Dr. István Fekete: The Role of Integrated Risk Management in Organizations April11th, Budapest

Dr. István Fekete 3 Table of Content  Most important terms of risk management  Presentation of the risk assessment methodology, if not or not enough historical data is available  Structure of integrated risk management  Conclusion

Dr. István Fekete 4 Most important terms of risk management

Dr. István Fekete 5 Most important terms Risk  Each risk has two features: Cause (any event, action and missing of action, which has probability of happening). Effect on achieving of (e.g. strategic, organizational) goals Risk management  It is a systematic process, in order to identify and evaluate the potential of risks, and complete and carry out an risk handling plan Risk controlling  It is the continuous tracking of implementation of risk handling plan and preventive assessment of new risks and to measure the efficiency of risk management activity

Dr. István Fekete 6 Risk management process

Dr. István Fekete 7 Main types of risks  Strategic  Operational  Finance  Project

Dr. István Fekete 8 Applications level of risk management during planning activity at a company

Dr. István Fekete 9 Process based, integrated risk management SalesStrategic planning Product- Develop. Market & costumer analysis Business processes Public Relation Project management Process optimisation Finance Protection of the Environment Management processes HRManagement ITManagement Risk management Risk management activity helps to integrate the business- and management processes. e.g. Evaluation of alternatives of strategies based on risks Identification and evaluation of project risks during preparation and implementation phases Monitoring of the most important projects

Dr. István Fekete 10 Presentation of the risk assessment methodology, if not or not enough historical data is available

Dr. István Fekete 11 Steps of the methodology In several points of the decision making process, a responsible team make the following with the risks via the workshops: Identify (via brainstorming, via consultation..etc.), Evaluate via Scenario analysis, Sensitivity analysis, Monte-Carlo simulation, real option-, and game theory models ) Select the critical risk factors according to evaluation, Formulate action-plan in order to handling critical risks in an efficient way Continuous control the implementation of action plan and reassessment So it is facilitated to fulfil the company’s strategic goals. The quality and efficiency of risk management activity depends on in which point of the decision making process and in which context is used. Random number generation Running of iteration Iter =Iter + 1 No Start Yes End Are iterations ready?. Creation of a model

Dr. István Fekete 12 Types of risk management actions Accept 4. step Net risk Insurance Decrease Commission of primary contractor

Dr. István Fekete 13 Main areas of application  Price optimisation by using business risk analysis and game theory  Modelling the Fulfilment of the Real Estate Utilisation Plan by Monte-Carlo simulation  Identify and evaluate of risk factors, which have impact on product portfolio’s revenue  Risk of human resources – handling of fluctuation with risk management methods  Development of company valuation stochastic model used for strategic capital investment  Risk assessment to support internal audit planning activity

Dr. István Fekete 14 Key features of methodology  Reliable solution even in case when historical data is not available or deficient  Module type structure allows both joint and separate application of particular modules  Certain module outputs can be used as input for other modules  This features makes the practical application of Monte- Carlo simulation, real -option and game theory much more simply  Risk factors are always identified and assessed in the frame of workshops.  By applying this method „Etalon” models could be developed. These models can be used easily and quickly later on.

Dr. István Fekete 15 Structure of integrated risk management system

Dr. István Fekete 16 Interconnection of risk management applications Risk based strategic and financial planning activity Project risk management Process based operational risk management Risk management for internal auditing Ad-hoc risk management (supporting of decision making process)‏ vertical connection horizontal connection

Dr. István Fekete 17 Practical outline of integrated risk management software (Integrisk) Database server Risk modules Web interfaceExcel export

Dr. István Fekete 18 Modules of Integrisk software  Strategic planning module –Evaluation of strategic alternatives based on yields and risks –Risk based evaluation of index numbers of strategic goals –Probability analysis of quantitative strategic planning  Financing (operative) planning module –Scenario analysis of quantitative financing planning  Project planning module –Activity based time risk management –Activity based cost risk management  Process based operational risk management module –Process based risk management –Risk assessment of supporting of internal auditing plan

Dr. István Fekete 19 Modules of Integrisk software  Each module include: –consolidation of critical risk factors and risk handling actions, –Comparative analysis planned vs. actual, –report generation, –cost-benefit analysis.

Dr. István Fekete 20 Key features of IntegRisk software  Module/model based structure  Knowledge base  Intensive decision-making support  Efficient risk handling activity  Applied risk management  Reliable input data for other risk management software

Dr. István Fekete 21 Conclusion  Risk management activity helps to support decision making process e.g. -Evaluation of alternatives of strategies based on yields and risks belonging to yields to meet strategic objectives - Identification and evaluation of project risks during preparation and implementation phases to ensure to finish the project on time and within a budget - Elaboration of risk based financial plan to reach free cash-flow as planned - Assessment of process based operational risks to increase the efficiency of internal control activity The purpose of risk assessment is to select critical factors which should be handled in any way! Also very important to track the risk handling action continuously and measure the efficiency of risk management activity!

Dr. István Fekete 22 Thank for your kind attention! Any questions, remarks?