ERIC Identifier: ED364985
Publication Date: 1994-02-00
Author: Gaustad, Joan
Source: ERIC Clearinghouse on
Educational Management Eugene OR.
Risk Management. ERIC Digest, Number 86.
The ordinary conduct of school business is accompanied today by risks that
were rare or unknown a few decades ago. Gang warfare and drug trafficking reach
onto school property. Firearms often escalate schoolyard disagreements to
literal matters of life and death. Soaring health insurance costs and litigation
threaten district financial assets. Schools also must comply with an increasing
number of government regulations, many of which require additional expenditures
while creating new areas of liability.
RISK MANAGEMENT, a concept long used in corporate decision-making, can help
school boards and administrators confronted by these challenges conserve their
WHAT IS RISK MANAGEMENT?
RISK MANAGEMENT is a coordinated
effort to protect an organization's human, physical, and financial assets. The
first step is systematic IDENTIFICATION OF RISKS to which a district may be
exposed and ANALYSIS OF THEIR PROBABLE FREQUENCY AND SEVERITY. Then LOSS CONTROL
measures are implemented to reduce or eliminate risks.
RISK FINANCING strategies are used to manage the district's financial
exposure for remaining risks. A district may TRANSFER legal or financial
responsibility for risks to other entities, such as insurance companies, or may
decide to RETAIN risks if that is more cost-effective.
The key to success in each area of risk management is thoughtful planning
supported by ongoing monitoring and adjustment. The key to a program's overall
success is a comprehensive, systematic approach that takes into account all
HOW CAN SCHOOL DISTRICTS IDENTIFY AND EVALUATE
Familiarity with basic school law will help school boards and
administrators recognize areas of vulnerability in their districts. Dunklee and
Shoop (1993) define relevant legal terms (such as tort, negligence, and due
care) and explore their meaning in specific school contexts. Minor and Minor
(1991) discuss thirty issues that are particularly likely to give rise to
litigation against schools and provide synopses of key court decisions.
Examining documents such as district financial records, inventory lists, and
property appraisals will reveal potential losses. Records of past losses,
including personal injury claims, are also valuable. Flowcharts are useful in
identifying risks inherent in processes, such as drug or weapons searches.
Inspection of buildings, equipment, and playgrounds will reveal problems
needing minor repair and potential sources of long-term liability requiring
major changes. Dunklee and Shoop provide checklists to aid inspections of
specific areas such as science laboratories, industrial arts classrooms, and
physical education facilities. Districts also may request inspections by their
insurance carriers or state and local agencies.
Obtaining varied perspectives increases the range of risks identified. Cody
and Dise (1991) designed a process to guide small groups of staff and students
in school risk identification. Surveys can procure input from large numbers of
people. Nondistrict perspectives are also valuable. A district may consult a
risk-management professional, or may ask knowledgeable community members to
volunteer on a risk-management committee (Gaustad 1993). Dunklee and Shoop
suggest having an attorney periodically review a district's legal affairs.
RISK ANALYSIS helps set priorities for loss control. In one method, FREQUENCY
OF LOSS and POTENTIAL SEVERITY of a risk are rated and the two figures
multiplied. Risks with high numbers deserve high priority in preventive planning
(Cody and Dise). Dunklee and Shoop use three variables: PROBABILITY of
occurrence, FREQUENCY of exposure, and SEVERITY of potential consequences.
Risk analysis provides "a consistent way of thinking about risk" (Dunklee and
Shoop), but it is not precise or objective. Not all assets can be given a dollar
value--for example, the public perception of school staff as competent and
trustworthy. The administrator's judgment must be the final determinant.
HOW CAN RISKS BE REDUCED OR ELIMINATED?
activities fall into three categories. LOSS AVOIDANCE--avoiding or abandoning
risky activities--is usually impractical for schools because so many of their
activities are mandated. Schools can avoid new risks by examining proposed
activities before they are implemented (Randal 1986).
LOSS PREVENTION efforts seek to reduce the frequency of losses. Maintenance,
supervision, and instruction are key areas for loss-prevention planning. For
example, preventive maintenance extends the life of boilers and other mechanical
systems; increasing supervision in hallways and cafeterias decreases incidents
of school crime and violence; and instructing students in the safe use of
athletic equipment reduces injuries.
The goal of LOSS REDUCTION is to reduce the severity of unavoidable losses.
Some activities, such as installing automatic sprinkler systems in case of fire,
seek to MINIMIZE damage. SALVAGE actions, such as providing counseling after a
school tragedy to reduce emotional damage to staff and students, take place
after a loss.
