John Crawley & Emer McAneny
June 2014
Risk Management
•
Accountant
•Banker
•Businessman
•Trainer
•Turnaround Expert
•Risk Expert
Who I am
Agenda
Strategy
• And the role of Risk
GRC
• Governance, Risk & Compliance
Tolera
nce
• And why organisation are now setting “Appetite”
Identifica
tion
• Using a Stakeholder approach
Assessi
ng
• Simplicity or complexity
Action
• Everything can be dealt with as a “T”
Report
Rules of engagement
Engage Open mind No distractions Challenge Question EnjoyWhat is risk
“
Effect
of uncertainty on
objectives
”
Effect:
Positive Negative
Deviation from the expected
Objectives:
Definition works best if the organisation has clear objectives These need to be tested as part of risk management process
What is the best definition of risk?
Organisation Definition of risk
ISO Guide 73 ISO 31000
Effect of uncertainty on objectives. Note that an effect may be positive, negative, or a deviation from the expected. Also, risk is often described by an event, a change in
circumstances or a consequence Institute of Risk
Management (IRM)
Risk is the combination of the probability of an event and its consequence. Consequences can range from positive to negative
COSO – ERM Integrated Framework
The possibility that an event will occur and adversely affect the achievements of objectives
From old
AS/NZ 4360:2004
The chance of something happening that will have an impact on objectives
Definitions of risk management
Organisation Definition of risk management
ISO Guide 73 ISO 31000
Coordinated activities to direct and control an organisation with regard to risk
Institute of Risk Management (IRM)
Process which aims to help organisations understand, evaluate and take action on all their risks with a view to increasing the probability of success and reducing the likelihood of failure
COSO – ERM Integrated Framework
A process affected by an entity‟s board of directors,
management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential
events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.
Do
things
right
Do the
right
thing
Good
Corporate Governance
What is Risk Management
Process which aims to help organisations
understand, evaluate and take action
on all their
risks with a view to:
increasing
the probability of success
and
Q
What is the fundamental
reason that cars have
brakes?
Q
So that cars can stop - but they also allow
cars to be driven faster
A
What is the fundamental
Why manage risk?
For discussion…
What events can you
recall that support the
need for a structured
and systematic
approach to risk
management?
Consider the list of disasters identified. Was this a failure of:
- prediction? - prioritisation?
- mobilising resources? For discussion....
ISO 31000 overview
Throughout the course we will use ISO 31000 as our core framework Mandate and commitment (4.2) Design of framework for managing risk (4.3) Implementing risk management (4.4) a) Creates value b) Integral part of organisational processes c) Part of decision making d) Explicitly addresses uncertainty
e) Systematic, structured and timely
f) Based on the best available information g) Tailored
h) Takes human and cultural factors into account
i) Transparent and inclusive j) Dynamic, iterative and responsive to change k) Facilitates continual improvement and enhancement of the organisation Principles (Clause 3) Monitoring and review of the framework (4.5) Continual improvement of the framework (4.6)
Establishing the context
(5.3) Risk identification (5.4.2) Risk evaluation (5.4.4) Risk analysis (5.4.3) Risk treatment (5.5) Risk assessment (5.4.2) C o m m u n ic a ti o n a n d c o n s u lt a ti o n (5 .2 ) M o n it o ri n g a n d r e v ie w (5 .6 ) Framework (Clause 4) Process (Clause 5)
ISO 31000 overview Mandate and commitment (4.2) Design of framework for managing risk (4.3) Implementing risk management (4.4) a) Creates value b) Integral part of organisational processes c) Part of decision making d) Explicitly addresses uncertainty
e) Systematic, structured and timely
f) Based on the best available information g) Tailored
h) Takes human and cultural factors into account
i) Transparent and inclusive j) Dynamic, iterative and responsive to change k) Facilitates continual improvement and enhancement of the organisation Principles (Clause 3) Monitoring and review of the framework (4.5) Continual improvement of the framework (4.6)
Establishing the context
(5.3) Risk identification (5.4.2) Risk evaluation (5.4.4) Risk analysis (5.4.3) Risk treatment (5.5) Risk assessment (5.4.2) C o m m u n ic a ti o n a n d c o n s u lt a ti o n (5 .2 ) M o n it o ri n g a n d r e v ie w (5 .6 ) Framework (Clause 4) Process (Clause 5)
• creates and protects value
• integral part of organisational processes
• part of decision making
• explicitly addresses uncertainty
• systematic, structured and timely
• based on the best available information
• tailored
• takes human and cultural factors into account
• transparent and inclusive
• dynamic, iterative and responsive to change
• facilitates continual improvement
Attributes of effective risk
management
Effective risk management has the following
attributes:
– proportionate – aligned – comprehensive – embedded – dynamicWhat is effective risk management?
