The importance of an integrated approach
Local authorities want to make the best use of financial, performance and risk information to inform decision-making and, ultimately, to achieve better outcomes for residents and businesses in their communities.
Performance, finance and risk are closely connected: an authority that is performing well but that is financially unsustainable will not usually be able to maintain that performance level for long, and will be building up other risks.
Poorly managed risks are likely to lead to increased costs, poor performance and reputational damage in the longer term.
So, a decision that balances all three dimensions effectively is more likely to be robust.
Integration of performance, finance and risk reporting isn’t an end in itself. But by achieving greater integration, authorities should be able to take better informed, more evidence-based decisions and build assurance in the right places and at the right times, by taking more targeted actions to address areas for improvement.
Considering risk, cost and desired performance levels can help inform difficult decisions.
Most authorities have a corporate plan that outlines their vision for the place, usually setting out some key financial and performance metrics associated with that plan.
Few will explicitly consider risk as part of that plan, yet all three dimensions are essential in ‘telling the story’ about the place – in other words, does the corporate plan and budget reflect the authority’s risk appetite?
This isn’t just relevant for the process of reporting information, informing decisions or formally seeking assurance; a good performance management culture can mitigate risk.
If there is a culture in which officers are encouraged to look for opportunities to learn and continually improve, they are more likely to flag current or potential problems.
Conversely, a culture of blame or mistrust can lead to issues being hidden, and risks growing until it’s too late to address them without significant cost.
Senior managers should expect to be challenged – constructively – about their understanding of the data, risks and their actions to address any underperformance or non-delivery of savings.
A ‘learning organisation’ will also regularly review the effectiveness of its approach.
Elected members have a vital role to play in an integrated approach to performance, finance and risk, and should be meaningfully engaged throughout the process.
They should: understand the level of detail and style of presentation that works best for them, with opportunities for feedback to inform continuous improvement; inform the selection of key performance indicators; and meaningfully challenge assumptions about relative risks – for example, when considering decision reports at cabinet and when reviewing the authority’s strategic approach to risk at audit committee.
Scrutiny functions and the audit committee are vital components of the authority’s governance framework – they help to keep it safe.
An understanding of areas of high risk or high spend will help inform the focus of ‘deep dives’ for scrutiny (to inform policy development or performance review) or for audit (to check the effectiveness of risk management), particularly when resources for this work are constrained.
- This is a summary of the LGA’s ‘Performance, finance and risk reporting: guidance and top tips’, which can be downloaded in full, for free. It contains additional advice on what ‘good’ looks like, good decision-making and data, and includes council case studies and links to additional resources and support