done differently moving forward. Below we share some of our key lessons from this project.

Dividing the Workload Doesn’t Always Produce Efficiencies

In an effort to reduce the workload on individual stakeholders, we divided up the documents for review. In hindsight, a lot of time was spent providing context and explaining concepts contained in other documents. Making the draft documents centrally accessible to all stakeholders providing input to the project would have allowed them to delve deeper into the subject areas they were interested in and reduce the amount of time required during briefing sessions at the end of the project conducted as part of the change program.

Engaging stakeholders directly also resulted in siloed discussions and conflicting points of view that required further work to resolve.  While it may be challenging to schedule discussions across stakeholder groups, the benefits are worth the effort. Having all stakeholders present for the same discussions leads to shared understanding and the ability to discuss differing points of view to resolution, rather than when consultation occurs in insolation.

Integration of Project and Change Management to Embed Change

Change Management is critical to the success of projects of this nature, particularly when redesigning complex processes with considerable history within experienced teams. Due to resource availability, the client’s Change Management resources were not brought into the project until we were well into development of the new process. Embedding a Change Management team from the commencement of the project and engaging them throughout the re-engineering process would have given them greater visibility of the technical and solution requirements and provided firsthand understanding of the impact of the change and the level of acceptance (and resistance) of the new process.  It would have also greatly assisted in the development of key change artefacts and reduced the need to spend time with already stretched stakeholders at the pointy end of delivery to develop and deliver the Change Management program.

Wholesale process redesign will always be complex and challenging, with each project needing a tailored response to ensure success.  However, with these lessons in mind, you may be able to quickly deliver your priorities and successfully embed lasting change.

Sententia Consulting are proud to announce a new partnership with IPAA ACT. IPAA is the peak professional body focused on the promotion of excellence and professionalism in public administration, and as a values driven consulting firm specialising in supporting and uplifting the public sector, we see this partnership as a natural fit.

We share a commitment to strong public administration and a belief in the importance and power of the public sector to drive positive change. We are excited by the opportunity to demonstrate our support and commitment to public sector excellence, and to work together to progress the objectives of IPAA ACT’s strategic plan.

AUTHOR: KIRSTY MARTIN

The Commonwealth Procurement Rules (CPRs) set expectations and requirements for public sector procurement and are designed primarily to ensure value for money. They are made up of requirements that ‘must’ be followed, as well as requirements that ‘should’ be followed. The CPRs are designed with a level of flexibility (such as the ‘should’ elements and exemptions) to ensure they are not prohibitively prescriptive and can be tailored to individual agency circumstances and needs. However, many public servants appear to be taking advantage of this flexibility and conducting procurements in a manner that is technically compliant with the ‘musts’, but not in line with the broader intent of the CPRs.

Why does this matter?

Increasingly, community expectations are higher than the bar set by the mandatory requirements of the CPRs as public trust in government is challenged (along with the associated benefit of the doubt). And can we blame them? The list of criticisms relating to the proper use of public funds continues to grow with the PWC tax advice scandal, dubious lobbying from Synergy 360, “questionable land deals”, “carpark rorts”, “sports rorts”, as well as pork barrelling, over reliance on consultants and contractors, and some fairly scathing Australian National Audit Office (ANAO) and Joint Committee of Public Accounts and Audit (JCPAA) reports. And no, the public doesn’t care about the difference between public service decisions and ministerial decisions, state or commonwealth decisions, or the difference between procurements and grants etc. They just care about the efficient, effective, economical and ethical use of public money, and what they’re hearing is that this is not being taken seriously in the public sector. If public servants continue to aim for bare minimum compliance and give themselves benefit of the doubt that is not reciprocated in the broader community, further scandals and reputational damage will continue to occur.

Understanding the problem

If all elements of the CPRs (including the ‘shoulds’) were followed in all government procurements, we would be living in an accountability and transparency utopia – but this utopia would not be characterised by efficiency and optimised value for money. For lower risk procurements or in certain exceptional circumstances, value for money could be diminished by blanket (albeit well-intentioned) red tape, hence the flexibility and exemptions built in to the CPRs. Alternatively, if all mandatory elements of the CPRs as well as all reasonable ‘shoulds’ given the specific circumstances were followed, we would probably be closer to a procurement utopia that is both accountable and transparent as well as efficient and economical. However, this is not how the CPRs are always applied in practice.

