*Article* **Risk Perception, Accounting, and Resilience in Public Sector Organizations: A Case Study Analysis**

**Mouhcine Tallaki and Enrico Bracci \***

Department of Economics and Management, University of Ferrara, 44121 Ferrara, Italy; tllmcn@unife.it **\*** Correspondence: enrico.bracci@unife.it

**Abstract:** There are various factors that can affect an organization's ability to overcome a crisis and the uncertainties that arise thereafter. Little is known about the process of organizational resilience and the factors that can help or prevent it. In this paper, we analyzed how public sector organizations build resilience/traits of risks awareness, and in doing that, we derived some elements that could affect the process of resilience. In particular, drawing on the conceptual framework proposed by Mallak we analyzed an in-depth case study in a public sector organization (PSO) identifying some contextual dimensions implicated in the process of building resilience. In our analysis, we identified two main elements that affect resilience: Risk perception and the use of accounting. Results shown how risk perception is perceived as a trigger, while accounting is considered as an enforcer in the process of building resilience capacity. The results also show the way accounting is implicated in the management of austerity programs and supporting the creation of a resilient public sector organization. In our case, the risk has become an opportunity for change. In the face of these budget cuts, management began refocusing the company's mission from infrastructure maintenance to providing services with a market-based logic.

**Keywords:** resilience capacity; cut-back management; crisis

**1. Introduction**

The concept of resilience is holistic and complex as it is developed from several perspectives, i.e., organizational, information technology, industrial relation, engineering, business strategy, culture, organizational learning (Andersson et al. 2019). Organizational resilience is defined as the ability to build traits of risk awareness, preference for cooperation agility, and improvisation (Andersson et al. 2019). Organizational resilience is the ability to effectively absorb, develop specific responses to, and engage in transformative activities to capitalize on disruptive surprises that potentially threaten organization survival (Lengnick-Hall et al. 2011). Mainstream literature views resilience in terms of the ability to return to the previous state of perceived 'normality' (engineering perspective) or as the capacity for recovery from crisis by following the sequence of rescue, restoration of damaged infrastructure and then the rebuilding of markets (ecological perspective) (Barbera et al. 2017; Davoudi et al. 2012). According to the ecological perspective organizations could not only persist, but also adapt its structure under the new conditions, and this process implies gradual change as a new business concept may emerge (Dahles and Susilowati 2015). The ecological perspective recognizes the existence of multiple equilibria, and the possibility of systems to flip into alternative stability domains (Davoudi et al. 2012).

The concept of organizational resilience is based, therefore, on the notion that individuals, or a system, can withstand or recover its prior shape after shocks. This concept is described sometimes as a trait, a characteristic, or an outcome of the organization that faced adverse conditions (Carden et al. 2018). However, environmental conditions like financial crises or other external shocks are not sufficient to describe resilience in public sector

**Citation:** Tallaki, Mouhcine, and Enrico Bracci. 2021. Risk Perception, Accounting, and Resilience in Public Sector Organizations: A Case Study Analysis. *Journal of Risk and Financial Management* 14: 4. https://doi.org/ 10.3390/jrfm14010004

Received: 3 December 2020 Accepted: 21 December 2020 Published: 24 December 2020

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organizations. In the public sector, various studies have explored governmental responses to the crisis but fewer studies deal with the managerial consequences of such phenomena for public organizations (Barbera et al. 2017; Tallaki and Bracci 2020). Austerity measures in public sector have focused the role of resilience in the public sector (Barbera et al. 2017; Leslie and Canwell 2010). Nowadays, the main challenges for the public sector is to deliver services in an age of austerity (Bracci et al. 2015; Leslie and Canwell 2010). Boin and Lodge (2016) argue that the time has come for public administration scholars to incorporate crisis and disaster management into the main research agendas of the field. De Aquino and Cardoso (2017) analyze the pattern presented by four Brazilian municipalities at the beginning of a serious revenue downturn, and the authors show that the cases analyzed do not have an anticipatory capacity or long-term strategic planning. The same applied in Greece where it was shown that the municipalities did not demonstrate significant anticipatory capabilities (Cohen and Hlepas 2017). The resilience pattern could be different between municipalities, its depending on how the shock has been perceived (Du Boys 2017) or other characteristics like organizational features and capacities, as well as the characteristics of the external environment (Barbera et al. 2017, 2020). In fact, in other studies, municipalities appeared to be a common set of anticipatory and coping capacities (Jones 2017).

