Partnership Risk Management Sample Slides from Masterclass

8.30 – 9.00 - Brief Introductions / Share experiences / Masterclass Approach
9.00 – 10.00 - Partnership Risk Management Awareness at a Corporate Level
Break
10.15 –10.40 Partnership Risk Management Awareness at Specific Partnership level.
10.40 - 12.00 - Case Study Part 1
Prayers
12.30 – 14.00 - Case Study Part 2
14.00 – 14.30 - Wrap up

1. During presentation I will be stopping frequently to take questions.
2. Open Discussion is encouraged
3. Interrupting / respect others
4. Confidentially
5. Telephone silence
6. Frequent breaks
7. Report Back over the coming months.

 Team up in pairs
 Name
 Company/Position
 Worst Deal your partner has ever been involved with
 Best Deal your partner has ever been involved with

Alexander Larsen
President, Baldwin Global Risk Services
Fellow of Institute of Risk Management

Partnership Risk Management
Agenda
• Background
• Understanding Existing Partnerships & Creating a framework (At a Corporate Level)
– Robust Foundations
• Step 1 : Definition
• Step 2 : Partnership Grading
• Step 3 : Risk Governance
• Step 4 : Validation
• Specific Partnerships – Outside Looking in
– Due Diligence
– Qualitative Risk Analysis
– Quantative Risk Analysis
• Specific Partnerships – Inside Looking Out
– Partnership Engagement & Communication
– Risk Management
– Exit Strategies

Large number of organisations have entered into numerous partnerships:
• Many organisation (Oil & Gas, Maritime, Banks, etc.) entered into many Partnerships and
investments during the ”good years”.
– Sometimes too quickly?
• Reducing risk exposure whilst increasing economies of scale.
– Is it really reducing risk exposures?
• Now that times are harder, Partnerships are being increasingly scrutinised and are often
found to be not fit for purpose.
– Does this have to be the case?
Background

Increased reliance on partnerships in the future due to :
• Global organisations seeking partnerships in order to increase efficiencies, streamline
operations and/or enter new regions.
• A different business model including new business processes or markets (diversification) will
require new expertise. Partnerships are an ideal alternative to outright aqcuisitions.
• During financially difficult times, organisations need to team up and leverage each other’s
strenghths in order to provide added value and competitive advantage
Business Case

Background
Types of Partnerships
Types of Partnerships :
• Question : What types of partnerships can you think of?
– JV
– Supplier/Customer
– Outsourcing or co-sourcing
– Offshoring
– Special Projects
– Any others......?

Step 3 – Risk Governance
Step 4 - Validation
- Partnership Engagement
& Communication
- Risk Management
- Exit Strategies
•
 Corporate
 Strategic Partnerships
ENTERING PARTNERSHIPS
Step 1 - Definition
Step 2 - Partnership grading
MANAGING PARTNERSHIPS
- Partner Due Diligence
- Qualitative Risk Analysis
- Quantitative Risk Analysis
Background
Getting it right on two levels – Elements of Partnership Risk Management
Robust Foundations

Need to consider risk assessing corporately – Enterprise Risk Management
Corporate Level
Robust Foundations
Is there clear guidance & buy in from the top?

Corporate Level
Step 1 – Definition

Audit Commission definition is:
‘an agreement between two or more independent bodies to work
collectively to achieve an objective’
Corporate Level
Step 1 – Definition
• What are the tolerance levels in terms of :
– How important is it to :
– achieve expected results
– avoid extreme outcomes
– determine the distriubution of results.
What Key words could be added to make this
more relevant to YOUR organisations?