Effective risk management has the following
attributes:
– proportionate – aligned – comprehensive – embedded – dynamicEffective risk management has the following
attributes:
– proportionate – aligned – comprehensive – embedded – dynamicWhat is effective risk management?
Strategic/ programmes Tactical/ projects Operational/ processes
Effective risk management has the following
attributes:
– proportionate – aligned – comprehensive – embedded – dynamicEffective risk management has the following
attributes:
– proportionate – aligned – comprehensive – embedded – dynamicIntroduction to key risk
management disciplines
How does enterprise risk
management (ERM) differ from
risk management?
How does enterprise risk
management (ERM) differ from
risk management?
Q
ERM seeks to:
• include all categories of risk and uncertainty • consider upside as well as downside
• be comprehensive – applied throughout the organisation
What is governance?
What is governance?
Q
The system by which organisations are directed and controlled.
Generic aspects of governance include:
- the rights and duties of owners/shareholders and other stakeholders
- how powers are shared and exercised by directors
- how the holders of power are held accountable for what they do
International development of codes of
corporate governance
• principle-based approach
versus
• prescriptive (rules) based
approach
What is compliance?
Q
What is compliance?
Q
Compliance is the leadership processes that an
organisation establishes to comply with societal, trade, professional and stakeholder needs
Examples include: - law
- codes of practice
- contracts
- trade union agreements - professional standards
What is GRC?
What is GRC?
Q
GRC stands for: • governance • risk • complianceA
RISK Compliance GovernanceRisk management process
Mandate and commitment (4.2) Design of framework for managing risk (4.3) Implementing risk management (4.4) a) Creates value b) Integral part of organisational processesc) Part of decision making
d) Explicitly addresses uncertainty
e) Systematic, structured and timely
f) Based on the best available information
g) Tailored
h) Takes human and cultural factors into account
i) Transparent and inclusive
j) Dynamic, iterative and responsive to change k) Facilitates continual improvement and enhancement of the organisation Principles (Clause 3) Monitoring and review of the framework (4.5) Continual improvement of the framework (4.6)
Establishing the context
(5.3) Risk identification (5.4.2) Risk evaluation (5.4.4) Risk analysis (5.4.3) Risk treatment (5.5) Risk assessment (5.4.2) C o m m u n ic a ti o n a n d c o n s u lt a ti o n (5 .2 ) M o n it o ri n g a n d r e v ie w (5 .6 ) Framework (Clause 4) Process (Clause 5)
ISO 31000 overview Mandate and commitment (4.2) Design of framework for managing risk (4.3) Implementing risk management (4.4) a) Creates value b) Integral part of organisational processes c) Part of decision making d) Explicitly addresses uncertainty
e) Systematic, structured and timely
f) Based on the best available information g) Tailored
h) Takes human and cultural factors into account
i) Transparent and inclusive j) Dynamic, iterative and responsive to change k) Facilitates continual improvement and enhancement of the organisation Principles (Clause 3) Monitoring and review of the framework (4.5) Continual improvement of the framework (4.6)
Establishing the context
(5.3) Risk identification (5.4.2) Risk evaluation (5.4.4) Risk analysis (5.4.3) Risk treatment (5.5) Risk assessment (5.4.2) C o m m u n ic a ti o n a n d c o n s u lt a ti o n (5 .2 ) M o n it o ri n g a n d r e v ie w (5 .6 ) Framework (Clause 4) Process (Clause 5)
Ongoing monitoring
Audit & Report Incidents Re-assess
Treatment
Tolerate Treat Transfer Terminate
Assess
Impact Likelihood
Set appetite
Zero Low Medium High
Identify
Objectives Tools
Establish the context Identify risks Evaluate risks Analyse risks Treat risks Risk assessment C om m un ic at e an d co ns ul t M on ito r an d re vi ew
Reproduced from ISO 31000:2009
Communication
– a continual and iterative process that an organisation conducts to provide, share or obtain information and to engage in dialogue with stakeholders
Consultation
– a two-way process of informed communication between an organisation and its stakeholders on an issue prior to
making a decision or determining a direction on that issue
Stakeholders
– a person or organisation that can affect, be affected or
perceive themselves to be affected by a decision or activity
Communication and consultation
• help to establish the context appropriately
• stakeholders interests understood & considered
• risks adequately identified
• bring expertise together for risk analysis
• ensure different views are considered
• secure support for risk treatment plans
• enhance appropriate change management
• develop appropriate communication plans
Effective communication about risk
• comprehensive and frequent reporting of risk
management performance is an essential element of organisational governance
• internal and external stakeholders
• communication is upwards, downwards and across the organisation
• communicate on significant risks and risk management performance
• how we communicate matters as much as what we communicate
Establishing the context
Session 2 Communication & consultation Establish the context Risk assessment Risk appetite and tolerance Risk treatment Business continuity management Monitoring & review
Establish the context Identify risks Evaluate risks Analyse risks Treat risks Risk assessment C om m un ic at e an d co ns ul t M on ito r an d re vi ew
Reproduced from ISO 31000:2009
Establishing the context
External contextInternal context
Context of the risk management process
• what does the world around us look like? • what are the drivers and trends?
