By VINCE MORRIS, risk manager for Wheaton College and president of the University Risk Management and Insurance Association
Because an institution of higher education is often compared in complexity to a small city, it is difficult to summarize a school's operational risk management needs in a few sentences. More difficult is to identify the most threatening risk at any given time.
There is a basic litany of operational risk management concerns at most schools. A major residence hall fire is a nightmare scenario. So is a major transportation incident with fatalities, whether it happens to a sports team on an airplane or a student club in a van. Alcohol abuse, with its companion evils of assault, battery, molestation, rape, property damage, illness and death is a perennial and pervasive problem on many campuses (but not all; the problem may be one of will rather than of lack of options). Lawsuits due to tenure denial or "failure to educate" plague the discipline.
Every year liability related to compliance becomes more and more difficult to avoid. Government requirements seem to multiply like mushrooms left alone in the dark. Grants have byzantine compliance requirements. Fiendishly complex issues surround research ownership. Compliance with EPA, OSHA, and other alphabet organizations requires attention to literal volumes of dense text. Domestic terrorists threaten animal research operations, including sometimes even those with worms or insects.
But it seems clear that the current economic crisis threatens not only the operations of a college or university (my budget is being cut 7 percent this year and I think I'm getting off easy). Fundamental changes in the way higher education happens may be at risk. The (relatively recent) model of four or more years of leisurely and extremely expensive years of undergraduate study is crumbling.
For two decades the tuition and fees increases of higher education have outpaced GDP growth. The average student is taking on much more debt in order to graduate than ever before, while technology and other costs are skyrocketing. It is no longer clear that schools can simply ratchet up the income side of the operating budget 6 percent to 7 percent per year and still maintain their student base. Smaller schools or schools with small endowment cushions may see their applicant pool and/or their admitted student pool shrink, while cheaper state schools and community colleges struggle with burgeoning enrollments that figuratively burst classroom walls at the seams.
Managing systemic threats to the basic model of higher education is not something that falls under the typical aegis of an operational risk manager at a college or university. But the rise of Enterprise Risk Management as applied to schools means that there is a merging of operational risk management with strategic risk management, including its financial components.
ERM practitioners, therefore, have new duties to inform and, perhaps, warn administrators and trustees of fundamental risks threatening the continuing operations of the institution. In this way, "Business Continuity Planning," a traditional realm of the higher education risk manager, takes on new, broader and scarier functions.
Good higher education risk managers in this climate must know operational, financial and, more than ever, strategic risks.
April 15, 2009
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