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Enterprise Risk Management Workshop

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fund for paying claims over a refinery explosion in Texas and faces unknown costs for the remaining claims. After starting with $700 million, the company, ... – PowerPoint PPT presentation

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Title: Enterprise Risk Management Workshop


1
  • Enterprise Risk Management Workshop
  • Tom Teixeira
  • Kevin Gould
  • IRM Risk Forum 2009

2
Aims content of this workshop
  • Provide a wider view of enterprise risk
    management looking at all business domains
  • Take a look at how risk management techniques can
    also be applied to delivering upside
  • Investigate the steps along the risk management
    value journey both for the industry and for
    your organisation
  • Look at lessons which can be learned from
    different sectors
  • Share project implementation and rollout
    methodologies, barriers to success and tips
    tricks

3
Agenda
25 mins Introduction. A wider view of risk-reward. Risk-reward value journeys. What will bring greatest value to your organisation - as soon as possible.
25 mins Workshop session - up to 2 groups
10 mins Each group presents for a maximum of 5 minutes each
20 mins Strategies to make sure enterprise-wide risk-reward management projects are successful What lessons can be learned from successful projects and other industries.
10 mins Summary Closing remarks

4
  • Session 1
  • The risk reward journey

5
Why is risk management becoming business critical?
  • Key points from Ben Bernankes (US Federal
  • Reserve Chairman) speech on his macro
  • prudential agenda given on the 7th May
  • Need to identify and assess all types of
    emerging
  • risks
  • Focus on lessons learnt and internal
  • communication
  • Many types of companies are inter-networked,
  • risks are shared across these networks

6
Supporting the delivery of your business plan
across all levels of your organisation
BUSINESS PLAN DEPLOYMENT
  • Providing the integrated framework to
  • enable the identification, assessment and
    tracking of the key risks to the business
  • report on the effectiveness of the mitigation
    strategies
  • influence corporate strategy and business
    performance

Key Performance Indicators
Key Risk Indicators
Risk Analysis
KEY RISKS
Risk Response
Treatment Plan 1
Treatment Plan 2
Treatment Plan 3
Effectiveness of Enterprise Level Controls and
Mitigations
Business Assurance
Insurance Risks
Strategies / Responses
Control 1
Non-insurable
Action 1
Control 2
Action 2
Self-insurable
Remedial Action 1
Recovery Plan 1
Insurable
Remedial Action 2
Recovery Plan 2
7
The business process at different levels within
organisations
CORPORATE
PROJECT / SUPPLY CHAIN
DIVISION
8
Risk-reward business domains
Financial - Market - Credit - Liquidity
Asset / Facilities Management
Programme / Project Management
PerformanceManagement
Insurance Management
Business Contingency
Loss / Incident Management
Occupational Health Safety
CSR / Reputation Management
Opportunity Management
Compliance
Corporate Governance
Action Management
Supply Chain Management
Issue Management
Process Management
Control Management
Corporate Finance
Environment Management
Complaints
Customers Investors
Bid Management
9
Improved coverage of your insurance programme and
reduced premium rates
  • Improved risk definition and exposure supplied by
    the risk quantification process leads to
  • Improved understanding of risk appetite across
    the business
  • Enhanced risk insurance programme to more closely
    align with the risk profile from your existing
    portfolio including counterparty default
  • Reduced insurance premium on the quality of your
    ERM framework
  • Improved capital allocation

10
Credit ratingsStandard Poors
We now propose to introduce Enterprise Risk
Management (ERM) analysis into the corporate
credit ratings process globally as a
forward-looking, structured framework to evaluate
management as a principal component in
determining the overall business profile. (The
business profile, along with the financial
profile, are the key factors of a Standard
Poor's credit rating.)
  • Four major analytic components will be a part of
    ERM
  • Analysis of making daily corporate decisions
  • Analysis of risk controls
  • Analysis of emerging risk preparation
  • Analysis of strategic risk management