• what are our objectives? • what is our capacity?
• what are our business processes? • how do we make decisions?
• what is the process expected to achieve? • who will be responsible?
• what resources will be required?
• what determines whether a risk is acceptable?
• what determines whether a risk should be controlled? • how can we measure our total risks?
Risk assessment
Session 2 Communication & consultation Establish the context Risk assessment Risk appetite and tolerance Risk treatment Business continuity management Monitoring & review
Establish the context Identify risks Evaluate risks Analyse risks Treat risks Risk assessment C o m m u n ic a te a n d c o n su lt M o n ito r a n d r e vi e w
Reproduced from ISO 31000:2009
Risk assessment
Risk identification
– what might happen (the event)?
Risk analysis
– how likely is it to happen?
– if it does what might the impact be?
Risk evaluation
– so what!
ISO 31000 - The Risk Process
Ongoing monitoring
Audit & Report Incidents Re-assess
Treatment
Tolerate Treat Transfer Terminate
Assess
Impact Likelihood
Set appetite
Zero Low Medium High
Identify
Two main types of identification techniques
Forward looking – brainstorming workshops – surveys – expert knowledge Historic – statistical analysis – trend analysis ----Strategy Market Commercial Partners Plan execution TechnologyHealth & Safety (and CSR) Finance --- ----Strategy Market Commercial Partners Plan execution Technology
Health & Safety (and CSR) Finance --- --- ----Injury statistics
Perspectives Financial Marketing & Sales Operations Employees CSR Economic Compliance
Some risk terminology
• A risk is the effect of uncertainty on objectives
• A hazard is the source of potential harm (a hazard can be a risk source)
• A risk source has the potential, alone or in
combination, to give rise to risk. We might also term
this cause
• An event is the occurrence or change of a particular
set of circumstances
• A consequence is the outcome of an event affecting objectives
Source: ISO Guide 73:2009
Session 2 Communication & consultation Establish the context Risk assessment Risk appetite and tolerance Risk treatment Business continuity management Monitoring & review
Describing a risk
Combines the cause(s), the event(s) and the effect(s)
Consequences or effect(s) (on objectives) Source(s) or cause(s) (What? Why?) Event or circumstance giving rise to the uncertainty (Uncertainty)
KPI - Financial
Liquidity ₋ Current Ratio ₋ Quick Ratio Financial Strength ₋ Interest Cover₋ Debt to Equity Ratio
Corporate Value
Your Risk Register – Step 1
KPI Categories to Risks
KPI - Marketing & Sales
₋ Net Promoter Score“How likely are you to recommend this business to a colleague or friend?”
₋ Do customer expectations match the
service we deliver?
₋ How involved/emotionally attached
are your customers to your organisation?
Marketing & Sales
KPI Categories to Risks
KPI - Operational & Technology
₋ How suitable and operational is
our equipment? How
technologically advanced are we?
₋ Are we realising our full
production/ work potential?
₋ How long does it take to fill an
Operational & Technology
KPI Categories to Risks
KPI - Employees
— How well do you protect and
support your employees?
— How well does the
organisation vet its employees?
— How well are the skills of the
employees matched to the needs of the organisation?