In practice, the primary concern in many cases is achieving the ‘musts’. The ‘shoulds’ barely get a second glance. This is probably most stark when it comes to sole-supplier approaches, particularly when using panels (where a number of suppliers have a standing offer with the government for the delivery of specific categories of services for which they have been ‘pre-vetted’ and contracted). Under the CPRs, procurements from an existing standing offer (panel) are not subject to Division 2, meaning they aren’t required to approach multiple suppliers (among other things). However, a not insignificant number of procuring officials seem to have stopped reading at that point and missed the part (just 3 lines below) where the CPRs explicitly state that where possible, multiple potential suppliers should still be approached when using a panel arrangement to maximise competition. This is because panels are designed to improve efficiency when there are an overwhelming number of choices, and it is difficult to start from scratch – NOT to remove the need for competitive tenders. A comparison of rates on a panel doesn’t actually tell you much from a value-for-money perspective when you don’t know how different organisations would scope or conduct the work. A supplier with higher rates may be able to complete the task much more efficiently but you won’t know that if you don’t get competing quotes for the specific piece of work you are seeking.

Additionally, due to a quirk in the CPRs, these sole-supplier approaches are classified as ‘open tenders’ when reporting on AusTender if the panel used was originally set up using an open tender. This is objectively ridiculous and needs to be changed (as per the recommendations of the recent JCPAA “Commitment Issues” Commonwealth procurement inquiry report), but in the meantime public servants shouldn’t reduce transparency by using this quirk to their advantage when it is not in line with the intent of the CPRs.

Similarly, procurements under the threshold (generally <$80,000) are not required to seek multiple quotes. But again, the intent here isn’t that all procurements under $80k are just sole-sourced.  Competition should still be a core driver of value-for-money where relevant. Unless there is a good reason for sole-sourcing (remembering ‘convenience’ alone is not a good reason), it is always best practice to seek multiple quotes to confirm value-for-money. As individuals in our private lives, we aren’t required to seek multiple quotes for anything, yet of course we usually still do because we are spending our own money and we want to ensure we are getting a good deal. This is the mindset that the public service should have around the spending of public funds, but it isn’t filtering down to all procurement decisions.

It appears in many cases that every procurement decision is treated as a completely separate decision, without consideration of how decisions are made across all procurements. By that I mean some people seem inclined to make exceptions for themselves because it’s just one procurement. In the scheme of things it’s not that high value and it will be easier this way, so it doesn’t really matter – except that when every decision is made with this mindset it does add up to a very high value and it does really matter. The CPRs build in exemptions and have ‘shoulds’ instead of ‘musts’ to ensure flexibility in exceptional circumstances, but when every circumstance is treated as exceptional it gets a bit ridiculous and integrity is lost.

This blog should not be interpreted as public service bashing, in fact it is quite the opposite. The Australian Public Service is an impressive institution with thousands of intelligent and passionate people working together to deliver incredibly important work for our country and communities. However, there is always room for improvement and procurement in particular does not seem to be getting the attention to detail it deserves at the moment. In many agencies procurement is decentralized to staff without specific procurement training, knowledge, or experience, who are also often under-resourced and under extreme pressure to deliver their priorities. It’s not hard to see how this approach may not be conducive to those public servants being able to take an ambitious approach to best practice procurement and really embrace and embody their roles as stewards of public funds every time they need to acquire goods and services.

For administrative changes that would support improvement in this space, implementation of the recommendations of the JCPAA’s “Commitment Issues” report would go a long way. Further improvements would also come from development of more detailed guidance for procuring officers including agency-specific procedures, tools, and templates to support the interpretation and application of the CPRs, as well as greater consideration of procurement needs early in program/activity planning to reduce the time pressures that so often become the enemy of proper process.

But as always, culture is king, and these changes alone will not be enough. Flexibility must remain in the CPRs, and where there is flexibility there is subjectivity. Where decisions are subjective, a culture that values, supports, and prioritises better practice will be required to enable improvement in procurement decision making in line with APS values and broader community expectations.

