How can an Enterprise Risk Management (ERM), programme enable organizations achieve strategic objectives more effectively? Dr P S Sahota  

Presentation structure Global risk profile Managing risk is a challenge Managing risks: systems rather than silos ERM: achieving organizational objectives Concluding remarks

Global Risk Profile Adapted from Strenk lecture , Locton Operational Risk Contract Performance Trademark Erosion Customer Satisfaction Financial Risk Currency Credit Debt Covenants Accrual Accuracy HR Risk Benefits Key Management Loss Stock Ownership Program Succession Planning Environment Risk Terrorism War Political Stability Regulatory- Local/ Nat’l Public Relations Natural environment Technology Risk Infrastructure Failure Security Consistent Strategy Obsolescence Strategic Risk Competition R&D Resource Missed Market Reputation New Market Entrant Major Customer (s) Loss Supply chains Adapted from Strenk lecture , Locton

Managing risk is clearly a challenge Scope of Operations Country 1 Country 2 Risk Source Country 3 Country 4 Operational Risks Financial Risks Environmental Risks Strategic Risk etc Risk Financing Risk Mitigation Risk Qualification Risk Assessment Risk Management Processes

Risk Management: systems rather than silos A Silo Approach An Enterprise Approach Financial Risk Financial Risk Environment Risk Environment Risk Strategic Risk Strategic Risk Enterprise Risk Management Operation Risk Operation Risk HR Risk HR Risk Technology Risk Technology Risk Enterprise Risk Management: A rigorous approach to identifying, assessing and addressing risks from all sources that threaten the achievement of an organizations strategic, operational and financial objectives and/or represent an opportunity or competitive advantage.” Jerry Miccolis, Tillinghast-Towers Perrin

ERM: ACHIEVING STRATEGIC OBJECTIVES What ERM is going to do Risk culture is created throughout the enterprise Risk strategy is linked to business strategy Risk management becomes a continuous, systematic process integrated within the enterprise’s processes How you can do it Identify an internal “champion” of the ERM project. This “champion” needs to be a senior executive within the organization Identify processes to manage serious threats to growth and return while identifying risks that represent opportunities Understand appetite to risk Establishes a robust, yet scalable, process for risk identification and assessment (AAR, CoP, CoI, learning by doing)

ERM: ACHIEVING STRATEGIC OBJECTIVES How you can do it Quantifying , aggregating and studying risk for interrelationships Identifying who owns” those risks within the company “ and make everyone understand their role in managing risk Establishing a framework and process that allows for a balancing of risk control activities within business processes What ERM is going to do The organization can anticipate, manage, optimize and monitor risk Risk management responsibilities become clearly defined Identify alternative methods of organizing and managing exposures on a collective basis.

ERM: ACHIEVING STRATEGIC OBJECTIVES What ERM is going to do Risk becomes a key consideration for financial decision making Improved intelligence for investment decisions. Improve investors confidence (investors, scrutinize risk management policies/procedures) How you can do it Develop a framework to evaluate risk on a portfolio basis Develop a robust ERM methodology that can identify, assess and manage risks more cost-effectively Develop “drill down” processes for putting information into the hands of senior management so they can focus the organization’s ability to achieve its strategic objectives. Improve the quality of the management of enterprise-wide risk stewardship

ERM: ACHIEVING STRATEGIC OBJECTIVES (KPMG) What ERM is going to do Risk Governance Risk Assessment Risk Quantification and Aggregation Risk Monitoring and Reporting Risk and Control Optimization How you can do. Put in place a risk management structure with clear accountabilities to support risk management objectives Carry out frequent risk assessments in line with normal management reporting and including analysis Carry out quantification of operational risk; advanced quantification of selected risks Carry out extensive reporting to the board and audit committee on current risk levels and future risk issues Put in place risk-adjusted performance, evaluation, and capital allocation strategies

Concluding Remarks Effective ERM will improve the ability of organizations to learn and remain competitive within an uncertain environment. This will improve the performance of its brands and generate excellent returns from its business The ability of organizations to “learn”, means that knowledge will utilised on problems and opportunities as they emerge and is generated through an ongoing evaluation of how these responses impact the organisation and its operating environment. This will assist in achieving its objective of putting its market scale and knowledge to good use Organisational learning, as part of an effective ERM programme will play an important part in ensuring that new knowledge of current and potential risks continues to be replenished and updated to enable efficient responses to changes in its environment. This will strengthen the organisation

Concluding Remarks ERM is not a project, but a process that develops within an organization, driven and supported by senior management ERM becomes part of the operational culture of the organization with process owners and drivers, “enterprise-wide” “Enterprise-wide” means “across the whole organization”, and includes the removal of traditional, functional, divisional, departmental, or cultural barriers There is not an off-the-shelf ERM product that works for everyone. .