1. Risk Management……… Not just part of good management it’s all of it!! Presented on 11 February 2008 Presented by Mike Robertson Managing Director

2. © Risk Solutions 2007Slide 2 Outline Quick review of history Some definitions / terminology Risk management in practice Demonstration that risk management and good management are the same thing

3. © Risk Solutions 2007Slide 3 Historical origins of risk thinking Pierre de Fermat (1601-1665) Blaise Pascal (1623-1662) Gerolama Cardano (1501-1665) Daniel Bernoulli (1700-1782) Jakob Bernoulli (1654-1705) Abraham de Moivre (1667-1754) Thomas Bayes (1702 – 1761)

4. © Risk Solutions 2007Slide 4 Historical origins of risk thinking Pierre de Fermat (1601-1665) Blaise Pascal (1623-1662) Gerolama Cardano (1501-1665) Daniel Bernoulli (1700-1782) Jakob Bernoulli (1654-1705) Abraham de Moivre (1667-1754) Thomas Bayes (1702 – 1761)

5. © Risk Solutions 2007Slide 5 Recent drivers of risk thinking 1980s 1990s2000s

6. © Risk Solutions 2007Slide 6 Key UK Government reports

7. © Risk Solutions 2007Slide 7 Key UK Government reports http://www.hse.gov.uk/risk/theory/r2p2.htm http://www.hm-treasury.gov.uk./documents/ public_spending_reporting/governance_risk/ psr_governance_risk_riskguidance.cfm http://www.cabinetoffice.gov.uk/strategy/work_areas/risk.aspx http://archive.cabinetoffice.gov.uk/brc/

8. © Risk Solutions 2007Slide 8 Definitions / Terminology Definition (What?) Identification (To whom?) Estimation (How bad? Often?) Evaluation (So what?) Action (Implement, monitor) Risk Analysis Risk Assessment Risk Management

9. © Risk Solutions 2007Slide 9 Risk management actions Transfer ▲ e.g. insure against the threat being realised Tolerate ▲ Requires some criteria to be tested against ▲  concept of ‘risk appetite’ Treat ▲ Apply additional or more effective controls Terminate ▲ Eliminate the threat completely

10. © Risk Solutions 2007Slide 10 Defining ‘risk appetite’

11. © Risk Solutions 2007Slide 11 Examples of impact scales Journey delay < 2 mins Low (L) Journey delay > 2 mins Medium Low (ML) Station closureMedium High (MH) Partial line closure (or worse) High (H) ImpactScale Operations managers on LUL TrivialLow (L) Short term damage to business Medium Low (ML) Long term damage to business Medium High (MH) Threatens business survival High (H) ImpactScale Board of a battery manufacturer

12. © Risk Solutions 2007Slide 12 Examples of likelihood scales Greater than once per year Low (L) Greater than once per month Medium Low (ML) Greater than once per week Medium High (MH) Greater than once per day High (H) LikelihoodScale Operations managers on LUL Once every twenty years Low (L) Once every five years Medium Low (ML) Once a year Medium High (MH) Once a month High (H) LikelihoodScale Board of a battery manufacturer

13. © Risk Solutions 2007Slide 13 Risk assessment X 11 X6X6 X3X3 X2X2 X7X7 X 12 X9X9 X1X1 X8X8 X5X5 X 10 X4X4

14. © Risk Solutions 2007Slide 14 Risk management X 11 X6X6 X3X3 X2X2 X7X7 X 12 X9X9 X1X1 X8X8 X5X5 X 10 X4X4 Treat Terminate Transfer

15. © Risk Solutions 2007Slide 15 Tolerability of risk and ALARP Source: Risk: Improving government’s capability to respond to risk and uncertainty, Strategy Unit, Cabinet Office, November 2002 Risk of death: Worker: 1 in 1,000 per year Public: 1 in 10,000 per year Risk of death: Worker & public: 1 in 1,000,000 per year

16. © Risk Solutions 2007Slide 16 Risk decision making framework Adapted from : A Framework for Risk Related Decision Support, UKOOA, 1999 Decision context A B C Nothing new or unusual Risks well understood Established practice No major stakeholder implications Lifecycle implications Some risk trade-offs / risk transfer Some uncertainty or deviation from established or best practice Significant cost implications Very novel or challenging Strong stakeholder views and perceptions Significant risk trade-offs / transfer Large uncertainties Perceived lowering of safety standards Codes & standards Good practice Engineering judgement Risk based analysis e.g. QRA, CBA Company values Societal values Input to decision making process

17. © Risk Solutions 2007Slide 17 Evolution of risk management Source: Risk: Improving government’s capability to respond to risk and uncertainty, Strategy Unit, Cabinet Office, November 2002

18. © Risk Solutions 2007Slide 18 Risk management = good management? Inbound logistics OperationsOutbound logistics Marketing and sales Service Procurement Technology development Human resource management Firm infrastructure Margin Source: M E Porter, Competitive Advantage, 1985 How robust are our: Processes? IT/IM Systems? Financial control? Governance? How robust is our: Recruitment policy? Development processes? Succession planning? HR system (up-to-date)? Reward systems? Is our technology: Safe? Out-dated? Reliable? Expensive to maintain? Leading edge or good practice?

19. © Risk Solutions 2007Slide 19 Final thoughts Risk management is an evolving discipline Process is generic ………but one size does not fit all ▲ FITNESS FOR PURPOSE ! Objectives of good risk management are to: 1. minimise risk to your business 2. maximise chance of realising opportunity 3. recognise and understand how uncertainty can affect your decisions 4. do all this in a transparent and auditable way …….which is what good managers do anyway!