Barbera et al. (2017) call for further studies about the internal and external determinant of resilience in public sector organizations, and in particular the role of accounting in supporting the development of resilience capacity. More recently, Barbera et al. (2020) argued on the need to further investigate how accounting can help public sector organization to change and adapt to crisis and risks. Moving from this gap in the literature, we analyzed how accounting technologies designed and used by public sector organizations can trigger the development of resilience/traits of risks awareness. In doing so, we draw on the conceptual framework defined by (Mallak 1998) and applied it in a case study conducted in a public sector organization (PSO). Results show how risk perception is perceived as a trigger, while accounting is considered as enforcer in the process of resilience. The results also shown the way accounting is implicated in the management of austerity programs and supporting the creation of a resilient organization. In our case, the risk has become an opportunity for change. In the face of these budget cuts, management began refocusing the company's mission from infrastructure maintenance to providing services with a market-based logic. Accounting played different roles in the construction of reality (Burchell et al. 1980; Hines 1988) and in managing uncertainty (Chong and Chong 1997). Accounting provided certain language and discourse that constitute a way of establishing legitimacy in highly ambiguous situations (Nahapiet 1988). We argue that accounting has a role in making public sector organizations more resilient, with relevant policy and managerial implications. To the best of our knowledge, this paper is one of the first attempting to investigate the relationship between accounting technologies, risk awareness, and the development of resilient capacities.

The remainder of the paper is structured as follows: Section 2 describes how to build resilience and the framework used. Section 3 reports the methodology. Section 4 describes the case study and the results emerging. The paper ends with a discussion and some final reflections to highlight the contributions of the paper as well as its limitations.

#### **2. How to Build Resilience: Theoretical Framework**

The resilience concept is multifaceted and depends on a variety of dimensions and characteristic (Linnenluecke 2017). In the process of containing external risks, i.e., resilience, organizations may activate three mechanisms (Powley 2009): Alteration of the formal relational structures and opening a temporal space for organization members to form and renew relationships (liminal suspension); awareness of community members of the needs of others (compassionate witnessing); and activation of relational networks across organizational and functional boundaries (relational redundancy). In the same way, organizations can absorb external risks by undergoing first-order change and single-loop learning (labelled resiliency), or they can adopt new practices through second-order change

and double-loop learning (labelled retention) (Meyer 1982). Accordingly, resilience can be planned (anticipatory) and adaptive (coping with). Planned resilience involves the use of existing, predetermined planning capabilities. Adaptive resilience emerges as response to a crisis or other emergent situations (Lee et al. 2013).

Various internal and external factors could therefore support public sector organizations to be resilient, also affecting the professional identity of managers and employees (Barbera et al. 2017). Identifying the determinants of resilience or those internal and external factors makes possible to understand how to make an organization more performant in terms of resilience. This is because, as highlighted by Fraser et al. (1999, p. 136), "*If we can understand what helps some people to function well in the context of high adversity, we may be able to incorporate this knowledge into new practice strategies*". Accordingly, organizations need to understand their resilience strengths and weaknesses and must be able to evaluate the effectiveness of resilience strategies (Lee et al. 2013).

Carden et al. (2018) specify that a flexible workforce, not only in skills and job tasks, but also in mindsets could help organizations to survive. Biggs (2011) and Coutu (2002) highlight the importance of human capital, which takes in some of the features of innovation and collaboration, in developing organizational resilience. Meyer (1982) concludes that resilience is influenced by strategy and slacks in resources, ideologies, and by organizational structures. Sutcliffe and Vogus (2003) argue that resilience in organizations depends on broader information processing, loosening of control, and utilization of slack capabilities. Hamel and Välikangas (2003) suggest that innovation is the key for resilience. Another example of resilient organizations was presented by Gittell et al. (2006), whereby the authors highlight the importance of viable business model that allows financial reserves to build resilience in organizations.

In order to address our research question, we draw on Mallak (1998), who defined seven drivers of resilience, namely: Perceive experiences constructively, perform positive adaptive behavior, ensure external resources, expand decision-making boundaries, practice bricolage, develop tolerance for uncertainly, and build virtual rule system (Table 1). *Positive perception of experiences* is essential to the resilient individual because the individual is more likely to be able to solve the problem when he perceives experiences positively. In this case, individual takes an active approach, i.e., *positive adaptive behavior*, toward solving problems in the workplace.


