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The Risk Behind Risk: The Cost of Compliance?

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The Risk Behind Risk: The Cost of Compliance?

by Neil Morling, CFO of EC Harris LLP

www.CFOEvent.com

Published in: Economy & Finance, Business
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The Risk Behind Risk: The Cost of Compliance?

  1. 1. The Risk Behind Risk: The Cost of Compliance?<br />The Celtic Manor Resort, Newport | July 2010<br />Neil Morling, CFO of EC Harris LLP<br />
  2. 2. Introduction – Our Challenge<br /> Are we honestly capable of putting a precise figure on how much we are currently spending on compliance and risk? <br /> Have we strategically questioned the value to the business of this activity or is just a robotic response? <br /> This session aims to address the key benefits and the value of risk management rather than perceiving it as a function.<br />
  3. 3. Do We Really Understand All Facets of Risk?<br /> Well, systematic risk, yes i.e:<br /><ul><li>loss of or damage to assets
  4. 4. client insolvency
  5. 5. forex, interest rates
  6. 6. claims against poor performance etc</li></ul>and we have an array of well tested risk management strategies<br />which fall within the normal categories of avoid, limit, control or <br />transfer.<br />
  7. 7. Do We Really Understand All Facets of Risk?<br /> BUT from a business risk I am not so sure. Would a CFO who had all the usual insurance policies and hedging contracts in place, a highly polished internal audit function and a spotless management letter from the auditors have sleep well the night before:<br /><ul><li>Lehmans
  8. 8. The tsunami in Japan
  9. 9. The volcanic eruption in Iceland</li></ul>Answer: probably yes<br />
  10. 10. Do We Know The Full Cost?<br /> Costs are also easily identified when directly attributable – insurance premia, specialist consultant’s advice, internal audit functions to name but three.<br /> But how do we measure the cost of:<br /><ul><li>Likely loss of business because of over zealous or unrealistic governance limitations
  11. 11. Opportunity cost of senior management bogged down in tiered and hierarchical approval processes
  12. 12. Demotivating effects on those continually asked to “prove” what they do</li></li></ul><li>Our Session<br /> What I want us to consider is not a wholesale dismantling of risk management but some alternative approaches to that could add value while reducing cost, namely:<br /><ul><li>Possible limitations of more traditional approaches to business risk management
  13. 13. Alternative strategies for business risk management
  14. 14. The true potential value of risk management</li></li></ul><li>Possible limitations of more traditional approaches to business risk management…….avoiding<br />
  15. 15. Alternative strategies for business risk management, again avoiding……<br />
  16. 16. The true potential value of risk management, of course avoiding…….<br />
  17. 17. Appendices<br />

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