1. “Zest for Enlightenment” Z/Yen Limited Risk/Reward Managers 5-7 St Helen’s Place London EC3A 6AU United Kingdom tel: +44 (20) 7562-9562 www.zyen.com © Z/Yen Limited 2004 Be - Collaborative Risk Management Collaboration, Risk and Reward in Other Industries Michael Mainelli, Executive Chairman

2. www.zyen.com © Z/Yen Limited 2004 Agenda “Great deeds are usually wrought at great risks” Herodotus Governance and the risk society Mutuals et al Enterprise risk/reward management systems Challenges for Property organisations Information sharing

3. www.zyen.com © Z/Yen Limited 2004 Z/Yen Overview Special – foremost risk/reward management firm Services – projects, coaching/training, benchmarking, expertise on demand Sectors – technology, finance, voluntary sector, professional services, government, outsourcing Some highlights – Clean Business Cuisine, DERA/Qinetiq, Taskforce 2000, Investment Banking CCC’s, DTI Smart Award 2003 for PropheZy, DTI Foresight Challenge Award 1996 for Financial £aboratory

4. www.zyen.com © Z/Yen Limited 2004 Risk Reward Rethink Restructure Invest Divest Likelihood Cost Ignore (avoid/eliminate, pool/share/transfer, mitigate/reduce, accept) (enhance, keep, sell, forego) Tactical Strategic Fundamental Exploit Emergency 3. Lookaheads & Likelihoods

5. www.zyen.com © Z/Yen Limited 2004 Action Plan Risk Control Financing of Risk Cost Justification Continuous Learning Treatment Contingency Planning Typical Views of Risk in Industry Risk Assessment & Evaluation Benchmarking Cost of Risk Shared Database Measurement Stakeholder Characteristics of the Organisation Business Policies & Objectives Risk Management Objectives & Strategy Business Drivers Strategy Classification

6. www.zyen.com © Z/Yen Limited 2004 Too Crushed to Govern Cadbury, Greenbury, Hampel, Turnbull, Higgs, KonTrag, Sarbanes Oxley, … COSHH, H&S, … “Initiatives” – lots of paper Targets – lots of paper Finance – lots of paper Risk management – lots of paper Need integrated performance measurement! “The future will be better tomorrow.” Dan Quayle

7. www.zyen.com © Z/Yen Limited 2004 Risk Likelihood shareholder view debtor view regulator view activity-based cost analysis* & operational reliability event-loss databases & benchmarking * enterprise risk/reward management systems * mutual risk management * & external/re-insurance extreme value theory & last resort debt/equity requirements & subordinated debt issues Reward event frequency Risk, Finance and Governance

8. www.zyen.com © Z/Yen Limited 2004 “Cost of retention fund interest, insurances, bonds and administration costs could equate to 3% of contract value” Risk Management Costs Retention, bonds and PI insurance1.1% 3 rd party insurance, works insurance0.5% Legal costs, administration, overheads expert advice, time, work disruption, duplication etc. say1.6% 3.0%

9. www.zyen.com © Z/Yen Limited 2004 Risk Management Working Group

10. www.zyen.com © Z/Yen Limited 2004 Effort Scope 1. Information sharing for internal funds 4. UK company or Lloyd’s syndicate 3. Captive insurance company or PCC or ER/RM 2. “Badged” insurance 7. Capital markets solutions 6. Construction industry mutual 5. Be Mutual Risk Management Working Group View

11. www.zyen.com © Z/Yen Limited 2004 Mutual(s) Benefits Cost effective utilisation of insurance, expert resources and systems Risk strategy developed without internal political pressures - avoids combining risk management role with other duties Easy access to specialist expertise Knowledge sharing Industry gains Share costs with other client users for future developments in risk management

12. www.zyen.com © Z/Yen Limited 2004 Shipping & Transportation Mutuals ShipownersProtection & indemnity risks (mainly third party liabilities) World's largest - one-fifth of the world's shipowners Shipowners Costs of pursuing/ defending claims for uninsured amounts World's largest - one-fifth of the market - 2000+ ships Multimodal industry Equipment and liability insurance 5000 companies worldwide - 70% of world container fleet Ship agents, shipbrokers, ship managers, surveyors Professional indemnity and public liabilities World's largest - 1000+ members Greek Shipowners Marine war risks including capture & seizure 80% of Greek owned ships

13. www.zyen.com © Z/Yen Limited 2004 Not Just Shipping Law SIMIA Meridies, Lawnet Bar Mutual Pension Fund Trustees Patent Agents Clinical Negligence Scheme for Trusts Variants PAMIA

14. www.zyen.com © Z/Yen Limited 2004 Property SURMIA Surveyors’ Mutual CERTA

15. www.zyen.com © Z/Yen Limited 2004 Obvious Issues What risks are jointly shared BUT on which you do not compete? Can these risks be assessed and managed (e.g. standards and certification schemes)? Is there benefit in joint learning about risks? Is there an industry benefit in perceived risk management/guarantees? What is being pledged to the pool - equity, charges, promises? Can the industry co-operate?

16. www.zyen.com © Z/Yen Limited 2004 Enterprise Risk/Reward Management Systems Strategic risk valuation - holistic approach Internal “insurance” unit, premia and claims management, but: near misses sharing best practice Key performance target integrated into MIS External comparators

17. www.zyen.com © Z/Yen Limited 2004 6. Securing and Scoring Risk/Reward Profile Risk/Reward Management Unit Risk Profile Improvement Information Sharing Results Risk Assessments Reward Management Profit, Bonuses “insurance” premia Enterprise Risk/Reward Management Systems

18. www.zyen.com © Z/Yen Limited 2004 Annual Cycle Determine business unit premiums - linked to risk assessment and action plan Inform business units of deductible and methodology through self insurance agreement Collect premia Record and investigate any in-year claims, near miss records, etc. Pay out on verified losses (calls possible) Feed information into next year’s insurance system

19. www.zyen.com © Z/Yen Limited 2004 Typical Enterprise Risk/Reward Management comparator sharing best practice claims strategic risk valuation premia notifications and investigations

20. www.zyen.com © Z/Yen Limited 2004 Challenges for Property Organisations Many layers of contracting Aligning targets and remuneration Looking at the system, not the incident Picking a single risk to start with

21. www.zyen.com © Z/Yen Limited 2004 Operational Risk in Industry Six SigmaISO9000 Total Quality  Checklists  Procedures  Inspection  Numerical targets  Engineering  Automation  Contribution  Commitment  Culture MeasureManage Motivate

22. www.zyen.com © Z/Yen Limited 2004 Sharing Information Risk Management Working Group recommendation Charity Insurance benchmark example Other cost benchmarking

23. www.zyen.com © Z/Yen Limited 2004 Next Step? Contact us for a discussion on radical improvement. Michael_Mainelli@zyen.com “Get a detailed grip on the big picture.” Chao Kli Ning