Enterprise Risk Management in Higher Education
Similar to the corporate world, most institutions of higher learning are facing significant challenges as they attempt to manage volatility imposed by the recent economic crisis. Many have seen their significant financial resources dry up as endowments and donor giving slowed and as appropriations and grants from federal, state, and local sources disappeared. This paper, published by Grant Thornton notes how cost reductions, changes in employment practices, revenue enhancement programs, and new outsourcing arrangements are being implemented at institutions of higher learning.
New Strategies Mean New Risks
The recent recession is causing many higher education institutions to make major changes to their strategic objectives in an effort cut costs and seek new sources of revenues. These major shifts in strategy mean that these organizations are also creating opportunities for newer kinds of risks different types of risks from those experienced in past that must be taken into consideration. Unfortunately, because many higher institutions have lagged behind the corporate sector in strengthening their risk oversight programs, many of these risk exposures are going unnoticed by university management and boards.
Need for Strengthening University-Wide Risk Oversight
A 2009 Association of Governing Boards of Universities and Colleges and United Educators survey raises concerns that higher education is lagging behind other industries in considering risks as part of the strategic planning process. As higher education institutions consider changes in their strategy, they also need to consider how their risk management efforts should be enhanced to oversee new and different risk exposures.
A recent Grant Thornton thought paper walks readers through a simple outline of considerations that should be made by university leaders to help them identify and assess emerging risks created by new strategic initiatives. The thought paper presents an example of a simplified risk assessment process that university leaders should consider as they think about how new strategies are changing the risk profile for the institution. The thought paper also addresses other university governance issues that boards and university leaders should monitor, including IRS scrutiny of board oversight practices, indirect cost rates used at universities that engage in research for the federal government, and an analysis of investment performance in university endowments.
Original Article: “Best-Practice Tips for Boards, Presidents and Chancellors Regarding Enterprise Risk Management”, Grant Thornton, 2011
