The biggest difference between public and private sectororganisations ultimately lies in the reason for their existence – public sectororganisations exist to provide a service whilst private sector organisationsexist to make profit for shareholders.
Another key difference being the numberof stakeholders that each type of organisation is accountable to. Whilst privatesector organisations are required to generate profit for a small number ofshareholders, public sector organisations have an obligation to provide servicesto the wider community. Whilst this may seem obvious, the importance of thisdistinction lies with the risks that they face. Public sector organisations aregovernment funded so they never have to worry about bankruptcy or liquidation,however, this is a huge concern for private sector companies and as a resultthis will be of great interest to them when they are assembling their riskmanagement strategy. In general, the activities of public sector organisationsare more diverse and cover a wider geographical area than the activities ofprivate sector organisations.
As a result, public sector organisations are facedwith a wider range of loss exposures, making risk management extremely challenging(Head & Wong, 1999). Whilst private sector organisations can eliminaterisks by avoiding them completely, public sector organisations do not have thisluxury. The government is obligated to build and maintain roads, parks andother facilities, and also provide other important services like education,healthcare and emergency services, all of which can result in a variety of riskexposures (Greiger, 2001). Whilst, government reform is generally not a causefor concern for private sector organisations, it can, however, pose a hugethreat to public sector organisations as changes in government reflect publicattitudes regarding the funding of public services. Whilst the finances andoperations of private sector organisations often manage to escape public andpolitical scrutiny, the same cannot be said for public sector organisations whoare consistently regulated and required to provide accountability for theiroperations and funding. Furthermore, the activities of private sectororganisations largely go under the radar of most people unless they directlyneed to purchase a service, hence why they are not subject to the same kind ofdebate that surrounds public service provision.
The majority of people have anopinion on public services such as healthcare and education because theydirectly affect their lives. This highlights another key difference betweenpublic and private sectors in that private sector organisations focus ontechnology and competition when defining their key risks, whilst public sectororganisations are forced to consider social and political aspects when definingtheirs (Woods, 2011).