— Do you offer and encourage
KPI - Employees
KPI Categories to Risks
KPI
- Corporate Social Responsibility
₋ Are you compliant withEnvironmental
regulations/standards?
₋ Are your suppliers socially
conscious? i.e. Fairtrade for
foodstuffs, ethical manufacturers for clothing
₋ Do your manufacturing facilities
Corporate Social Responsibility
KPI Categories to Risks
KPI
-Economic
₋ What would the financial effect of a
change of +/- 1% in the interest rate paid or charged ?
₋ To what extent is our business exposed
to the collapse of a particular industry, economy or sector?
₋ To what extent is our business’s
customer base exposed to the collapse of a particular industry?
Economic
KPI Categories to Risks
KPI - Compliance
₋ Comprehensiveness of the
organisations Governance procedures
“What is the effect of the new
Legislation for your business?”
₋ To what extent is our
organisation open to legal challenge?
Compliance
KPI Categories to Risks
• the outcome of a risk event is not always negative
• think of some examples where a risk event can result in positive or beneficial outcomes • discuss how the risk wheel and the bow tie
technique can be used to identify opportunities
Risks aren‟t always bad
Recap
Mandate and commitment (4.2) Design of framework for managing risk (4.3) Implementing risk management (4.4) a) Creates value b) Integral part of organisational processes c) Part of decision making d) Explicitly addresses uncertaintye) Systematic, structured and timely
f) Based on the best available information g) Tailored
h) Takes human and cultural factors into account
i) Transparent and inclusive j) Dynamic, iterative and responsive to change k) Facilitates continual improvement and enhancement of the organisation Principles (Clause 3) Monitoring and review of the framework (4.5) Continual improvement of the framework (4.6)
Establishing the context
(5.3) Risk identification (5.4.2) Risk evaluation (5.4.4) Risk analysis (5.4.3) Risk treatment (5.5) Risk assessment (5.4.2) C o m m u n ic a ti o n a n d c o n s u lt a ti o n (5 .2 ) M o n it o ri n g a n d r e v ie w (5 .6 ) Framework (Clause 4) Process (Clause 5)
Your Risk Register – Step 1
Positive Risk
Risk evaluation
The Risk Process
Ongoing monitoring
Audit & Report Incidents Re-assess
Treatment
Tolerate Treat Transfer Terminate
Assess
Impact Likelihood
Set appetite
Zero Low Medium High
Identify
• the amount of risk an organisation is willing to seek or accept in pursuit of its long-term
objectives
Risk
appetite
• the boundaries of risk taking outside of which the organisation is not prepared to venture in pursuit of its long-term objectives
Risk
tolerance
• the full range of risks which could impact, either positively or negatively, on the ability of the
organisation to achieve its long-term objectives
Risk
universe
Risk appetite can be complex
– simplification can be attractive but can lead to meaningless approaches
Needs to be measurable
– otherwise statements empty and useless
– key performance drivers need to be understood
– key risk and key control indicators need to be developed
Not a single fixed concept
– there may be a range of appetites within an organisation – appetites may vary overtime influenced by changes in the
risk and control environment or the benefits to be gained
Key principles
Developed in the context of the organisation‟s risk
management capability
– an understanding of risk appetite unlikely to emerge before a level of risk management maturity reached
Must take into account strategic, tactical and
operational levels
– risk appetite needs to be addressed at all levels
Must be integrated into the control culture
– linked to both the propensity to take risk (often greater at strategic level) and also the propensity to exercise control (more prevalent at operational level)
• prioritise risks in terms of their significance
• provide some consistency about the perception of
significance
• decide how to allocate scarce resources
• decide whether to proceed with a new strategy,
project or investment
• inform decisions on risk appetite
Why is risk analysis and evaluation
important?
Benchmark to determine significance
₋ Financial – sums involved
₋ Disruption – length of time
Appetite
Hungry?
Not enough risk
Over Fed?
Attitude?
