Is it possible to be too risk averse? Considerations for financial management in the public sector

ABSTRACT

Within the financial management discipline, risk aversion is viewed as ‘secure’ and ‘responsible’. Yet, frequently risk aversion is associated with delays, failure to take action, decreased employee morale and stakeholder frustration. This article considers the role of risk aversion within the public sector and questions whether the risk-averse nature of the organization, coupled with risk-averse leaders can result in negative outcomes for the agency. The article concludes that while risk aversion is important, there are actions that a risk-averse leader can take to minimize the implications of risk-averse behaviour on the organization as a whole.

KEYWORDS:

• Risk aversion
• public sector
• government agencies
• financial management

JEL CLASSIFICATION:

• G18
• G38
• H11

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Other factors include pressure to deliver social outcomes for the community; concerns about reputation and the impact that one agency can have on the community; pressure to use taxpayer funds both efficiently and effectively; the hierarchical structure of Government agencies, wherein proposals are filtered through several managers before being presented to executive management and Ministers, resulting in significant delays; fear of negative publicity from the general public; and the bureaucratic structure of Government agencies, which sees decisions made at the executive level and filtered down to employees.