Corporate Level
Step 2 – Partnership Grading

• Slide 17
A
B
C
III II I
Vulnerability
Relativeimportance
Relative importance:
A Critical to delivery of
Organisation Objectives
B Significant to delivery of
C Marginal to delivery of
Vulnerability:
I Has significant vulnerabilities/
not robust/ delivery uncertain
II Has some vulnerabilities
III Robust and sound/effective
delivery
11
22
33 4455
66
7788 99
1010
Corporate Level

Potential GradingPotential Grading
GREEN
Limited governance principles
need to be applied
 Expenditure of up to z million
 Minimal resource commitment
 If partnership fails then the fallout is an
inconvenience
 Partnership does not impact in a
material way on key priority services or
strategic objectives
 Minimal reputation impact
AMBER
Moderate and appropriate
governance principles need to
be applied
 Expenditure between Y million and x
million
 Moderate resource commitment
 If partnership fails then the fallout is an
short term problems
 Partnership does impacts in a moderate
way on key priority services or strategic
objectives
 Moderate reputation impact (local
papers)
RED
Robust governance principles
need to be applied
 Expenditure greater than x million
 Considerable resource commitment
 If partnership fails then the fallout could
potentially stretch beyond a couple of
weeks and have longer term service
implications
 Partnership does impacts in a serious
way on key priority services or strategic
objectives
 Serious reputation impact (national
journals)
Corporate Level

Corporate Level

Risk Governance StandardsRisk Governance Standards
Risk Management
How Often? Qualitative or quantitative?
Risk Management Dept. involvement required?
Reporting ? To who, how often?
Partnership level, Departmental level?
Resource Management
 How will we share Resource? Assets, etc
 Are we agreed on the value of the
resources?
Corporate Level
Exit Strategies
How will we communicate failure and success?
How will we sell assets?
Do we have an alternative in place?
Creating Partnership Protocols
Based on your Partnership Grading, High Partnerships will follow certain protocols, Medium follow others, etc.
The protocols will determine whether the partnership requires :
Other requirements?
Partnership Board
 People Management
 Due Diligence
 Stakeholder/Public Engagement
 Performance Management

Corporate Level
Step 4 – Validation

Corporate Level
Step 4 – Validation
Partnerships
X Y Z XY YZ ZZ
Risk Exposure Overall Variance Average Return
1. Create upper and
lower limits based on
Risk Governance
requirements and
monitor these for
each partnership.
2. Alerts when
partnership
approaches limit and
exceeds.
3. Capture risks from specific
partnerships on a Risk Map
4. Build the data into an
overall Snapshot

Specific Partnerships - Outside Looking in
Due Diligence
• Ethics & Human Rights Record
• Investment Origin
• Credit Rating?
• Culture?
• Whats in it for them?
• Their Structure / Business Model
• Country of Origin – Legislative requirements / Who’s
in charge?
• HR Policies and Procedures
• H&S Record
• Environmental Record/Policy
• Risk Management Processes in place
•Any Other Areas?

• Assess probability of occurrence and resulting impact of entering into the specific partnership for each risk.
HighMediumLow
Low Medium High
IMPACT
PROBABILITY
Critical (high priority)
Significant (medium priority)
Negligible (low priority)
2
1
3 4
Assess
probability
and impact
1
2 3
4
Individual risks
Rank
individual
risks
RISK CRITICALITY ACTION
1 Critical Not accept,
initiate actions
initiate actions
3 Significant Accep and
monitor
2 Negligible Accept
Risk RankingRisk Matrix
Our Organisation
Qualitative Risk Assessment

• Concept selection
– Select between different alternatives
– Different costprofiles
– Different income potenital
• Valuation of real options
– Stochastic uncertainty process
– NPV assessments on real-options
• Setting budgets
– base estimate = deterministic value
– budget managed by the project manager = p50
– budget managed by the steering group p85
– contingency = p50 ÷ base estimate
– reserve = p85 ÷ p50
p(cost)
p85
Base estimate
p50
cost
Contingency
Reserve
Deterministic value
µ
p(cost)
p85
Base estimate
p50
cost
Contingency
Reserve
Deterministic value
µ
Quantitative Comparison of Partnerships