**Table 1.** Summary of resilience dimensions.

Source: Mallak (1998).

*Adequate external resources* include resources of advice, information, finances, emotional support, and practical help, and this principle works in concert with *expanded decisionmaking* boundaries to maximize the potential for positive adaptive responses. *Bricolage* is the ability to fashion a solution on the spot using materials on hand; to do that individuals needs expanded decision-making authority and access to resources. Regarding *develop tolerance for uncertainty*, the latter refers to situations where the amount of information we need is greater than the information we have. Individuals with this capacity could make good decisions under conditions of uncertainty. *Virtual role* is identified as an advanced form of work team relationships. In this paper, we focused on the framework of Mallak (1998) to analyze, in particular, the role of accounting in supporting public sector organizations to develop risk awareness and become resilient.

#### **3. Research Methodology**

The paper adopts a qualitative approach with a longitudinal case study. In doing so, we also respond to the call for more qualitative analyses (Vaivio 2008) by developing a case study about PSO. We used a mix of primary and secondary sources. We interviewed managers and employees involved in the process under study. We did total of 18 interviews, the average duration of the interviews is equal to 1.44 h (Table 2). All interviews were taped and transcribed. The transcripts were sent to the interviewees to validate and confirm the adherence of the content with their thought and perception.

**Table 2.** Interviewees by position/duration.


Thus, we analyzed and codified the interviews, highlighting the keywords that related to resilience and the way the company reacted to a financial crisis. One of the critical elements in qualitative data analysis is the systematic coding of interviews (Miles et al. 2014) as it attributes interpreted meaning to each datum that contains references to specific categories of information (Saldaña 2013). Given the research question and the explorative approach adopted, the code list was an inductive task, based on what respondents said (Carey et al. 1996).

The interviews were analyzed separately by the authors to reduce subjectivity, and results were compared and discussed to reach a common understanding of the meaning of the interviewees' responses. We also took detailed notes of several informal interviews. These informal interviews allowed us to go back to the original interviews to specify, clarify and ask for additional evidence. We also collected data through direct observation and participation in meetings. We first entered the site in 2014 and started the research in 2015, which allowed us to follow changes over time. We attended various board and management meetings. Furthermore, we had access to all internal and external documentation (minutes, budgets, guidelines, procedures, public documents concerning the sector's data, and the financial situation of the owner).

#### **4. Analysis of Results**

The subject of the case study is a PSO that deals with ordinary and extraordinary maintenance of regional government infrastructure and is 100% controlled by the regional government. The company employs some 250 people and has a budget around €19 million (in 2018). Its main source of income is an annual transfer made by the regional government for infrastructure maintenance. Over the last few years, public transfers have fallen by around 35%, or some €5.5 million. The cuts were incremental but the financial performance remained in line with the historical trend. This is because the company has managed to compensate the cut in resources with the development of a new business line.

#### *4.1. Risk Perception*

Over the years, the company has managed to overcome the crisis by developing new business opportunities. The perception of risk, as the interviewees pointed out, following the cut of funds, was the trigger that led to a change in the business model. In fact, financial risk intensively affects business environment. Risk perception is linked to uncertainty. The latter is considered as risk when it becomes on object of management (Power 2007). Risk could be distinguished on the basis of the source of risk. Black (2005) reported that internal risks arise within the organization, external risks, instead, arise from the environment in which the organizations operate. The reduction of funds, considered as the source of risk, generated uncertainties regarding the future of the company, as the interviewees pointed out. Various operators said they are worried about the company's future.

Renn (2012) reported that organizations could deal with three different approach to govern risk: Technocratic risk management approach that focuses on risk minimization; decisionistic risk management that extends the technocratic approach by opening debate to risk evaluation; and transparent risk governance considers the engagement with the nature, perceptions, and contested benefits of risk in complex situations. In the public sector, risk is usually related to technocratic/bureaucratic approach of risk (Brown and Osborne 2013; Power 2007). In our case, the risk has become an opportunity for change. In the face of these budget cuts, management began refocusing the company's mission from infrastructure maintenance to providing services with a market-based logic.

### *4.2. Building Resilience*

In the following sections, we analyze the resilience process according to the various dimensions of Mallak (1998).