1. That’s Grand
2. Don’t Push It
3. Your taking the
P**s
Appetite –
Healthy Eating
(Tolerance)
• Increased sales • Cost Efficiency
High
• Lack of staff expertise & training
• Inefficient admin/operations
Medium
• Not achieving value for money • Unsatisfactory funding
Low
• Severe reputational damage • Compliance Failure
Your Risk Register – Step 2
Risk Appetite
Enter - High - Medium - Low - ZeroRisk profiling – consequence;
The Risk Process
Ongoing monitoring
Audit & Report Incidents Re-assess
Treatment
Tolerate Treat Transfer Terminate
Assess
Impact Likelihood
Set appetite
Zero Low Medium High
Identify
Risk matrix
Like lihoo d Impact Prob ab le Po ssib le Re moteLikelihood
Estimation Descriptors Indicators
Probable Likely to occur each year or
more than a 25% chance of occurrence
Potential of it occurring
several times within the time period (e.g. ten years).
Has occurred recently
Possible Likely to occur in a ten-year
time period or less than a 25% chance of occurrence
Could occur more than once within the time period (e.g. ten years).
Is there a history of occurrence?
Remote Not likely to occur in a
ten-year period or less than a 2% chance of occurrence
Has not occurred. Unlikely to occur
Estimating likelihood - criteria
Within the next 12 months the event is:
Almost certain
• Frequent occurrence > 90% chance
Likely
• Regular occurrence > 60% chance
Possible
• Occasional occurrence > 10% chance
Unlikely
Impact
High
Financial impact on the organisation is likely to exceed €x Significant impact on delivery of the organisation‟s strategic or operational activities
Significant stakeholder concern
Medium
Financial impact on the organisation likely to be between €x and €y
Moderate impact on organisation‟s strategic or operational activities
Moderate stakeholder concern
Low
Financial impact on the organisation likely to be less than €y
Low impact on the organisation‟s strategic or operational activities
Estimating impact – criteria
REPUTATION FINANCE SERVICE DELIVERY
COMPLIANCE SAFETY
EXTREME Loss of credibility key stakeholders; extensive adverse media; external intervention Financial loss exceeding £/$ ??? Total sustained disruption to critical services Intervention by regulator; serious breach of legal or contractual obligation Fatality (multiple)
HIGH Significant loss of trust; significant adverse media Financial loss exceeding £ /$??? Significant sustained disruption to critical services Censure by regulator; breach of legal or contractual obligation
Serious injury or ill-health (disabling) MEDIUM Significant complaints Financial loss exceeding £/$??? Some short-term disruption to services Failure to meet recommended best practice Injury or ill-health resulting in lost time
LOW Isolated complaints Low-level or no financial loss Minor disruption to services Failure to meet internal standards or SLA
Minor injury (no lost time)
L IK L IH OO D PROBABLE
Likely to occur each year or more than a 25% chance of
occurrence
3 3 6 9
POSSIBLE
Likely to occur in a ten year time period or less than a 25%
chance of occurrence
2 2 4 6
REMOTE
Not likely to occur in a ten year period or less than a 2%
chance of occurrence
1 1 2 3
1 2 3
LOW MEDIUM HIGH
•financial impact on the organisation is likely to be
less than £x •low impact on delivery of the
organisation‟s strategic or operational activities •low stakeholder concern
•financial impact on the organisation is likely to be
between £x and £x •moderate impact on delivery of the organisation‟s strategic
or operational activities •moderate stakeholder
concern
•financial impact on the organisation is likely to exceed £x •significant impact on delivery of the organisation‟s strategic or operational activities •significant stakeholder concern IMPACT
Opportunity and risk matrix
Two-sided Risk Matrix
Likelihood & Impact
Likelihood
High
Medium
Low
Zero
Impact
High
Medium
Low
Zero
Risk Score
Likelihood
High
Medium
Medium
High
Impact
High
High
Low
Low
Score
High
Judgement
Judgement
Judgement
Your Risk Register – Step 3
Risk Score
Enter - High - Medium - Low - ZeroFor Impact, Likelihood and risk score beside each of the risks you have identified
Evaluate Risk score
Risk
score
Risk
appetite
Good
Risk
Your Risk Register – Step 4
Do you need to take Action?
Enter
- Yes if your risk score is not equal to appetite
The Risk Process
Ongoing monitoring
Audit & Report Incidents Re-assess
Treatment
Tolerate Treat Transfer Terminate
Assess
Impact Likelihood
Set appetite
Zero Low Medium High
Identify
Establish the context Identify risks Evaluate risks Analyse risks Treat risks Risk assessment C om m un ic at e an d co ns ul t M on ito r an d re vi ew
Reproduced from ISO 31000:2009
A process to modify risk (ISO 31000)
Risk treatment (or response) involves:
– the selection of one or more options for modifying risks
– implementing those options
– the treatments then provide controls or modify current controls
Controls include any process, policy, device, practice or other actions which modify the risk
Risk treatment is a cyclical process
Deciding whether the residual risk level is tolerable Assessing the effectiveness of that treatment Examine cost and benefit of the treatment If not tolerable, generating a new risk treatmentThe purpose of risk treatment plans is to document how the chosen treatment options will be implemented.