• Return on Investment
• Stochastic Uncertainty Process
• Budgets required – Difference from initial calculations
•NPV risk exposure
•$
•Key risk drivers
•$
Quantitative Analysis of Established Partnerships

Yourorganisation
Partner organisation(s)
Knowit
Know it
“open space”
Do not know it!
“hidden area”
“blind area”Donotknowit
“unknown area”
Self disclosureSelf disclosure
Shared
discovery
Shared
discovery
Feedback/askFeedback/ask Johari’s Window - “a
better
understanding” Good
relationship?
Specific Partnerships - Inside looking out
Engagement & Communication
•A Johari window is a
cognitive psychological tool
created by Joseph Luft and
Harry Ingham in 1955 in the
United States, used to help
people better understand their
interpersonal communication and
relationships.

Johari’s Window - “a
better
relationship?
Yourorganisation
Knowit
Know it
“open space”
Do not know it!
“hidden area”
“blind area”
Donotknowit
“unknown area”
•A Johari window is a cognitive
psychological tool created
by Joseph Luft and Harry
Ingham in 1955[
in the United
States, used to help people better
understand their
relationships.

Yourorganisation
Knowit
Know it
“open space”
Do not know it!
“hidden area”
“blind area”Donotknowit “unknown area”
Johari’s Window - “a
better
relationship?
•A Johari window is a cognitive
psychological tool created
by Joseph Luft and Harry
Ingham in 1955 in the United
States, used to help people better
understand their
relationships.

The idea behind this checklist is to ensure that our potential partners apply the same principles
of robust risk management as is expected by your organisation. Some key questions to ask have
been summarised below :
1. Do they have an up to date business continuity plan (so the main partnership
and the key services can continue following a foreseeable event)
2. Does the organisation have simple strategy for how it identifies and manages its
business risks.
3. What is the current assessment of the major business risks it faces (is it willing
to share this?)
4. Does the organisation have an assessment for the main risks associated either
with delivering services in this partnership (and or the partnership itself).
5. What is the plan for briefing / training staff in dealing with the main risks.
Due Diligence approach to determine Partner’s Risk Management Capabilities

• Early resolution of key issues [prior to initiation or part of formal initiation] - you may have a stronger hand at this point
• Initiate Change Management. There may be culture clashes between partner organisations
• Regularity of meetings / risk management formally on the agenda between partners (impartial facilitation helps)
• Facilitating some ground rules between partners including information requirements and level of engagement /
formulating key processes such as risk management
• Share your Risk Management practices/resources. Your standards and resources may be far superior. Include Risk Training
by your Risk Team as part of the Partnership initiation?
• Team building events! (You are a team - behave as a team)
Practical Solutions

True partnership approach to Risk Management
Clear allocation of risks as to how the risks will be managed
A clear process for managing and updating the view of risks
Greater trust and buy-in
Oneviewandgoodcommunicationis
paramount
Genuine consensus about the main risks (no hidden risks)

It's not rocket science …
Risk
Identification
Risk
Assessment
Risk
Response
Planning
RISK
IDENTIFICATION
RISK
ANALYSIS
RISK
MANAGEMENT
MONITORING
PRIORITISATION
Risk Management

Qualitative risk assessment
• Assess probability of occurrence and resulting impact for each risk against individual Partnership objectives
based on defined scales
• Rank risks using a probability-impact matrix where the position in the matrix suggest risk management
strategy
• Agree on how to Monitor risks – Ongoing Meetings etc.
HighMediumLow
Low Medium High
IMPACT
PROBABILITY
Critical (high priority)
Significant (medium priority)
Negligible (low priority)
2
1
3 4
Assess
probability
and impact
1
2 3
4
Individual risk
Rank
individual
risks
RISK CRITICALITY ACTION
initiate actions
initiate actions
3 Significant Accep and
monitor
2 Negligible Accept
Risk RankingRisk Matrix
Partnership Obectives
Risk Management