Source Request For Comment Enterprise Risk
Management AnalysisFor Credit Ratings Of
Nonfinancial Companies November, 2007
11
ERM performance impacts credit ratings
XL ratings cut one notch 2008-12-16. Standard
Poor's Ratings Services said today that it
lowered its counterparty credit and financial
strength ratings on XL Capital Ltd.'s (NYSEXL)
core operating companies to 'A' from 'A'.
  • Standard Poor's credit analyst Steven Ader
  • XL's management team has undertaken several
    initiatives structured to simplify and refocus
    XL's operations on its strongly performing
    property/casualty insurance and reinsurance
    operations while materially reducing noncore
    risks, including investments and financial lines
    exposure. These initiatives - in combination with
    an enhanced focus on enterprise risk management
    (ERM), which we view as adequate - markedly
    reduce the potential for unexpected material
    charges outside of the investment portfolio.
  • We expect that XL's continued enhancement of its
    ERM, especially strategic and operational risk,
    will materially reduce the potential for
    unexpected losses.
  • "If, in the next two years, ERM continues to
    develop, additional investment losses fail to
    materialize, and no negative surprises arise that
    dampen consolidated results, we could revise the
    outlook to stable, however, if more unexpected
    adverse events occur (such as unexpected
    additional realized investment losses, large
    underwriting losses, or large operational related
    risk), if the company does not meet our financial
    tolerance levels, or if there is inadequate
    progress related to XL's ERM, another downgrade
    would most likely result."

12
ERM can improve credit ratingsand hence the cost
of borrowing
  • Improving credit ratings via ERM can potentially
    reduce borrowing costs
  • Improved risk management supported by an
    integrated risk data system will now have an
    effect on future credit ratings. For some
    industry sectors, the weighting could be between
    13-15 and therefore significant to improving
    grading.
  • For example, a business having a BBB rating.
    Assuming 1B of debt, and a 10 weighting would
    achieve the following
  • 10 year bonds
  • An increase in rating to A- will have an annual
    saving of 1.8M on the cost of capital which
    equates to a NPV saving of 11.6M over a 10 year
    period
  • 30 year bonds
  • An increase in rating to A- will have an annual
    saving of 2.0M on the cost of capital which
    equates to a NPV saving of some 18.5M over a 30
    year period

13
Leighton contingency management
14
Construction - Project programme risk-reward
  • Risk
  • Project delays lead to contract penalties
  • Lost revenue for the asset owner e.g. cancelled
    concerts and sports events
  • Reputational risk e.g. damaged reputation with
    investors, contractors, supply chain
  • Damaged track record means the likelihood of
    winning new business is diminished
  • Reward
  • On-time, on-budget project delivery
  • Early delivery bonuses
  • More accurate tenders which can make explicit the
    understanding of risk
  • Can mitigate risks to the right degree via risk
    sharing, contingencies and insurance
  • Enables effective communication through the
    supply chain
  • Enhanced reputation and increased likelihood to
    win more business

15
Getting it wrongMultiplex Wembley Stadium
  • ...the task of building a hi-tech home for
    English football greatly tarnished the company's
    reputation.
  • Penalty shoot-outs, offside investors,
    extra-time construction, cost blow-outs the Road
    to Wembley turned out to be a boon for pun-happy
    headline-writers, but a public relations disaster
    for the company. There was also a financial hit.
    As the company revealed in its annual report last
    August, the year's loss on the project was A364m
    (138m).
  • Most serious, perhaps, was an investigation by
    Australia's corporate watchdog, the Securities
    and Investments Commission, into allegations that
    the company failed to tell investors promptly
    enough that a forecast profit on Wembley had
    turned into a financial black hole.
  • The investigation ended in December, with
    Multiplex offering a A32m compensation fund for
    investors who got burned by the company's failure
    to meet its continuous disclosure agreements.
  • In agreeing to the compensation, however,
    Multiplex issued no admission of wrongdoing.
  • That same month, Multiplex was hit by a major
    class action suit from 45 disgruntled investors,
    a case which is still ongoing.
  • At the age of 72, John Roberts died in June last
    year. Family members thought that the pressure of
    the Wembley debacle hastened his premature
    death.
  • Source BBC Feb 2007

16
Getting it right The Emirates StadiumSir Robert
McAlpine
  • The best stadium job in the UK ever
  • The stadium was handed over two weeks ahead of
    schedule and on budget.


17
  • supply chain

18
Additional benefits achieved improved
visibility of risk across the supply chain
Achieve an understanding of the critical
suppliers in the supply chain through the
application of relevant risk factors see
proposed heat map opposite
A1 Plc
Supply King Ltd
Components4U
RAW Materials Inc
Potential net annual earnings impact MM
Key Packaging Ltd
Supply Experts Ltd
S1 Ltd
MegaSupply Plc
The Big Supply Co. Inc
Supply Plc
Annual purchasing spend MM
19
Supply chain riskSupporting financially fragile
suppliers
  • If you get into financial difficulties, dont
    delay come and talk to us. You are probably
    better talking to us than banks, because banks
    arent really doing their jobs right now and we
    can help.
  • Paul Lester, CEO VT Group
  • November 2008

20
  • health safety

21
Health Safety risksBP Texas City Refinery
  • A US report has found "material deficiencies"
    in BP's safety procedures at its American oil
    refineries. It follows a 2005 explosion at BP's
    Texas City refinery that killed 15 people and
    injured 180.