Information should include:
– a description of what the planned action is – expected benefit(s) to be gained
– performance measurements and constraints
– accountabilities (risk owners and control owners) – reporting and monitoring requirements
– resourcing requirements – timing and scheduling
Treatment
Tolerate
Treat
Treatment - Step 4
4 T’s
What Treatment could you use?
Enter one or more of the following
- Treat fill in what you would do to treat - Transfer fill in what you would do to transfer - Tolerate fill in what you would do to tolerate
Establish the context Identify risks Evaluate risks Analyse risks Treat risks Risk assessment C om m un ic at e an d co ns ul t M on ito r a nd re vi ew
Reproduced from ISO 31000:2009
The Risk Process
Ongoing monitoring
Audit & Report Incidents Re-assess
Treatment
Tolerate Treat Transfer Terminate
Assess
Impact Likelihood
Set appetite
Zero Low Medium High
Identify
A process not an event
• Action Plans &
Owners
T’s
• Inline with
Appetite?
Incidents
• Once Yearly
Reassess
• ensure controls effective and efficient
• obtain information to improve risk assessment
• learn the lessons from events
– changes, trends, successes and failures
• detect change to internal or external context or
to the risk itself
• identify emerging risks
Key risk and control indicators
KRIs
Metrics to help
identify changes
that could alter the
overall assessment
of key risk events
KCIs
Metrics to help
assess the
effectiveness of
key controls
Key risk indicators
For the case study provided identify
the metrics that were used or could
have been used to indicate a change in
the risk environment.
Key control indicators
For the case study provided identify
the metrics that were used or could
have been used to measure the
effectiveness of existing controls
Define monitoring and review responsibilities
– risk owners
– control owners
– responsibility for the review of the whole process
How frequently should
– risks and their control measures be reviewed?
– the effectiveness of the ERM process be reviewed?
Benchmarking and maturity models
Business continuity management
Session 2 Communication & consultation Establish the context Risk assessment Risk appetite and tolerance Risk treatment Business continuity management Monitoring & review
ISO 31000 overview Mandate and commitment (4.2) Design of framework for managing risk (4.3) Implementing risk management (4.4) a) Creates value b) Integral part of organisational processes c) Part of decision making d) Explicitly addresses uncertainty
e) Systematic, structured and timely
f) Based on the best available information g) Tailored
h) Takes human and cultural factors into account
i) Transparent and inclusive j) Dynamic, iterative and responsive to change k) Facilitates continual improvement and enhancement of the organisation Principles (Clause 3) Monitoring and review of the framework (4.5) Continual improvement of the framework (4.6)
Establishing the context
(5.3) Risk identification (5.4.2) Risk evaluation (5.4.4) Risk analysis (5.4.3) Risk treatment (5.5) Risk assessment (5.4.2) C o m m u n ic a ti o n a n d c o n s u lt a ti o n (5 .2 ) M o n it o ri n g a n d r e v ie w (5 .6 ) Framework (Clause 4) Process (Clause 5)
What is a risk management framework?
• a system of leadership,
commitment and
processes
• foundation for a mutual
understanding - to
communicate
effectively
• an opportunity to gain
commitment
• provides direction for all
levels of management
Mandate and commitment (4.2) Design of framework for managing risk (4.3) Implementing risk management (4.4) Monitoring and review of the framework (4.5) Continual improvement of the framework (4.6) Framework (Clause 4)Think back to previous case
histories discussed
-•
why did the established controls
systems fail?
•
what do the case studies tell us
about the risk culture of the
organisation?
•
what are the critical factors for
embedding risk management ?
