Certain Safeties or Safe Certainties: Infrastructure Reliability versus Rewards

Abstract

Public sector entities devote a tremendous amount of time to avoiding risk, especially political risk. It feels far safer to spend a large number of small sums of money on ten different studies, rather than solve one problem for the same cost. If a political problem arises, then the response “we had it under review” is of more political value than “we ignored nine similar problems because we hoped to eliminate one long-term problem once-and-for-all, but this one of the nine caught us out”. Infrastructure, however, needs to be reliable, not a subject of political whimsy or backside-covering. How can we go about setting public policy that sensibly balances risks, rewards and reliability of infrastructure? Risk/Reward management defines three types of activity that improve organizational performance - risk avoidance, reward enhancement and volatility reduction. Risk avoidance activities reduce large exposures, e.g. continuity planning, insurance or legal compliance. Reward enhancement activities are normal management projects to increase performance such as training, cost reduction or production improvement. Volatility reduction is more subtle, yet activities that reduce volatility or improve consistent delivery add measurable value.

Keywords: Risk, Rewards, Reliability, Infrastructure

JEL Classification: G32