Page 1 Recording of this session via any media type is strictly prohibited. Page 1 Building a Risk Portfolio Based on Monte Carlo Simulation

Page 2 Recording of this session via any media type is strictly prohibited. What to Expect Find ways to focus on overall risk and opportunity identification Multiple uses for a consistent way of consolidating a risk portfolio The Pro’s and Con’s of various methods of consolidating a risk portfolio

Page 3 Recording of this session via any media type is strictly prohibited. The Agenda The LEGO Group Using Monte Carlo Simulations as a part of Risk Management Consolidate Risks/Opportunities and show the overall exposure Drive Conscious Choices (The Pro’s & Con’s ) Questions?

Page 4 Recording of this session via any media type is strictly prohibited. Do not cover the LEGO logo Do not cover the graphic elements – pick a simple layout instead The LEGO ® Brick  Family Owned  One LEGO ® Brick  One Brand  One Logo

Page 5 Recording of this session via any media type is strictly prohibited. 1.Using Monte Carlo Simulations as a part of Risk Management

Page 6 Recording of this session via any media type is strictly prohibited. Absolute Figures vs. Ranges 2+2= 4 Calculation Mindset Fact based Tangible Well-known Quantifying issues 2+2 = ~ 4 Probability Mindset Filled with uncertainties Opaque New Story telling

Page 7 Recording of this session via any media type is strictly prohibited. Tell the Story – through ranges…

Page 8 Recording of this session via any media type is strictly prohibited. 2.Consolidate Risks / Opportunities and show overall exposure

Page 9 Recording of this session via any media type is strictly prohibited. Consolidation of a portfolio is ”Tricky” Wrong Approach Multiply impact with likelihood … and add up Average loss over a million years Risk Management is not about averages Approach is invalid … and potentially dangerous to your company/organization Not an uncommon approach Even Worse Approach Use a (not defined) 1 through 5 scale Multiply the scores to generate “severity” Extremely dangerous as 1x5 = 5x1 No consistency in assessments Alas … seen even more often Simulation is “the way” to consolidate

Page 10 Recording of this session via any media type is strictly prohibited. Model impact and likelihood… Gross Risk and Opportunities (before handling) RisksOpportunities Impact ProbabilityVHHMLVL LMHVH VH (90%) H (30%) M (10%) L (3%) VL (1%) 1 3

Page 11 Recording of this session via any media type is strictly prohibited. The Combined Exposure

Page 12 Recording of this session via any media type is strictly prohibited. Identify Key Risks/Opportunities

Page 13 Recording of this session via any media type is strictly prohibited. Multiple Uses: Enterprise Risk Management Depicting overall exposure Comparing net exposure with define risk tolerance Discuss level of risk taking Business Projects (Active Risk & Opportunity Planning) Showing overall exposure levels Informed discussion with steering committees on actions

Page 14 Recording of this session via any media type is strictly prohibited. 3.Drive Conscious Choices

Page 15 Recording of this session via any media type is strictly prohibited. Do we do it?? For a project Likelihood of success Worst Case Risk Tolerance (Cross project consolidation)

Page 16 Recording of this session via any media type is strictly prohibited. MC Tool is also for analytics: Enlighten Management -> Push or Pull

Page 17 Recording of this session via any media type is strictly prohibited. We also ”did” Budget Simulations… Documented uncertainties on sales Assessed/analyzed assessment on cost element uncertainty Some as ratios of sales Some as fixed costs Correlating relevant cost elements… Marketing Spending and Sales Sales between regions Currency flows and volatility included A few key risks and opportunities (which were not already catered for in the budget) added as risks Simulation provided ranges on earnings, ROS, as well as key influencers (Tornado diagrams) BUTThe high sales volatility lead to us abandoning budgeting all together … replacing this with a more dynamic approach illustrative

Page 18 Recording of this session via any media type is strictly prohibited. Credit Risk Exposure

Page 19 Recording of this session via any media type is strictly prohibited. Drive Conscious Choices Use Monte Carlo Simulations… …to strengthen your risk assessments by using ranges … focus Project Managers on overall risk and opportunity Insights … wherever it makes sense

Page 20 Recording of this session via any media type is strictly prohibited. Questions? Thank you

Page 21 Recording of this session via any media type is strictly prohibited. KEEP THIS SLIDE FOR EVALUATION INFORMATION/MOBILE APP ETC. Please complete the session survey on the RIMS14 mobile application.