Rob Wells, MBA, CPCU, Risk Professional

Introduction

Risk management is of significant importance in higher education institutions to ensure operational and financial stability. Comparing traditional risk management with enterprise risk management in higher education helps in understanding the evolving strategies for mitigating various risks effectively.

In higher education, traditional risk management typically focuses on insurable risks and the severity of their impact. This approach is reactive and sporadic, often resulting in a risk-averse and standardized method of handling potential threats. For instance, a university may prioritize insurable risks such as property damage from natural disasters or accidents, which are typically covered by insurance policies. However, this approach may overlook non-insurable risks like reputational damage from social media controversies or unforeseen geopolitical events that can impact the institution’s operations and financial stability.

Enterprise risk management, on the other hand, offers a more holistic approach, encompassing various risk types, including non-insurable risks such as cybersecurity threats and geopolitical unrest. This proactive and continuous method allows higher education institutions to take calculated risks and increase the likelihood of achieving their strategic objectives. For example, by identifying cybersecurity risks and implementing comprehensive risk management strategies, a university can protect sensitive student and faculty data from potential breaches, safeguarding its reputation and financial well-being.

Traditional Risk Management in Higher Education

Traditional risk management in higher education focuses on insurable risks such as property damage and liability issues. It primarily assesses the impact severity of potential risks, often in a reactive and sporadic manner. This approach tends to be risk-averse and follows a standardized method, aiming to avoid risks that may impact the institution’s operations and finances.

Moreover, traditional risk management in higher education institutions tends to be limited in its scope and may not comprehensively address all the various risks faced by these institutions. For instance, traditional risk management may not adequately address nontraditional risks such as cyber threats, geopolitical unrest, and tuition costs, which are increasingly becoming significant concerns for higher education institutions in the current landscape. The reactive nature of traditional risk management may lead to a focus on short-term risk mitigation rather than a proactive, long-term strategy for risk management. This can potentially limit the institution’s ability to adapt to emerging risks and opportunities in a rapidly evolving higher education environment.

In addition, the risk-averse nature of traditional risk management may hinder institutions from taking calculated risks that could lead to strategic growth and innovation. For example, a risk-averse approach may discourage the exploration of new academic programs or innovative teaching methods that could enhance the institution’s competitive edge and relevance in the higher education sector. Hence, the limitations of traditional risk management underscore the need for a more comprehensive and proactive approach to risk management in higher education, which is addressed by enterprise risk management.

Enterprise Risk Management in Higher Education

Enterprise risk management (ERM) in higher education institutions involves a comprehensive and integrated approach to managing risks. Unlike traditional risk management, ERM focuses on identifying, measuring, assessing, and managing a wide range of risks, including non-insurable risks such as cybersecurity threats and geopolitical unrest. For instance, an example of a non-insurable risk in higher education is the potential impact of a cyber-attack on the institution’s sensitive data and operations. ERM also takes a proactive and continuous stance, enabling institutions to anticipate potential risks and opportunities, thus fostering a culture of preparedness and adaptability.

Moreover, ERM encourages risk-taking and innovation by providing a framework for understanding and mitigating risks, ultimately increasing the likelihood of achieving strategic objectives. For example, an institution implementing ERM might be more inclined to invest in innovative educational programs, knowing that it has a robust risk management system in place to identify and address any associated risks. This contrasts with the risk-averse nature of traditional risk management, where the focus is primarily on avoiding risks rather than strategically managing them to achieve organizational objectives. Therefore, the proactive and risk-taking approach of ERM sets it apart from traditional risk management in higher education.

Key Differences Between Traditional and Enterprise Risk Management

The key differences between traditional risk management and enterprise risk management in higher education are significant and impactful. Traditional risk management primarily centers around risk avoidance, which involves identifying potential risks and taking steps to either eliminate or minimize them. This approach tends to be risk-averse and is characterized by a reactive and sporadic nature, often addressing risks as they arise without a comprehensive, long-term strategy in place.

On the other hand, enterprise risk management (ERM) takes a proactive and continuous approach to managing risks in higher education institutions. ERM focuses on insulating risk-taking organizations, allowing them to embrace calculated risks that align with their strategic objectives. By taking a holistic view of various risk types, including non-insurable risks such as cybersecurity threats and geopolitical unrest, ERM helps institutions navigate complex challenges and opportunities in a more strategic and sustainable manner.

For example, a traditional risk management approach in higher education might involve addressing financial risks by solely relying on insurance coverage for potential losses. In contrast, an ERM framework would involve a comprehensive assessment of financial risks, including the impact of market fluctuations, tuition revenue, and investment strategies, while also considering nontraditional risks like cyber threats and geopolitical unrest. This broader perspective allows higher education institutions to make informed decisions and allocate resources more effectively to manage a diverse range of risks.

Overall, the shift from traditional risk management to enterprise risk management represents a fundamental change in how risks are perceived, managed, and leveraged within higher education institutions, ultimately contributing to their overall resilience and long-term success.

Examples of Risks in Higher Education

Higher education institutions face a myriad of risks across various areas, including operating, cultural, financial, reputation, strategic, and compliance. Operating risks in higher education can manifest in the form of faculty strikes, campus safety concerns, natural disasters, or even infectious disease outbreaks. For instance, a faculty strike can disrupt the academic calendar, leading to potential financial losses and impacting the institution’s reputation. Similarly, campus safety concerns, if not managed effectively, can result in reputational damage and financial liabilities due to potential lawsuits and decreased enrollment.

Cultural risks in higher education pertain to issues related to diversity, equity, and inclusion. For example, an incident of discrimination or lack of inclusivity on campus can lead to reputational damage, student unrest, and legal repercussions. These risks can also impact the institution’s ability to attract and retain a diverse student and faculty population, affecting its overall academic environment and brand perception.

Financial risks in higher education institutions can stem from funding fluctuations, endowment volatility, and dependency on tuition fees. For instance, a significant reduction in state funding can lead to budgetary constraints, potentially impacting academic programs, research initiatives, and student services. Moreover, fluctuations in endowment returns or unexpected changes in tuition fee structures can directly influence the financial sustainability of the institution.

In the realm of reputation risks, higher education institutions must navigate potential crises related to public relations, academic integrity, and student safety. For instance, a high-profile scandal involving academic misconduct or a student safety issue can tarnish the institution’s reputation, resulting in decreased enrollment, reduced philanthropic support, and diminished academic partnerships.

Compliance risks in higher education institutions are often linked to regulatory changes, accreditation standards, and legal requirements. For example, changes in federal or state regulations related to Title IX, student privacy, or research compliance can necessitate significant adjustments in institutional policies and procedures, requiring extensive resources and proactive risk management strategies.

In addition to these traditional risks, higher education institutions also face nontraditional risks such as injuries, rising tuition costs, and cyber threats. For example, the increasing prevalence of cyber threats targeting student data and institutional systems poses a significant challenge for higher education institutions in safeguarding sensitive information and maintaining operational continuity.

Overall, these examples illustrate the multifaceted nature of risks in higher education and highlight the importance of implementing robust risk management frameworks to proactively identify, assess, and mitigate these diverse risks.

Benefits and Challenges of Enterprise Risk Management in Higher Education

Implementing ERM in higher education offers benefits such as gaining a competitive advantage and effectively managing risks. However, challenges include the time required for creating and implementing an ERM program, typically taking about two to three years.