Leaders across the public sector understand that, in every decision, risk is inherently a factor – and with that comes varying degrees of risk tolerance that leaders and organizations can embrace. While it is critical for organizations to balance risk with prudence, an excessively cautious approach can ultimately jeopardize an organization’s ability to serve its customers effectively. This article will explore the impact of low risk tolerance in the US government, its implications for public institutions and leaders, and strategies for promoting a more balanced approach to risk-taking in the public sector.
To start, let’s examine a brief case study demonstrating where low risk tolerance created problems for an agency. The Joint Enterprise Defense Infrastructure (JEDI) cloud computing contract in the Department of Defense (DoD) is a recent example of an instance where low risk tolerance ultimately created many issues for the department, including degraded cloud service capabilities, overreliance on the private sector, and the erosion of trust in institutions. The JEDI contract was designed to modernize the DoD's IT infrastructure and improve its ability to collect and analyze data. However, the bidding process was riddled with controversy and legal challenges, which led to delays and ultimately a contested contract award. This decision was met with criticism and allegations of political interference from lawmakers, technology experts, and Cloud Service Providers alike.
The slow decision-making process and controversy surrounding the JEDI contract is a prime example of how a culture of low-risk acceptance in the DoD can result in less innovation and missed opportunities. The DoD's hesitance to fully embrace cloud computing technology and its reluctance to take calculated risks and pursue innovative solutions resulted in missed opportunities to modernize its IT infrastructure and improve its ability to collect and analyze data. The controversy surrounding the JEDI contract also eroded public trust in the DoD's ability to make fair and unbiased procurement decisions. Ultimately, when compared to the private sector, the DoD is still far behind industry standards when it comes to IT services and cloud computing more specifically, resulting in both excessive migration costs and degraded capability for the warfighter.
Why is a culture of low-risk acceptance in government problematic?
A culture of low-risk acceptance is not only pervasive in government, but also creates a litany of issues that can ultimately affect how the organization serves the American taxpayer. These issues can run the gambit from eroded trust to operational ineffectiveness. They broadly fit into the following categories:
1. Limits innovation potential
- Problem: Low risk tolerance can severely limit the innovation potential of an organization. This culture can hinder experimentation, stifling progress and the development of novel solutions to complex problems. When a risk-averse mindset dominates decision-making, the focus shifts from pursuing ambitious and potentially groundbreaking ideas to maintaining the status quo and avoiding any potential failure or negative outcome. As a result, the government organization may fall behind its more innovative counterparts and miss out on opportunities to improve public services, reduce costs, and enhance the overall effectiveness of its operations.
- Example: One example of the government’s desire to reduce risk, causing limited innovation, is the Federal Aviation Administration’s (FAA) regulations on commercial drone usage. The FAA has strict regulations on where, when, and how commercial drones can be used, limiting their potential applications and frustrating innovation in the commercial drone industry.
- Way Forward: To foster innovation, it is important for government organizations to embrace a culture of experimentation, accept reasonable levels of risk, and encourage creative problem-solving.
2. Slows decision-making processes
- Problem: A risk-averse culture can also lead to slow decision-making, as leaders may be reluctant to make bold choices. When a risk-averse mindset dominates decision-making, there is a tendency to over-analyze and scrutinize every potential risk and downside. This can lead to paralysis by analysis, where decisions take much longer than they should, or are not made at all. Additionally, the decision-making process may involve multiple levels of bureaucracy, approvals, and signoffs, further adding to the time it takes to decide. The result is a slow and cumbersome decision-making process that can suppress innovation and obstruct progress.
- Example: The Keystone XL pipeline, which would have transported oil from Canada to the United States, faced a long approval process spanning several years. The controversial project faced opposition from environmental groups and the approval process was delayed and ultimately canceled due to political pressure and concerns about the environmental impact of the project. This example highlights how a risk-averse culture within government agencies can lead to slow decision-making and difficulties in proceding with infrastructure projects.
- Way Forward: To overcome this challenge, it is important for government organizations to encourage a culture of experimentation and calculated risk-taking, where decisions are made quickly and efficiently while still maintaining a level of caution and prudence. Government agencies can also speed up decision-making through data-driven decision-making, and embracing tools that can quickly analyze data and the potential implications of decisions.
3. Results in missed opportunities
- Problem: The fear of failure can prevent leaders from taking advantage of opportunities that could bring significant benefits, both domestically and internationally. Similar to slowing decision-making processes, low risk tolerance can completely cripple decision-making and ultimately lead to a failed mission and inadequate support to constituents. In some cases, this can even lead to missed opportunities to solve critical issues facing the government and society as a whole.
- Example: A risk-averse culture within the Federal Emergency Management Agency (FEMA) contributed to a missed opportunity to provide faster relief and support for Hurricane Katrina in 2005. FEMA officials were hesitant to act due to concerns about liability and a desire to avoid making mistakes. This led to delays in getting aid and resources to those affected by the hurricane, resulting in significant harm and loss of life.
- Way Forward: To avoid missing out on opportunities, government organizations should encourage decentralized decision-making, promote a culture of experimentation, and embrace reasonable levels of risk-taking. This can help foster innovation and ensure that the government remains at the forefront of addressing critical issues and improving public services.