22
Health Safety risksBP Texas City Refinery
  • BP, the oil company, says it has spent all of
    its 1.6 billion fund for paying claims over a
    refinery explosion in Texas and faces unknown
    costs for the remaining claims.
  • After starting with 700 million, the company,
    based in London, increased the size of the fund
    twice as more claims were filed and settled.
  • "BP has paid more than 1.6 billion to date to
    settle death and injury claims," a spokesman,
    Neil Chapman, said in an e-mail response to
    questions Friday. "The cost to resolve additional
    claims will be determined as and when additional
    claims are resolved." The company is
    "self-insured" for these costs, he said.
  • International Herald Tribune, December 2007

23
Networked ERM realising value from the start
Illustrative value journey for Construction
VALUE
TIME
24
Networked ERM realising value from the start
Illustrative value journey for Aerospace Defence
VALUE
TIME
25
Networked ERM realising value from the start
Illustrative value journey for Manufacturing
VALUE
TIME
26
Networked ERM realising value from the start
Illustrative value journey for Transport
VALUE
TIME
27
Networked ERM realising value from the start
Illustrative value journey for Energy
VALUE
TIME
28
Networked ERM realising value from the start
Illustrative value journey for Utilities
VALUE
TIME
29
What is the ERM value journey for your industry?
Choose an industry from within your group
VALUE
TIME
30
Workshop 1 - questions
  • What is the typical value journey for your
    industry?
  • What could be your organisations own value
    journey?
  • What hard measures could be used to record value?

31
Breakout guidelines
  • Appoint a spokesman who will present the summary
  • Appoint a note taker
  • Do these tasks first but do not spend more than 5
    minutes on this
  • Make clear notes that capture key points
  • Focus on what will add value when shared with
    others
  • Are there any examples/figures which illustrate
    your points?
  • If you present from a flip chart write large
    and clearly so it can be read

32
  • Session 2
  • Strategies to ensure enterprise-wide risk-reward
    management projects are successful

33
Achieving the level of risk maturity which is
right for your ERM journey
Optimized Risk adjusted return on cash flow
across the business
5
Embedding Financial Models
Embedded Risk Management driving the decision
making process Linkage to financial planning
Analyse
4
Quantify risks
Assessing Financial Exposure
Established Risk mitigation Communication
Accountability
Delegate Actions/Controls
3
Manage Mitigate Risks
Time
Improving quality of data
Approve and Assess Risk data centrally
Formalised Basic risk assessment Audit and Risk
Awareness
2
Identify and communicate risks and controls
Big Chance Program
Undeveloped Basic risk identification Audit
failure, Risk Silos
1
Respond to risk or control surveys to improve
control awareness
Cost of Change
34
Identifying and Managing Key Stakeholders in the
Business
Investors
Bus Heads
Board of Directors
Customers
Regions
Regulators
Markets
Rating Agencies
Sites / Assets
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Partners
RD Projects
Suppliers
Banks
Chief Information Officer
Chief Risk Officer
Chief Compliance Officer
Chief Internal Auditor
Head of Environment Health Safety
Head of Asset Management
Head of Supply Chain
Business Operational Heads
Head of Business Continuity
Head of Insurance
Programmes Director
VP of Sales Marketing
VP Corporate Strategy
35
How do you ensure all types of risks are captured?
  • Integrated Communities Informed Planning

Bottom Up Process
36
Using software to change culture and embed the
process through a disciplined approach
The old way
Risk Management Process Improvement
Risk Management Software deployment
Risk Management Software deployment
The new way
Risk Management Process Improvement
Risk Management Software deployment
37
Deployment Strategy The Light Touch
Basic risk management process
38
  • Summary

39
Establishing the end game which includes
improved forecasting through the integration of
risk management with strategic and financial
planning
  • Understand how risk impacts business plan models
    through the modelling of risk adjusted cash-flow
    and EBITA forecasts
  • Understanding the key risk drivers that are
    causing potential deviations
  • Management to focus scarce resources on
    mitigating key risks
  • More realistic forecasts
  • Reassured shareholders

Source real life data from ARM customer with
figures removed
M
0
Time
40
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