The Five Keys to Risk Management for Higher Education Boards
All successful enterprises need to take risks in order to grow and flourish. The percentage of colleges and universities that are giving risk management activities a high priority is growing, albeit at a snail’s pace. As fires, school shootings and public scandals involving staff hit the headlines, many colleges and universities have their eyes on preventing major liabilities. Boards of higher education institutions are aware of increasing regulations from state and federal regulatory bodies regarding safety and health, forcing them to place a heavier focus on risk management. Risk management issues require boards of higher education institutions to take an enterprise-wide view of risk oversight, and these boards are moving in the direction of increasing their staff and budgets for risk management.
College and University Boards Trending Toward Making Risk Management a Priority
In a 2013 survey, the Association of Governing Boards of Universities and Colleges (AGB) and United Educators (UE) revealed a slight increase in the percentage of colleges and universities that had incorporated risk assessment in high-level decision-making in the five years prior to 2013. The same survey also indicated that boards and administrators were not fully committed to the process. Both organizations agree that governing boards and senior administrators must position their institutions so they can better assess threats and take advantage of opportunities.
Further, the survey indicated that only 39% of the respondents stated that their institutions had performed an enterprise risk management (ERM) process within the previous two years. Just over 60% of the respondents weren’t sure if their institution had conducted an ERM process or were sure one hadn’t been done at all. Perhaps what is even more discouraging is that of those institutions that hadn’t conducted an ERM process in the prior two years, about 48% of them weren’t inclined to begin one anytime soon.
On a positive note, the University Risk Management and Insurance Association is showing an increase in its membership. They now have over 600 members and membership continues to grow every year.
The Five Keys to Risk Management for Higher Education Boards
The outlook for risks related to colleges and universities indicates that risks will continue to increase in type and number in the coming years. To combat and mitigate risks, college boards can take a five-step approach to enterprise risk management that includes identifying risks, analyzing risks, evaluating risks, implementing a risk management program and monitoring their efforts.
- Identifying Risks
The first key to developing any risk management plan is to identify the potential risks, which is no small task. Boards will need to collaborate with senior administrators to understand the issues that drive various risks.
Colleges and universities face a multitude of risks, including insurance risk, strategic risk, financial risk, operational risk, compliance risk and reputational risk.
Some of the issues that boards need to consider are competition with other colleges and new methods of obtaining degrees, such as online learning programs. Colleges face risks in expanding their enrollment to remain competitive while controlling the budget. In assessing potential risks, boards need to evaluate their risk profile and align it with the institution’s philosophy, goals and objectives. This step may entail working with multiple investment managers and financial experts.
Many colleges and universities have various types of operational risks. Institutions that have a strong focus on research must factor in risks related to handling toxic materials, safe laboratory practices, designing research facilities and similar risks. These types of operational risks often correlate with compliance risks in the research fields, such as laws and regulations related to medicine and science.
Another area of great risk is college athletic activities, where risks include injuries, equipment safety, facility safety, crowd control and traffic control.
If scandals, fraud or other risks come into the public light, colleges and universities may face reputational risks that could greatly impact enrollment, finances and, ultimately, the sustainability of the institution.
- Analyzing Risks
Colleges and universities won’t have to look too far to find tools to help them analyze their risks. The most effective tool is a matrix in which risk management teams can classify risks as low, medium, high or extreme.
- Evaluating Risks
Risk management teams can use the matrix to take the next step, which is evaluating risks. List all activities within each classification and enter the associated risks for each activity. These steps will help teams to assign a risk score based on the severity of the risk and the probability of it occurring. The matrix is also a helpful tool for listing ways to mitigate or manage each risk.
- Implementing a Risk Management Program
Within every step of developing a risk management program, teams should revisit the institution’s strategy, goals, history and the condition of the campus, including the property, students, resources, etc. This is also a viable point to start developing shared definitions for risk management terms, as they will become important in the next step, which is monitoring and reviewing the risk management plan.
It’s important to name an ERM leader for the purpose of accountability. The person serving in this position will be responsible for planning and implementing the risk management program and creating a timeline to see it through. The designated risk manager should develop a risk portfolio, which they can use to validate and prioritize risks as they emerge.
- Monitor and Review the Risk Management Plan
ERM affects nearly every part of higher education, so it’s important to make it part of the institutional culture. The risk management team will need to continually evaluate their work on risk management and work on a training program to ensure that all stakeholders do their part to protect the institution from risk. A successful risk management program requires college boards to accept responsibility for generating discussions about risk management with their committees and senior administrators. The board must play a continuous role in overseeing and monitoring the risk management program.
Board Portals Provide a Secure Platform for Risk Management Planning
Security is a top concern as boards proceed with ERM planning. A board portal provided by BoardEffect offers the highest level of security available so boards and risk management teams can complete the ERM process using a secure platform and secure communications. BoardEffect features unlimited cloud-based storage, which allows users to access documents online at their convenience. Board administrators can set up granular permissions to control who has access to various parts of the risk management process.
A risk management plan and a board portal combine to support good corporate governance principles and to enhance the sustainability of today’s higher education institutions.