RISK MANAGEMENT : JOURNEY OR DESTINATION ?

What is Risk? “ Any uncertain event that could significantly enhance or impede a Company’s ability to achieve it’s current or future objectives, including failure to capitalize on opportunities……” The possibility of good things not happening (risk as opportunity) The potential that actual events will not equal anticipated outcomes (risk as uncertainty) The threat of bad things (risk as hazard) New Technologies New markets Exchange rate fluctuations Coal price fluctuation Flood or Fire

Risk Management Risk Management is the process of defining all the risks that an organization faces Building a framework to not only monitor and mitigate those risks but to use risk management to increase shareholder value The point of risk management is not to eliminate it; that would eliminate reward The point is to manage it………

Shareholder value

Need for Risk management Uncertainty in Enterprise Growing Complexity in Business Environment Statutory Obligations Contractual Obligations Social Obligations High Profile Corporate Failures

Current Approach to Risk Management Traditional approach—Silo approach Physical risks Property risks Currency risks Interest rate risks Commodity risks Credit risks Transaction orientation

The Universe of Risk

Traditional Risks V New Risks Traditional Risks Easily describable and readily assessable in monetary terms Amenable to classic Risk Management New Risks Identifiable to a limited extent and not easily assessable (if at all) Require skills of Extended Risk Management

Why Enterprise Wide Risk Management Segmented approach leaves uncovered gaps which EWRM can plug EWRM could result in cost optimization Leads to closer integration of operations with the mission of the Company. Is a well defined and integrated process.

The new perspective on risk management “Good risk management should enable options while protecting value already created.”

Risk Management Process Objectives are set at the strategic level, establishing a basis for operations, reporting and compliance objectives Identify the most relevant risks, based on the entity/SBU/Process objectives and situation Evaluate the level of risks, based on probability and the significance of their potential impact Decide appropriate management action to respond to assessed risk Monitor the implementation and success of risk mitigation action plan. Report to the appropriate level to meet reporting requirements Set Objectives Identify Risks Assess Risks Control/Act Monitor/Report

Risk DefinitionRisk Valuation Risk Mitigation Process of Risk Management

Risk Identification Risk Measurement Risk Control Risk Transfer Risk Financing Risk Retention

PROPERTY RISKS Damage to Physical Assets Acts of God Accidents Break down FINANCIAL RISKS Monetary Loss from Theft and Burglary Business interruption Bad credit PEOPLE RISKS Loss to Employees ILL Health and accident Death Overseas travel LIABILITIES RISKS Loss from Operations Product liabilities Public liability Directors & Officers liabilities Errors & Omissions liabilities Insurable Risks

Emerging issues in Insurance De-tariffing A R T Captives Derivatives

Stakeholders Expectations Stakeholders Customers Shareholders Employees Society Government Suppliers Financiers

Understanding Expectations Establish what shareholders value about the company Identify the risks around key value drivers Determine the preferred treatment for the risks Communicate risk treatment to the shareholders

Elements of Risk Management Architecture Senior Management/Board commitment Integration with Business Process Risk Management Structure Risk Management Reporting Change Management responsibility Communication and training Reinforcement through HR mechanisms Monitoring of risk management process

Risk Management Roles & Responsibilities PartyBrief Role & Responsibility Chief Executive Officer Ensures the implementation of risk management framework and process and ongoing risk assessment of risks. Promotes risk culture and ensures the risk management process is sustained organization wide. Risk Management Committee Defines the risk management policy framework and process. Promotes and implement monitoring of risk management strategies and policies. Risk Manager Is the risk management process owner. Ensures the implementation and compliance with the risk management policy and process. Audit Committee Ensures adequacy of control frameworks to manage risks across the organization - monitoring.

Treatments of Risks

Risk management is a Continuous Journey

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