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Risk Management And Internal Control In The Changing Econmic Landscape
 

Risk Management And Internal Control In The Changing Econmic Landscape

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The changing business landscape requires more emphasis on enterprise risk management

The changing business landscape requires more emphasis on enterprise risk management

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    Risk Management And Internal Control In The Changing Econmic Landscape Risk Management And Internal Control In The Changing Econmic Landscape Presentation Transcript

    • RISK MANAGEMENT AND INTERNAL CONTROL IN CHANGING ECONOMIC LANDSCAPE
      Nik Mohd Hasyudeen Yusoff
      Finance Function Excellence
      12 October 2009
      Competitiveness Through Innovation and Strategy
    • Agenda
      Attaining business sustainability through risk management
      Changing business landscape and risk profile
      Linking risks to internal control
      Good governance factor in risk management
      Mindset and culture in strengthening risk management
    • Attaining business sustainability through risk management
      • A business:
      • Needs to serve customers
      • Needs to compete
      • Operates in business environment that keeps on changing
      • Is affected by global developments
      • Has stakeholders beyond shareholders
      • Generates profit through risk taking (uncertainty)
    • Attaining business sustainability through risk management
      Value Creation Facets of BHP Billiton
      Value creation is multi-facet and could be viewed from internal dimension as well as external dimension
      Balancing the value proposition to shareholders and stakeholders would be key to business sustainability
    • Attaining business sustainability through risk management
      Inovastra’s view of value creation
      Leadership
      Strategy
      Values
      Value proposition
      Internal resources
      Value creation
      Customers
      People
      Processes
      Functionality
      Platform
      Intellectual assets
      Feelings
      Physical resources
      Financials
      Protocol
      External network
      Business partners
      Institutional partners
    • Attaining business sustainability through risk management
      Enterprise risk management encompasses:
      Aligning risk appetite and strategy
      Enhancing risk response decisions
      Reducing operational surprises and losses
      Identifying and managing multiple and cross-enterprise risks
      Seizing opportunities
      Improving deployment of capital
    • Attaining business sustainability through risk management
      In ensuring business sustainability, the appreciation of risks and mitigation of risks at the strategic level is very important
      Key strategic risks are:
      Demand risk
      Competitive risk
      Capability risk
    • The business landscape should not only be view from a single dimension such as between a business and its customers only
      The drivers that change the landscape and the effect on all players should also be understood
      Changing business landscape and risk profile
    • Politics
      Your
      Competitors
      Your
      Competitors
      Economy
      Your
      Customers
      Your
      Customers
      Your
      Customers
      Society
      Technology
      Your
      Business
      Your
      Suppliers
      Your
      Network
      Partners
      Environment
      Changing business landscape and risk profile
    • Politics drive government policies which would affect the economy and business climate
      Global and regional political developments add to the complications of local politics
      How far would the G-20 initiatives would affect you?
      Changing business landscape and risk profile
    • The inter-linkages between economies could not be denied anymore and any changes in other places would affect the local economic conditions
      The globalisation and regionalisation of business require businesses be involved in more than one economic regions
      Do you think the AEC 2015 will affect you industry and your business?
      Changing business landscape and risk profile
    • Rights
      Health
      Education
      Security
      Distribution of wealth
      New lifestyles
      Demography
      Which one of these elements would affect you business most?
      Changing business landscape and risk profile
    • Technology has been one of the factors that levels economies and markets
      Enables new business
      Destroy existing business
      Allows different ways of running businesses
      Would Web 2.0 makes your business model obsolete?
      Changing business landscape and risk profile
    • The Green Economy would be more visible in the years to come
      Rules and regulation, domestically and in the market you serve, would require businesses to assess the business models
      Is your business already affected by environmental issues?
      Changing business landscape and risk profile
    • Don’t be caught like a frog in the boiling pot!
      Changing business landscape and risk profile
    • Changing business landscape and risk profile
      Some turbulence could be detectable some are not
      Spurts of prosperity
      Chaotic
      Continuum
      Spurts of downturn
      Adapted from The Chaotics Model – Kotler and Caslione