Group Discussion
Embedding risk management
Visible commitment from the top
– articulated and endorsed through a policy and framework for managing risk
– lead through actions – risk-based decision making, aligned with strategic objectives
– clear understanding of the risks to the business. Set risk tolerance and risk appetite
– active support and adequate resource for risk management initiatives
– assurance on status of key risks (KRI‟s) and controls (KCI‟s) sought and followed through
An organisational framework to ensure
– clearly defined responsibility and accountability – training for all relevant stakeholder groups to raise
awareness of benefits, establish responsibilities and improve skills in management of risk
– ownership clearly established for risks and key controls
– clearly defined lines for reporting and communication
Integration into management processes
– ensure the benefits for business and resource
planning are clearly established through integration with the „normal‟ business planning processes
– integrate into performance management system and establish KPI‟s
– integrate with reporting and review systems, including internal audit
– include development of risk management skills within leadership and management development
programmes
• clear and concise outline of the organisation‟s
requirements
• providing uniformity and consistency in the risk
management process across all operations
• provides a high level overview and description of
the risk management process
Purpose of a risk management policy
• developed and owned at board level
• developed with consideration as to how
compliance with the policy will be monitored
• reviewed regularly
– annual review
The policy should be…
• who are your key
stakeholders?
• what do you hope the
ERM process will
deliver to you and to
your key stakeholders?
Group exercise
5
• a framework for control
4
• better informed decision making
3
• reduced volatility
2
• improved stakeholder relationships
1
• protection of company assets
So what will risk management do for me?
„The elevator pitch‟
The greatest risk is to take no risk at all, because if
we don‟t take risks there‟s no advancement,
there‟s no progress and there‟s no profitability.
And finally…
Kevin Knight
Chairman, ISO working group on risk management standards
ISO 31000 overview
Mandate and commitment (4.2) Design of framework for managing risk (4.3) Implementing risk management (4.4) a) Creates value b) Integral part of organisational processes c) Part of decision making d) Explicitly addresses uncertaintye) Systematic, structured and timely
f) Based on the best available information g) Tailored
h) Takes human and cultural factors into account
i) Transparent and inclusive j) Dynamic, iterative and responsive to change k) Facilitates continual improvement and enhancement of the organisation Principles (Clause 3) Monitoring and review of the framework (4.5) Continual improvement of the framework (4.6)
Establishing the context
(5.3) Risk identification (5.4.2) Risk evaluation (5.4.4) Risk analysis (5.4.3) Risk treatment (5.5) Risk assessment (5.4.2) C o m m u n ic a tio n a n d c o n su lta tio n (5 .2 ) M o n ito ri n g a n d r e vi e w (5 .6 ) Framework (Clause 4) Process (Clause 5)
• Fundamentals of Risk Management
• International Certificate in Risk Management
– leads to Certificate membership grade
• International Diploma in Risk Management
– leads to Member grade of the IRM
– Fellowship of the IRM is achieved through continuing professional development
• Specialist subjects
– risk management in financial services
– business continuity and crisis management – information systems risk
References and further reading
• IRM Fundamentals of Risk Management – Paul Hopkin – Kogan Page £35.00 ISBN: 978-0-7494-5942-0
• British Standards BS 31100 (2008) Risk management – code of practice, www.standardsuk.com • COSO Enterprise Risk Management – Integrated Framework (2004) Executive Summary,
www.coso.org
• Financial Reporting Council Internal Control Revised Guidance for Directors on the Combined Code (2005), www.frc.org.uk
• Institute of Risk Management – A Risk Management Standard (2002), www.theirm.org
• International Standard ISO 31000 Risk Management – Principles and guidelines, www.iso.org
• ISO Guide 73(2009) Risk management – Vocabulary – Guidelines for use in standards, www.iso.org • British Standard BS 25999-1 (2006) Business continuity management Code of practice,
www.standardsuk.com
• HM Treasury (2004) Orange Book: Management of risk – principles and concepts, www.hm-treasury.gov.uk
• International Standard IEC/FDIS 31010 (2009) Risk Management – Risk assessment techniques, www.iso.org
• Institute of Internal Audits (2004) The Role of Auditing in Enterprise-wide Risk Management, www.theiaa.org
• Office of Government Commerce (2007) Management of Risk: Guidance for Practioners, www.tsoshop.co.uk
Ongoing monitoring
Audit & Report Incidents Re-assess
Treatment
Tolerate Treat Transfer Terminate
Assess
Impact Likelihood
Set appetite
Zero Low Medium High
Identify
Objectives Tools
Tutor
•John Crawley
•john@TheFinanceExpert.ie
•+ 353 1 210 4753
•www.TheFinanceExpert.ie
•Tweet: @AFinanceExpert
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