Risk
Number
Current
Risk Score
Target Risk
Score
Description
[no.] [matrix
position]
[improved
position]
[short name]
Action/controls
already in place
Adequacy of
action/control to
address risk
Required management
action/control
Responsibility
for action
Critical
success factors
& KPI’s
Review
frequency
Key
dates
[actions/controls
already being done
that relate to this
risk/cluster]
[how effective are the
actions/controls
already in place?]
[new actions/controls required to
manage the risk down to its
target score]
[the person
responsible for this
action plan being
carried out]
[what will success
look like?
How will
performance
indicators have
improved]
[frequency of
reviewing this
action plan]
[Milestones/deadlines]
]
A
B
C
D
E
F
IV III II I
Likelihood
Impact
Owned by: Date:
Example Action Plan
Risk Management

• There needs to be clarity at the outset of any arrangement not only what the key risks are but
who is allocated the key risk.
• There are three options when faced with a risk
• Retain responsibility / ownership of the risk [Our Organisation]
• Share responsibility / ownership of the risk [Shared]
• Pass responsibility / ownership of the risk [Partner]
• Risks are generally transferred through
• Use of wording within any agreement
• Agreement of particular elements within the payment mechanism
• Seeking of particular implements such as bonds
Does sometimes depend on the partner involved and their attitude / your position?
Risk Allocation

RISK PARTNER YOUR
ORGANISATION
OTHER SHARED
Political X
Resources and
finances available
X
Business case issues X
Staffing issues X X
Communication X
Legal X
Legislative and
regulatory
X
Who suffers the pain?
Risk Allocation

Exit Strategy

You shouldn’t go into a
partnership with the fear or
expectation of failure - however
you should have thought
through the implications.
 Need for a plan B (exit strategy)
Minimal disruption
Smooth transition
No nasty surprises
E X I T
Exit Strategy

Agree Trigger points
• Agreed end date?
• Agreed Milestones?
• Agreed Tolerances?
Managing assets
• how will assets (whether people, contracts, physical assets, data, intellectual property rights or intangibles)
be managed
• Identifying assets - how will parties determine assets to be transferred on exit
• Valuation - how will parties determine the price to be paid for any assets on exit and the price to be paid for
any transitional services
• How will the assets be transferred or be made available?
• How will profits (even future profits), IP, Patents be shared?
Elements of a strategy
Exit Strategy

Communication
• How will we communicate Success or Failure?
• Who are the stakeholders and media we are communicating with?
• One spokesperson and agreed predefined staff response
• Communicate positive messages (previous successes) and plan of action
Change / recovery plan
• Need to plan in broad terms the specific steps from short term to long term (moving from partnership
position to the revised position). (first 24 hours, first week, first month)
• Include communications, reputation management and decision making (defining key data or assets that you
may well require)
Elements of a strategy
Exit Strategy

Robust Foundations
Definition Partnership Grading
Exit Strategy
Engagement
Due Diligence
CommunicationRisk Allocation

• 47
Case Study
Question 1
What Due Diligence should be undertaken as part
of the Investment Opportunity presented to Part
Co by the Asian investor?
List as many areas that need to be investigated
and expand/explain…
10 minutes

• 48
Case Study
Question 2
A) Identify the risks to Part Co of entering into this
partnership.
B) Prioritise the risks and report the top 5 risks.
Explain/expand why they are a risk to Part Co.
C) What can be done to manage the risk?
15 minutes

• 50
Case Study
Question 3
A) List Part Co’s Partnerships.
B) Prioritise the Partnerships through a grading
mechanism.
C) What minimum risk governance standards do
you want Part Co to implement for its HIGH
Priority Partnerships?
25 minutes

• 51
Case Study
Question 4
Choose one of the High Priority partnerships to
focus on.
A)Identify the risks TO the Partnership.
B)Prioritise the risks TO the partnership.
C)How can the partnership manage the risks?
- Who should manage the risks?
- Who suffers the consequences?
25 minutes

Partnership Risk Management Sample Slides from Masterclass

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