Risk management at Dutch Housing Associations

Blom, Teake T. (2008) Risk management at Dutch Housing Associations.

Abstract:For my graduation assignment the ‘Nederlands Adviesbureau voor Risicomanagement1’ (NAR) asked me to do research on how risk management has been filled in at housing associations in the Netherlands. The term ‘Risk Management’ is since World War II an evolving concept in Business Economics and risk management is often present in organizations. Different areas of attention, which are also included in the frameworks of standardization organizations as COSO and AIRMIC, that come with risk management in organizations include: • Identification of risks that threaten people, material and immaterial interests and activities. • An analysis of the probability and effect that risks can bring with them. • A study on the methods to diminish or eliminate the risks. And based on this study, taking measures to avoid, prevent and lower losses. • Studying risk financing to bear the potential losses. Think of bearing losses directly from current assets, specially created reserves or provisions, or by agreements and insurances. • Regularly testing of the decided policy whether the policy is effective in the –changinginternal and external environment. Dutch housing associations are non profit organizations (often foundations) with a public function to provide social housing to let affordable houses. Due to the stricter regulation (BBSH) and the introduction of corporate governance codes (Aedescode and Dutch Housing Corporate Governance Code) it has been noticed by e.g. the Dutch Central Fund for Housing (CFV) that risk management is becoming a major point of attention for housing associations. The problem statement of my research was therefore: To what extent do housing associations in the Netherlands know and manage their risks? To provide an answer on this statement the following research questions were set up: 1. What techniques do associations use to identify their risks? 2. What techniques do housing associations use to analyze their risks? 3. What organizational provisions have been made to manage risks effectively? A survey was sent to all financial managers of 449 housing associations in the Netherlands to get answers on these research questions. The resulting valid response of 20% was used to analyze the results in order to provide a decent picture of the use of risk management at associations. We must note that asking financial managers can give a bias in the results, as this is voluntary response from managers who may have relative more interest in the subject of risk management. But it was also noted that the resulting sample was found representative for the whole population of housing associations. After analyzing the results of the survey, a model has been setup to determine in what extent risk management is present at housing associations. This model assigns a Risk Management Score for each housing association. The scores were given on the presence of aspects of risk identification, risk analysis and organizational provisions. The general conclusion is that most housing associations have a great opportunity to improve their risk management on these elements. The results show e.g. that just 34% of respondents who claimed to have risk management introduced (‘risk management adopters’) have a list with risks and just 40% has a formal written risk management policy. The lack of presence of these basic risk management aspects is also coming back in their Risk Management Scores. The results in general show that risk management is often not filled in at these organizations in the way it should be done according to literature. A reason could be that the corporate governance codes applying to associations do not give strict guidelines on how ‘good governance’ should be filled in and that risk management is not perceived to be fully necessary. Another reason may be that the Aedescode is considered as more or less as a piece of paper, since the code is a product of self regulation of the industry and there is no real maintaining of this code by any external or independent body outside the industry. Housing associations use mostly ‘internal audits’ and ‘analysis of financial reports’ to identify their risks. In identifying project risks ‘scenario analysis’ is a common tool. But it can not be concluded from the results how these techniques in particular are used. This in general holds for all used techniques. It is very likely that the respondents may have different understandings on identifying risks with a particular technique. To assess risks, most associations analyze their risks in a qualitative way. But one of the real strengths of risk management is actually to quantify the risks to better able to choose for the right risk control strategy (avoidance, retention or transfer). So associations can improve a lot in risk analysis by using relative and even better, quantitative methods to analyze risks. At ‘risk management adopters’ (respondents who claimed to have introduced risk management in their organization) the risk management process is mostly part of administrative organization / internal control mechanisms or the part of the planning & control cycle. Risk management is also often a point on the agenda in consultations and horizontal and vertical communication on risks is often supported by the (line) management. These organizational provisions which are already present can provide a decent base for improving risk management on aspects as risk identification and risk analysis. The general attitude on the effectiveness of risk control - in the way that the benefits of the risk measures weigh up against the costs of the risk measure - has a positive relation with the Risk Management Score. But the results also show that these ‘benefits’ are not easily translated to a perception of lesser losses or a perception of more financial continuity. Future research must make clear whether the attitude of respondents on the effectiveness of their risk control has a positive correlation with the actual risk control or that that risk control is just giving some ‘peace of mind’ by knowing to have done something against the risk.
Item Type:Essay (Master)
Nederlands Adviesbureau voor Risicomanagement (NAR), Enschede
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:http://purl.utwente.nl/essays/58621
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