Successfully implementing loss-control activities involves three steps: (1)
creating policies and procedures, (2) communicating them to all concerned, and
(3) enforcing them consistently. These steps are essential whatever the area of
risk, whether the goal is preventing on-the-job injuries, administering
discipline without violating students' rights, or keeping playgrounds
HOW CAN SCHOOL DISTRICTS FINANCE UNAVOIDABLE
Purchasing insurance is the most common type of RISK TRANSFER.
Districts also may transfer or assume risks in contracts and other agreements.
Contracts should be carefully reviewed; Johnston (1993) cites an example in
which proper wording in a transportation contract protected a district from $1
million in claims after a fatal bus accident. Clear rules governing use of
school facilities should be part of any community-use agreement, and user groups
should be required to provide insurance unless the district is willing to assume
liability (Morley 1990).
The INSURANCE DEDUCTIBLE, a set portion of a loss a district agrees to pay in
return for a premium reduction, is one form of RISK RETENTION. Another is
SELF-INSURANCE. Self-insuring can save districts money and increase budgetary
stability by avoiding cyclic fluctuations in the commercial insurance market,
but it demands considerable expertise and long-term planning. Small districts
may combine resources in INSURANCE POOLS to self-insure on a group basis.
Two types of self-insurance must be distinguished. In the first type, also
called SELF-FUNDING, funds are set aside in anticipation of future losses and
regular payments are made to increase this reserve. This method spreads out the
cost of major losses over time (Randal). In the second approach, sometimes
called GOING BARE, losses are paid out of current operating monies (Cheng and
Yahr 1989). A catastrophic loss could devastate an unfunded district.
Districts typically combine transfer and retention. Insurance policies with
deductibles are a nearly universal example. Many districts self-insure one or
two areas of risk and purchase insurance for the rest. The optimal combination
of risk-financing options depends on a district's needs and resources (Johnson).
WHAT MAKES A RISK-MANAGEMENT PROGRAM
Risk-management begins at the top. School boards publicly
acknowledge its importance, create policy that sets out general risk-management
objectives, assign responsibility for achieving those objectives, and provide
administrators with sufficient resources to design and implement effective
procedures (Cody and Dise).
Risk-management operations should be consolidated and overall responsibility
given to one administrator. Splitting activities among several departments
results in inefficiency and duplication of effort. Responsibility for risk
management should be assigned near the top of the organizational ladder;
delegating it to a low-level administrator sends the message that it is not
Districts must take a long-range perspective in evaluating the success of a
risk-management program. Short-term accounting methods that cover only one
fiscal year may need to be changed (Dunklee and Shoop).
Risk management is a complex field with a specialized technical vocabulary.
Districts should carefully study the issues and seek expert advice before
venturing into the field. Nonetheless, its potential ability to save districts
money and give them greater control over their financial affairs makes risk
management well worth exploring.
Cheng, Rita Hartung, and Robert B. Yahr. "Risk
Management Practices and Accounting Requirements." SCHOOL BUSINESS AFFAIRS 55,10
(October 1989): 20-27. EJ 397 766.
Cody, Frank J., and John H. Dise, Jr. MANUAL OF EDUCATIONAL RISK MANAGEMENT.
Detroit, Michigan: Educational Risk, Inc., 1991. 984 pages.
Dunklee, Dennis R., and Robert J. Shoop. A PRIMER FOR SCHOOL RISK MANAGEMENT: CREATING AND MAINTAINING DISTRICT AND SITE-BASED LIABILITY PREVENTION PROGRAMS. Boston: Allyn and Bacon, 1993. 209 pages.
Gaustad, Joan C. RISK MANAGEMENT: HOW SCHOOL DISTRICTS CAN IDENTIFY RISKS,
REDUCE LOSSES, AND CONSERVE FUNDS. Eugene, Oregon: Oregon School Study Council,
University of Oregon, September 1993. OSSC Bulletin Series. 40 pages.
Johnson, Brad. "Walking the Risk Tightrope: Balancing Risk Finance Options."
SCHOOL BUSINESS AFFAIRS 58, 6 (June 1992): 4-9.
Johnston, James B. "Transfer of Risk: Plan Now or Pay Later." SCHOOL BUSINESS
AFFAIRS 59, 6 (June 1993): 10-13. EJ 465 290.
Minor, Jacqueline K., and Vern B. Minor. RISK MANAGEMENT IN SCHOOLS: A GUIDE
TO MINIMIZING LIABILITY. Newbury Park, California: Corwin Press, 1991. 82 pages.
Morley, John. "Community Use of Schools: A Risk Management Approach." SCHOOL
BUSINESS AFFAIRS 56, 6 (June 1990): 20-24. EJ 411 638.
Randal, L. Nathan. "Risk Management." In PRINCIPLES OF SCHOOL BUSINESS
MANAGEMENT, edited by R. Craig Wood. Reston, Virginia: Association of School
Business Officials International, 1986. 675 pages. ED 282 294.