AUTHOR: BRIONI BALE & KELLI PIERCE

In this 5-part short video series our subject matter expert Brioni Bale draws on her vast experience to share useful insights and tips for better responding to disruption events.

Click the link below to watch.

Disruption Response Series YouTube

AUTHOR: JO CARROLL

Taking Control of Risk Management in 2023.

Focus on risk management has increased significantly over recent years as organisations have been forced to face back-to-back or even parallel crises. However, even with this increasing focus, many organisations are still finding themselves in predicaments that could have been avoided through effective risk management.

In this blog we will work through some recent high profile risk events, looking at them through three key risk themes and drawing out the practical lessons we can learn.

Accountability and Ownership

The collapse of Silicon Valley Bank (SVB) in March 2023 presents an excellent case study in the importance of not just assigning accountability and ownership but operationalising these concepts to hold leaders to account. This was the third largest banking failure in US history and the largest since the GFC in 2009. After months of regulators raising concerns, SVB failed after a bank run was caused when customers were spooked by their announcement on 8 March that it would hold an emergency sale of some treasury stock to raise $2.25b.

SVB was the 16th largest bank in the US, focussed on serving companies in the technology and start up industry. Prior to its collapse the Federal Reserve had identified that SVB was using modelling of interest rate risk that was ‘not at all aligned with reality’. Their risk modelling didn’t anticipate the combination of interest rate rises and liquidity risk shocks. This was flagged with bank management but not addressed.

In the year leading up to its collapse the bank had gone 8 months without a head of risk (Chief Risk Officer or CRO) and there was a lack of risk expertise at board level, with only one of the seven board members on the risk committee having a risk management background. Regulators were raising concerns for months, but the bank did not act.

While our regulatory environment in Australia is different to the US, the broader ramifications in the Banking Sector are still to be seen. Could we be headed for a similar fate?

What does this mean for Risk Management?
  1. A Chief Risk Officer with influence can hold other executives to account. However, too often the role is undervalued and classified at too low a level to exert the necessary level of influence.
  2. Boards need members with deep and proven Risk Management experience.
  3. Risk Management should be built into Job Descriptions and performance measurement and reward systems.
  4. Create and use risk tolerance, models and settings that inform data driven decision making.
  5. Assign responsibility to address concerns to regulators (this should go without saying).

Legal but not ethical

Rio Tinto’s May 2020 desecration of Juukan Gorge to make way for an expansion of its iron ore mine in the Western Pilbara highlights the importance of looking beyond legality to ensure decision making is ethical.

This site contained ancient rock shelters showing human occupancy dating back 46,000 years, making it the only inland site in Australia showing human occupation through the last Ice Age. Rio Tinto knew the archaeological value of the site before its destruction but was set to make $135m for the site and so the decision was made to go ahead. At the time this was legal but not ethical (aboriginal heritage laws have since been introduced in Western Australia) and caused great distress to the traditional owners, the Puutu Kunti Kurrama and Pinikura people.

Following considerable public backlash, 3 top executives and 2 board members chose to stand aside, including CEO and Chairman. Rio Tinto has now imposed a moratorium on all work within 10sq kms of Juukan Gorge and is making reparations to the traditional owners including full reconstruction of the caves. Damages are expected to be much more than the $135m they expected to make from the mine.

What does this mean for risk management?
  1. Ethical and cultural decisions ͏need independent advice. Risk management practices need to keep pace as failure to meet community and social expectations presents an increasingly high reputational and financial risk.
  2. ͏Diversity in decision making needs to be actively sought to ensure broad and varied perspectives are considered at the decision-making table.
  3. Strong Environmental, Social and Governance practices need to be implemented to align organisations with social expectations to create and sustain long-term value.

Improper Influence

This case study is particularly relevant for public servants. On 17 June 2022, Former Deputy Premier of NSW Mr John Barilaro was announced as the Senior Trade and Investment Commissioner to the Americas. A Parliamentary Inquiry Interim Report found that this decision had “all the trademarks of ‘jobs for the boys’”, finding a preferred candidate had been selected and offered the position only to have that process set aside for a change of government policy. Quoting the Inquiry:

‘The process of appointment was flawed and not at arm’s length, there was a lack of transparency and integrity in the public sector recruitment process’… ‘there was a pattern of Ministerial interference and lack of transparency conducted by the Government’

This was not only embarrassing to the Government but the Minister and CEO both lost their jobs as a result.

