White House to Agency Leaders: You Must Do More to Reduce Risk

The Office of Management and Budget issues its long-awaited update of Circular A-123.

After more than a year of anticipation, the Office of Management and Budget on Friday released updated guidance requiring agencies to step up efforts to reduce risk across their operations.

The revised Circular A-123, which dates to 1981, requires agencies to implement an enterprise risk management capability coordinated with the strategic planning and review processes.

OMB set the stage in June 2015 when it released Circular A-11 on budget formulation, which for the first time impressed upon agencies that they should be aware of enterprise risk management and view it as an emerging tool.

“Over the years, government operations have changed dramatically, becoming increasingly complex and driven by changes in technology,” said last week’s memo to all agency heads from budget director Shaun Donovan. “At the same time, resources are constrained and stakeholders expect greater program integrity, efficiency and transparency into government operations.”

Implementing the new policy will require leadership from across the agency, including the chief financial officer, the chief operating officer and the performance improvement officer, along with all agency mission and mission-support functions, Donovan said.

Comptroller David Mader, in a White House blog interview on the day the new circular was released, said, “ERM places the focus on identifying, measuring, and assessing challenges related to mission delivery in advance—well before those challenges can become issues.”

“As such, ERM can help create and protect value of assets, address uncertainties during decision-making, and facilitate the continual improvement of an organization,” Mader wrote.

He cited successful implementation of ERM at the Office of Federal Student Aid (Education Department), the Bureau of Fiscal Service (Treasury Department) and the Census Bureau (Commerce Department).

Pioneered in the private sector and pushed by accounting firms, ERM identifies a spectrum of possible risks—from operational to financial to reputational--and integrates efforts across the entire organization to head them off or minimize damage.

To support agency implementation, an interagency cross-discipline team has developed the ERM Playbook of best practices, which the CFO Council and the Performance Improvement Council will issue in coming months, Mader said. He added that the goal is to bequeath the tool to future administrations. “By making ERM a routine, ingrained practice in the federal government,” he said, “we’re arming agency leaders, new or incumbent, with the insight necessary to make risk-aware decisions and meet strategic missions quickly and successfully.”