Why Does Strategic Risk Matter in Local Government?

Monday, 20 July 2026

Strategic risk matters in local government because it threatens a council’s ability to deliver services, maintain infrastructure and stay financially sustainable over the long term. Unlike day-to-day operational problems, strategic risks such as financial pressure, climate change and cyber threats can undermine a council’s whole direction. Managing them well protects communities and public trust.

In Australia, local government is a large and complex sector. Councils manage billions of dollars in community assets, deliver essential services from roads to libraries and operate under close scrutiny from auditors-general and their communities. This guide explains what strategic risk is, why it matters for Australian councils, the main strategic risks they face and how the sector is required to manage them.

What is strategic risk?

Strategic risk is the risk that uncertain events or decisions will stop an organisation achieving its strategic objectives, the goals that shape its long-term direction. In a council, that means risks to its ability to serve its community, remain financially sustainable and deliver on its plans, rather than the smaller operational issues handled day to day.

Risk itself has a widely used definition. The Australian standard AS ISO 31000:2018, published by Standards Australia, defines risk as the effect of uncertainty on objectives. It treats strategic risk as one category alongside operational and financial risk. Applied to a council, strategic risk is the effect of uncertainty on its strategic objectives: the long-term outcomes set out in its community strategic plan. The distinction matters because operational risks are usually managed by staff in daily work, while strategic risks need attention from councillors and executives who set direction. Naming strategic risk separately helps a council focus leadership attention where the stakes are highest.

Why does strategic risk matter for local councils?

For councils, the stakes attached to strategic risk are high, because a serious misjudgement affects whole communities. The Audit Office of New South Wales, in its Local Government 2025 report, found that about 40% of councils did not break even in 2023-24. It also found that 35 councils met none or only one of three key financial sustainability benchmarks. A council that cannot fund the renewal of its roads, drains and buildings is carrying a strategic risk to the services its residents depend on. Financial sustainability is not an accounting detail. It determines whether a council can keep delivering over the long term, which is why strategic risk sits with the people who set the budget and the strategy, not only with the finance team.

What are the main strategic risks facing Australian councils?

The most persistent strategic risk is financial sustainability. The Australian Local Government Association (ALGA), the national voice of local government, reports that for almost one in four councils, federal Financial Assistance Grants make up at least 20% of operating revenue, yet the value of those grants as a share of Commonwealth taxation revenue has halved over 30 years, from 1% in 1996 to about 0.5% today. In Victoria, the Victorian Auditor-General’s Office notes that rate capping, introduced in 2016, limits how much councils can raise their rates, which adds pressure on smaller shire councils. Councils that rely heavily on external funding face a strategic risk that their revenue will not keep pace with the cost of services.

Financial pressure sits alongside other strategic risks. Ageing infrastructure and a growing asset renewal task threaten councils that cannot fund maintenance. Climate change and natural disasters, from bushfires and floods to coastal erosion, damage council assets and disrupt services. Many assets were designed for historical conditions that no longer hold. Cyber security is a rising concern, with the Audit Office of New South Wales finding gaps in councils’ cyber training and in the management of third-party systems. Governance and probity risks, including fraud and conflicts of interest, round out a demanding risk landscape. Each of these can derail a council’s strategy if it is not identified and managed early.

How are councils required to manage strategic risk?

In Australia, managing strategic risk is increasingly a formal requirement, not just good practice. In New South Wales, the Office of Local Government requires every council to have a risk management framework, an internal audit function and an Audit, Risk and Improvement Committee (ARIC), with these obligations applying from 1 July 2024 and attestation in the annual report from 2024-25. The framework asks councils to use enterprise risk management: identifying, assessing and managing all the risks that affect their ability to meet their goals, which is exactly where strategic risk lives. Councils typically record these in a risk register that separates strategic risks from operational ones, so leaders can see the big picture. This structure gives councillors and executives a clear line of sight over the risks that matter most.

Building strategic risk capability

For councillors and executives, strategic risk is ultimately a leadership capability. The frameworks and committees now required give councils the structure, but the judgement to weigh long-term risks and act on them develops with experience and good training.

This is where structured learning helps. AcademyGlobal (AG), which has worked with all levels of Australian government since 2004, runs a Strategic Risk Management for Councillors and Executives course, developed with the Institute of Strategic Risk Management (ISRM) and shaped for public sector leaders. Part of AG’s wider strategic risk courses, it grounds these frameworks in the realities of council governance, so risk becomes a way to protect services, assets and community trust rather than a compliance exercise.

Frequently asked questions

What is the difference between strategic risk and operational risk?

Operational risk concerns day-to-day activities, such as a service outage or a safety incident. Strategic risk concerns a council’s long-term direction and its ability to achieve its objectives, such as remaining financially sustainable or adapting to climate change. Both matter, but strategic risk needs leadership attention.

Why is strategic risk important for councillors and executives?

Councillors and executives set a council’s strategy and budget, so they own its strategic risks. Decisions about rates, borrowing, major projects and service levels all carry long-term risk. Understanding strategic risk helps them protect services, assets and community trust rather than reacting to problems after they occur.

What are the biggest strategic risks for Australian councils?

Financial sustainability is the most common, with about 40% of NSW councils not breaking even in 2023-24. Other major strategic risks include ageing infrastructure, climate change and natural disasters, cyber security, plus governance and probity. The mix varies between metropolitan, regional and rural councils.

Are Australian councils required to manage strategic risk?

Requirements vary by state. In New South Wales, from 1 July 2024 every council must have a risk management framework, an internal audit function and an Audit, Risk and Improvement Committee. Each council must also attest to compliance in its annual report. These arrangements use an enterprise risk management approach that covers strategic risk.

What is enterprise risk management?

Enterprise risk management is a whole-of-organisation approach to risk. Instead of managing risks in isolation, a council identifies, assesses and manages all the risks that affect its ability to meet its goals, including strategic, financial, operational and other risks. It gives leaders a single, connected view of risk.

References

Standards Australia (2018). AS ISO 31000:2018 Risk Management: Guidelines.

Audit Office of New South Wales (2026). Local Government 2025.

Australian Local Government Association (2025). Local Government Financial Sustainability.

Victorian Auditor-General’s Office (2025). Financial Management of Local Councils.

Office of Local Government NSW (2024). Guidelines for Risk Management and Internal Audit for Local Government in NSW.