What does this mean for risk management:
  1. Good probity processes need to be defined and tailored to the decision being made and linked to the risk of the decision.
  2. We need to say ‘No’ when the risk is too great. There must be the ability to give frank and fearless advice.
  3. Set the tone from the top and lead by example.
  4. ͏Decision-making processes should be transparent. Individual decision makers should always ask themselves whether they would be comfortable defending their decision publicly (for example in a Parliamentary Inquiry!).

Each of these cases provide important lessons for all organisations. To avoid becoming another cautionary tale, take these lessons on board and prioritise risk management!

The March 2023 Senate Inquiry into management and assurance of integrity by consulting services offered the perfect pedestal to reignite a long-wielded stigma that consultants are self-interested, greedy, and unethical. So, in a climate where our profession is viewed unfavourably by many in the community, we would like to share our perspectives on what ‘integrity’ means to a consultant.

While the feeling may not always be mutual, consultants who work with the Australian Government, consider themselves a proud extension of the public service.

Consultancies inherently do not have perfectly aligned interests to the Commonwealth. Consultancy firms are running a business, creating a market profile and managing a reputation, to ensure their staff are remunerated and provided opportunities to develop their skills and experiences. These are different to the Commonwealth, an entity whose purpose is to deliver critical programs and services to support, serve and protect Australia, its citizens and its interests.

Despite these different perspectives, the alignment of interests are typically clear. Consultants want to do good work that meets the client’s needs in order to ensure payment for services, as well as creating a positive market profile and contributing value. Further, consultants are motivated by doing good work for their clients. In some cases (such as for Sententia Consulting), the support for the Government and our community is a driving part of a firm’s vision.

These are areas of alignment between Commonwealth agencies and its consultants, that can help to ensure that the intersections of interest exceed the deviations of interest.

It should be noted that the mere existence of deviations of interest does not mean that consultants do not have the best interests of the public sector and community in mind when delivering on behalf of the Australian Government.

Looking at integrity mechanisms, consultants play by traditional rules. The most significant measure that supports prevention of unethical conduct or breach of contracts, are the professional obligations imposed on consultants by their professions. Leading consultants are members of professional bodies, which supports excellence and professionalism in their chosen area of expertise. Whether that be accountants, lawyers, engineers, information technology, project and procurement professionals, assurance providers, medical consultants, trainers and teachers or other areas of recognised expertise, there is a professional body which requires consultants to act with integrity and consistent with applicable laws. For consultants, that professional membership represents a form of “license to operate” and a way to maintain their market leadership.

The necessity for consultants to consistently display integrity through delivery cannot be overstated, to manage and promote a trustworthy market profile and reputation for their firm that supports ongoing viability of their businesses. Agencies do not select consultancies that have a reputation  lacking credibility, ethics, or compliance. In this regard, it is noteworthy that there are hundreds of consultancies underway across the Australian Government at any one time, and the vast majority of them take place ethically with value-driven outcomes. These tend not to be the engagements you hear about.

The use of consultants is an important part of managing risks to public sector integrity. While the Australian Public Service at large is filled with highly talented, capable, and dedicated staff, they do not (and cannot) have all of the skills, depth of expertise and breadth of perspective that is necessary to always do everything in the scope of an agency to the highest possible standard.

Consultants bring specific deep expertise and experience as well as a breadth of perspective that comes from working across organisations and sectors, that helps to ensure that public sector outcomes are delivered with quality, efficiency and integrity.

So, what is the answer to the original question? Consultants are typically highly aware of and attuned to the potential for conflicts of interest or integrity breaches. While there have been some notable exceptions, most consultancies engaged by the Australian Government deliver effectively, with integrity and consistent with the contractual and professional obligations. Integrity in the consulting industry is still a thriving principle, and, speaking for Sententia Consulting, remains at the forefront of all engagements.

Regardless of which side of the fence you sit on in your support for the use of consultants, it’s undeniable that consultants serve an important role in supporting the Australian Government in delivering outcomes for our country.