The development of a process tool for improved risk management in local government

The word ‘risk’ is usually used in the context of a potential hazard or the possibility of an unfortunate outcome resulting from a given action. In financial management, the term indicates that there is an expectation that the actual outcome of a project may differ from the expected outcome. The magnitude of the possible difference between these outcomes reflects the scale of the risk. The inception of the Municipal Finance Management Act (MFMA) in 2003 and the Public Sector Risk Management Framework in 2010 forced South African local municipalities to improve the quality of their risk management systems. Risk management is an important aspect of management and aids as a mechanism to prevent or decrease financial losses and improve service delivery. If shortcomings regarding risk management exist within a municipality, it could have a negative effect on sound financial management and the outcome of annual audits. The aim of this article was to develop a process tool that can assist managers as well as employees in better understanding the risk management procedure. The process involved a systematic literature review and case study analysis through evaluating risk related issues such as the environment, strategy, objectives, identifying and accessing risks, reporting and monitoring. This evaluation process can assist in knowing which steps should be taken in order to improve the general level of risk management and possible consequences for not implementing the correct procedure.