4. Loss of trust in public institutions and leaders
- Problem: The public may view a risk-averse government as indecisive and ineffective, decreasing trust in public institutions and leaders. When government organizations are risk-averse and slow to pursue innovative ideas, this can be perceived as a lack of progress or initiative. This can lead to public frustration and a loss of confidence in the ability of government institutions and leaders to effectively address critical issues and provide necessary services.
- Example: The Flint water crisis is an example of how risk-averse culture in a US government agency, the Michigan Department of Environmental Quality (MDEQ), led to a loss of public trust and confidence in public officials. Despite warnings about the poor quality of the water, officials at MDEQ downplayed the risks and refused to take action, prioritizing the avoidance of political backlash over protecting public health. The crisis persisted for months, causing thousands of people to be exposed to toxic levels of lead. This case highlights the importance of transparency, accountability, and prioritizing public health over political considerations in government agencies.
- Solution: To maintain trust and confidence in public institutions and leaders, it is important for government organizations to be transparent, accountable, and actively pursue innovative solutions to public sector problems. By demonstrating a commitment to progress and a willingness to take calculated risks, government organizations can help to rebuild public trust and ensure that they are effectively serving the needs of their constituents.
How do we mitigate low risk tolerance?
While low risk tolerance is pervasive in many agencies, this does not mean it cannot be addressed. There are benefits to having low risk tolerance as well, perhaps the most important of which is that it leads to stability, predictability, and accountability in government, which is vital for many services such as drug testing and mail delivery. Government leaders should not necessarily dismiss low risk decisions, but instead look to balance risk in their organizations by accepting higher levels of risk on certain decisions and lower levels on others, where appropriate. Leaders have several strategies they can choose to apply to help get their organizations over the hurdle. Of course, a good general practice is to actively seek out innovators and change-agents in the hiring process. Beyond changes to staff, agency leaders can still lead this change by setting the tone of the organization’s culture.
To start, leaders should actively encourage innovation in their organization. They should recognize staff members that bring new and innovative ideas to the table,foster innovation through organizational innovation challenges, and seek out projects that offer high risk – high reward outcomes. An excellent example of this is the U.S. Air Force’s AFWERX program and the Special Operations community’s similar SOFWERX. Innovation and risk acceptance are at the core of both programs' missions. In addition to encouraging innovation, leaders should also foster a collaborative workplace where different parts of their organization can interact, share ideas, and collaborate to create new and innovative solutions for their constituents. Collaboration and innovation go together and can both be driven by an agency’s organizational culture.
From a management perspective, leaders can look for opportunities to reduce decision obstacles in their organization, making it easier for innovative ideas to see the light of day, even if they do offer an elevated level of risk. Cumbersome decision processes can be a significant obstacle to innovation in any type of organization, so it is prudent that leaders limit those obstacles where possible. Government already has a difficult decision-making process to navigate, so try not to create any additional obstacles through added layers of bureaucracy. Additionally, leaders should also look to mitigate blowback against their people if a calculated risk does not end favorably.
When it comes to risk in specific projects, embrace a “fail fast” approach. Riskier ideas can have a place in an agency’s portfolio of work, but the organization should monitor progress and be ready to let go of underperforming initiatives if necessary. One area where the Department of Defense has done an excellent job of this is through the Defense Innovation Unit. Along with the “fail fast” approach, leaders should encourage their organizations to understand and continuously assess the risk related to initiatives their organization is undertaking.
These strategies can help leaders overcome the culture of low-risk and embrace an approach that understands risks and takes calculated ones. While taking risks can make some government leaders uneasy, we should also keep in mind that they can present an opportunity to bring transformative change, not just to an agency but also to the customers it serves.
What exactly does a risk-tolerant government organization look like? Perhaps the gold standard of risk-tolerance in American government was the National Aeronautics and Space Administration (NASA) in the early days of the space race. During the Gemini and Apollo missions, NASA embraced significant risks to win the space race. The agency was determined to put a man on the moon before the Soviet Union, which had already achieved several firsts in space exploration. To achieve this goal, NASA took several risks, including using untested technologies and pushing the limits of what was considered safe. For example, the Apollo program involved launching a massive rocket, the Saturn V, which had never been tested before. NASA also embraced risk by putting astronauts in dangerous situations, such as during the Apollo 13 mission when an explosion in space put the lives of the crew in jeopardy. NASA's ability to quickly improvise and come up with a solution to the crisis was crucial in ensuring the safe return of the astronauts. Overall, NASA's willingness to take calculated risks paid off, as the agency successfully landed humans on the moon in 1969, beating the Soviet Union in the space race and achieving one of the greatest feats in human history.
While not every agency needs to seek out risks like NASA, the agency can provide meaningful lessons on where embracing risk can lead to daring and incredible outcomes; a culture of low-risk acceptance did not put an American on the moon, after all. In short, decision making in government should embrace an agile, data-driven, and risk-tolerant approach to accomplish its missions and provide high quality, timely services to American citizens.
Other articles in 5 Obstacles to Better Public Sector Decision Making series