FORUM 2013 How to embed risk management as a strategic activity
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FORUM 2013 How to embed risk management as a strategic activity

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FORUM 2013 How to embed risk management as a strategic activity FORUM 2013 How to embed risk management as a strategic activity Presentation Transcript

  • How to embed risk management as a strategic activity? Facilitator: Tjerk van Dijk – Stork/Fokker Presenters: Claes Mårtenson – Solvay Cédric Lenoire – FM Global •1
  • Solvay – 150 Years Our strengths: €12.4bn NET SALES • 90% of sales in businesses among the top 3 global leaders €2.1bn •  40% of sales in fast growing markets Adjusted REBITDA • Balanced portfolio of activities 111 • A culture of sustainability, innovation and operational excellence MAJOR INDUSTRIAL SITES 13 A major global player in Chemicals with compelling strengths Created by Ernest Solvay in 1863, Solvay is a Global company, with historical anchorage in Europe, and headquartered in Brussels. MAJOR Research & Innovation SItes 29,100 EMPLOYEES 55 COUNTRIES 2
  • FM Global – 177 Years  Leading commercial property insurer  Expert in underwriting, loss prevention engineering and risk management services  Mutual Ownership  Our philosophy:   The majority of losses are preventable When you’re resilient, you’re in business 3
  • Agenda 1. 2. 3. 4. 5. Context Examples ERM in Solvay Executive Support Embedding Risk Management Tips  Risk Management in Strategy  Strategy in Risk Management 4
  • Agenda 1. 2. 3. 4. 5. Context Examples ERM in Solvay Executive Support Embedding Risk Management Tips  Risk Management in Strategy  Strategy in Risk Management 5
  • Strategy and Growth Risk is good! « Risk taking is part and parcel of entrepreneurship and business: no risk, no reward. (…) Whatever strategy a company chooses, each course of action comes with its own rewards and risks. (…) Good risk management does not imply avoiding all risks at all cost.» from Risk appetite, The strategic balancing act, Ernst & Young 2010 6
  • Risk Management Should not Hold you Back “They don’t put brakes in race cars so they can go slower; They put brakes in race cars so they can go faster.” Al Unser, 4 times Indianapolis 500 winner Enterprise Risk Management helps a company go faster and stay on the road Source Franck Baron, ex. Firmenich Risk Manager 7
  • Embedded Risk Management 10 000 years ago… Objectives: Survive, Find Food (for clan), Create safe shelter Opportunities: New areas with more food, Better caves Risks: Starvation, Other clans, Animals, Weather Risk Management tools: Brain, Muscles, Club, Other clan members 8
  • Agenda 1. 2. 3. 4. 5. Context Examples ERM in Solvay Executive Support Embedding Risk Management Tips  Risk Management in Strategy  Strategy in Risk Management 9
  • Thailand… Thailand Floods 2011 Estimated Losses: 4th costliest disaster ever $45-50 billion economic losses Up to 80% supply chain-related 10
  • Thailand… Market analyst: “Seagate stands to make the most out of the crisis by gaining market share at the expense of Western Digital ” 11
  • Another Example… This Time in Japan… 12
  • Texas Instrument Vs. Intel  Both companies are part of Fortune 500  Both companies: • make electronic equipment • have products that rely on computer processors • have a critical reliance on semi-conductors • have a critical reliance on BT Epoxy & Silicon Wafers  Texas Instrument awarded “Manufacturer of the year for global supply chain excellence” by World Trade Magazine  Intel is the largest global supplier of computer processors 13
  • Press Releases – Q2 2011  Texas Instrument :  Delay in moving production to alternate factories  Insufficient existing inventory  Lack of availability of critical raw materials  Intel:  “The current crisis in Japan will not disrupt processor production”  “Nothing is sole-sourced”  “BCPs have been activated to ensure no material loss of production” 14
  • Impact on Share Price Japan Earthquake. 11/03/2011 15
  • What Have We Learnt From These Events?  Businesses can gain competitive advantage & market share from good risk management practices  Risk management is most effective when embedded within the culture  Strategy and risk management must be linked  Strong commitment from Senior management is essential 16
  • Agenda 1. 2. 3. 4. 5. Context Examples ERM in Solvay Executive Support Embedding Risk Management Tips  Risk Management in Strategy  Strategy in Risk Management 17
  • Efficient use of resources Solvay’s Strategy is based on Megatrends … Urbanization Climate change Demograhic change Globalization …with opportunities & risks 18
  • For Our Sustainable Growth, Solvay needs Enterprise Risk Management! Motto: Protecting the value the business creates Mission: To support Solvay’s sustainable growth we promote systematic Enterprise Risk Management and we manage advanced insurance solutions so Solvay can take smart risks 19
  • The ERM Process FERMA framework – systematic – used by Solvay •Risk Assessment Risk Analysis Risk Identification Risk Description Risk Estimation Risk Evaluation Risk Reporting Threats and Opportunities Decision Risk Treatment Objectives Risk Analysis FORMAL AUDIT MODIFICATION - improvement The Organisation’s •Strategic Objectives Risk Reporting Decision Risk reduction Residual Risk Reporting Monitoring Monitor / Respond / Prepare 20
  • Look in all directions Solvay’s 10 Risk Categories Model 1. Market & Growth – Strategic Risk 2. Supply Chain and Manufacturing Risk 3. Regulatory, Political and Legal Risk 4. Corporate Governance and Risks attached to Internal Procedures 5. Financial Risk 6. Product Risk 7. Risk to People 8. Environmental Risk 9. Information and IT Risk 10.Reputation Risk 21