    • Changing business landscape and risk profile
      Turbulence is the unpredictable and swift changes in an organisational internal or external environment that affects its performance
      A business arrives at a strategic inflection point when its old strategy no longer works and must be replaced by new one if it want to ascend to new heights
      Strategic Inflection Point
      Level
      Of
      Chaos
      Time
    • Linking risks to internal control
      Internal control is broadly defined as a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
      Effectiveness and efficiency of operations.
      Reliability of financial reporting.
      Compliance with applicable laws and regulations.
    • Linking risks to internal control
      Policies and procedures to ensure management directives are carried out effectively
      Approvals and authorisations
      Verification and reconciliation
      Review of operations
      Security of assets
      Segregation of duties
      To bring down the risks to the level within the
      risk appetite set by the Board
    • Giving up the illusion that you could predict the future is a very liberating moment. All you can do is to give yourself the capacity to respond to the only certainty of life – which is uncertainty. The creation of that capability is strategy.
      Lord John Browne, Group Chief Executive of BP
      Changing business landscape and risk profile
    • Linking risks to internal control
      Understanding and responding to changes is not really rocket science, however a lot of organisation fail to put in place a framework to understand and responding to changes
    • Linking risks to internal control
    • Greed!
      Unmitigated excessive risk taking
      Independent directors turn dependent
      Executive incentives linked to short-term performance
      Auditors putting business interests above professional values
      Good governance factor in risk management
    • The global financial crisis had surfaced governance lapses at various levels
      As key outcome of good governance is business sustainability, the roles played by the board and management are critical
      Strategy setting and risk appetite
      Risks assessment and mitigation
      Getting risk management functioning across organisation and across formal and informal structures
      Good governance factor in risk management
    • A recent research by Northern Carolina State University discovered that:
      Over 60% of respondents believe that the volume and complexity of risks have changed “Extensively” or “A Great Deal” in the last five years
      Just over a third of respondents (36%) note that they were caught off guard by an operational surprise “Extensively” or “A Great Deal” in the last five years
      Good governance factor in risk management
    • Good governance factor in risk management
      44% of respondents have no enterprise-wide risk management process in place and have no plans to implement one. An additional 18% without ERM processes in place indicate that they are currently investigating the concept, but have made no decisions about implementing ERM
      Forty-three percent do not have their business functions establishing or updating assessments of risk exposures on any formal basis. Over 75% indicate that key risks are being communicated merely on an ad hoc basis at management meetings
    • For those audit committees formally monitoring risks for the board, 19% only monitor financial risks, 63% monitor operational and compliance risks in addition to financial risks. Only 18% monitor all entity risks, including strategic risks
      Despite strong interest in improving senior executive leadership in risk oversight, very few organizations (18%) have created a chief risk officer (CRO) position to lead and coordinate the organization’s risk oversight processes
      Good governance factor in risk management
      • Standards and Poor progress report of adoption of ERM in its rated companies:
      there have been few instances of a firm’s ability to articulate a risk tolerance or risk appetite that has been defined for the organization
      firms’ focus on managing downside risks with little, if any, attention paid to the opportunities
      that most risk management activities remain “silo-based” and at the operational managers’ level
      Good governance factor in risk management
    • Would reporting failure occur again?
      Is there another way of guiding people to perform?
      MIA published a monograph on human governance which focuses on the inside-out approach instead of parameter-driven rule-based governance
      Spiritual aspect is recognised
    • Mindset and culture in strengthening risk management
      Tone from the boardroom
      Indicate board’s priority
      Adequate oversight over management implementation of risk management and internal control
      Linking compensation packages to risk management
      Would encourage the right culture and mindset
      Balance between business sustainability and short term performance expectations
    • Moving Forward Thoughts
      Taking risk in natural in attaining corporate objectives
      Given the dynamic environment, risks profile changes and corresponding response is necessary
      Risk management goes beyond ticking the box and need to be embrace holistically
      An inside-out approach would encourage the “doing the right thing” culture