  • Five Enterprise Risk Management Focus Areas for GS ERM & Insurance The largest risks for the Group Group Risks Promote a risk management Coaching, approach and culture Training Plants – fire, natural hazards. To maintain production flows and profitability Risk Profiling Risk Analysis on strategic plan + Actions to reduce risks GS ERM &I Property Loss Prevention Internal Control Risk analysis along a Business Process leading to Controls 22
  • ERM in the Strategy Process Template Slide OCCASIONAL/ LIKELY ●1 ●2 REMOTE/ UNLIKELY ●3 ●5 ●4 VERY REMOTE/ VERY UNLIKELY PROBABILITY VERY LIKELY The Largest risks from Risk Profiling on <date> D C B A LARGEST RISKS and MITIGATION ACTIONS Risk Action Plan - actions taken to reduce or mitigate the risk 1. Failure of R&I project Phoenix 2:No-Go to new Thai plant SEVERITY … List the 5-10 largest risks from the … Risk Profiling applied on the Roadmap … Be specific about the actions - What is being done beyond the actions before the Risk Profiling? What is done differently? 23
  • Healthcare Risk Management compared to FERMA ERM framework The Organisation’s •Strategic Objectives   Identify – Map products to final applications in food, feed and healthcare Quantify – Risk Profiling method Assess – Risks, Standards (in or out), Toxicology   Risk Reporting - Continuous Decision – BU Management for new products/new applications  Risk Treatment includes action plans     to reduce risk to manage market opportunities to stop selling Monitoring – Regulatory watch, New product/application pairs •Risk Assessment Risk Analysis Risk Identification Risk Description Risk Estimation Risk Evaluation FORMAL AUDIT  MODIFICATION - improvement Objectives: Avoid injury and Improve Solvay sales! Risk Reporting Threats and Opportunities Decision Risk Treatment Residual Risk Reporting Monitoring 24
  • Turning Risk into Opportunity and applying the ERM FERMA Framework Solvay Example Implants  Solvay had a policy to stop sales if end application was an implant!  Solvay had polymer material that was used in the implants industry.  Applying “Healthcare Risk Management” helped to turn the risk into an opportunity!  Policy changed 180 degrees.  Solviva product area uses Risk Management integrated in business/ Risk Profiling, research, toxicology and qualification of customers 25
  • Agenda 1. 2. 3. 4. 5. Context Examples ERM in Solvay Executive Support Embedding Risk Management Tips  Risk Management in Strategy  Strategy in Risk Management 26
  • Why Securing Executive Support?  Strategic risk management can only be implemented with strong senior management support  Risk managers must demonstrate how critical risk management is to maintain and enhance the strengths and competitiveness of the organisation. 27
  • Connecting the dots…  What Senior Executives typically care about:  Competitive advantage  Strong financial performance  Shareholder value enhancement  Anything else that make them look good….  What Risk managers should typically care about:  Competitive advantage  Strong financial performance  Shareholder value enhancement  Anything else that make their bosses look good…. 28
  • What risks keep Executives awake at night? Aon Global Risk Management Survey 2013 1. Economic slowdown / slow recovery 2. Regulatory / legislative changes 3. Increasing competition 4. Damage to reputation/brand 5. Failure to attract or retain top talent 6. Failure to innovate / meet customer needs 7. Business interruption 8. Commodity price risk 9. Cash flow/Liquidity risk 10. Political risk / uncertainties 29
  • Quote of the Day… “ If you think safety is expensive, try an accident” Stelios Haji-Ioannou CEO-EasyJet 30
  • Agenda 1. 2. 3. 4. 5. Context Examples ERM in Solvay Executive Support Embedding Risk Management Tips  Risk Management in Strategy  Strategy in Risk Management 31
  • TIPS: Define Risk Appetite with Exec. Committee & Board  Level of risk that an organization is prepared to accept  Appropriate risk appetite will depend on the nature of the business and objectives pursued  Precise measurement is not always possible:  Risk appetite statement qualitative, approach  An organisation may have an appetite for some types of risk and be averse to Good Reading on Risk Appetite others http://www.theirm.org/publications/documents/IRMRiskAppetiteFullweb.pdf 32
  • What are the risks here? 33
  • TIPS: Proposed Methodology to Understand the Business Specific financial quantifications: • Prioritize business drivers • Comprehensive, objective measurements Identify business drivers, relationships and recovery capabilities: • Locations • Processes • Unique/Multiple Suppliers Leverage risk analysis data: • Scenarios • Recovery times • Prioritize recs • Comprehensive view of financial and physical risk 34
  • TIPS: Implement solutions Operational Resilience Risk Improvement Business Continuity Management Risk Transfer  Successful business models are naturally resilient.  The majority of losses are preventable.  Maintain market share, reputation and good relationships to all stakeholders.  Transfer residual exposure.  Use risk transfer in a business savvy way. 35
  • TIPS: ERM Roadmap 1. 2. 3. 4. Get/Maintain Top Management Support! Understand Company culture, objectives, strategy What risks keep Executives awake at night?! Use the standard Risk Management Process to develop a Vision and a Policy 5. Identify and Develop Tools that fit your Company 6. Develop an ERM Implementation Plan 7. Develop a first Company Risk Profile 8. Integrate ERM in the Strategy Process 9. Develop Opportunity Management 10. Work closely with other departments and Group projects and COMMUNICATE! 36
  • In Summary…  Risk is Good! It is in the DNA of successful organisations  Executive Support is essential to embed risk management in the strategic orientations of the company  Risk Managers increasingly play a key role in the success of their companies once they manage to influence the corporate culture 37
  • Please do not try this at home… Thank you! 38