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RISK MANAGEMENT CONFERENCE
DESIGNING AND IMPLEMENTING
AN INTEGRATED RISK MANAGEMENT SYSTEM
THAT EFFECTIVELY MINIMIZES YOUR...
THE DIFFERENCE BETWEEN WHAT IS EXPECTED AND
WHAT IS EXPERIENCED
dS2
DEFINITION OF RISK
RISK = DEGREE OF VARIABILITY
dS2
LB ML UB
0
10
20
30
40
50
Lower Bound Most Likely Upper Bound Amount
0
10
20
30
40
50
dS2
NEED TOOLS TO MEASURE
ACHIEVE LASTING BUSINESS BENEFIT
Manage Physical Risk
Manage Finance Risk
Minimize Risk & Maximize Profit
)
)
)
dS2
WHY
IN...
WHY
INTEGRATED RISK MANAGEMENT SYSTEMS?
SMALL INCIDENTS UNRECORDED GIVE RISE TO
CATASTROPHES
MOST INCIDENTS CAN BE PREVENT...
WHY
INTEGRATED RISK MANAGEMENT SYSTEMS?
REQUIRES DECISION SUPPORT INFORMATION
Analyse trends
in a manner that enables proa...
DESIGNING A RISK MANAGEMENT SOLUTION
INTEGRATE INTO DECISION FRAMEWORK
Assess potential impact of hazards
Define steps to ...
DETERMINE COST OF RISK
BALANCE COST OF RISK IMPROVEMENT
AND LEVEL OF RISK FINANCE
Insurance premium cost
Retention costs
R...
THE RISK MANAGEMENT OBJECTIVE
dS2
RISK MANAGEMENT OBJECTIVER
I
S
K
I
M
P
R
O
V
E
M
E
N
T
EXCELLENT
FAIR
GOOD
OPTIMAL PATH
...
WHY
INTEGRATED RISK MANAGEMENT SYSTEMS?
A COMPUTER BASED SOLUTION IS THE ONLY WAY
A means of acquiring and analyzing compr...
RISK MANAGEMENT DEFINED
ACHIEVE LASTING BUSINESS BENEFIT
A comprehensive range of activities for dealing with
risks
Manage...
RISK MANAGEMENT PHILOSOPHY & STRATEGY
BUSINESS PHILOSOPHY & STRATEGY
Marketing
YOUR ORGANISATION
Finance
ProductionHuman
R...
SHARE
CAPITAL
GROW EQUITY
PAY DIVIDENDS
MAXIMISE OPTIMISE PRESERVE
LOAN
CAPITAL
REV ENUE OPERATIONS ASSETS
OBJECTIVES
RISK...
DEFINITIONS
Pure risk:
Loss, damage, disruption, injury, etc
Without potential gain, profit or other
advantage
Risk contro...
DEFINITIONS
MEASUREMENT TECHNIQUES ARE VITAL
Risk financing
Provision of funds for recovery
Risk evaluation
Quantitative /...
PURE RISK IMPROVEMENT TECHNIQUES
REQUIRES INFORMATION
Avoidance
Action to prevent occurrence
Retention
Accept risk in pres...
RISK FINANCING
REQUIRES INFORMATION IN ORDER TO TAKE INFORMED
DECISIONS
Provide funds to assist business to
survive and re...
PHYSICAL FACTORS GIVING RISE
TO EXCESSIVE RISK
TRUE CAUSES OF LOSS ARE OFTEN OBSCURE
Insurance claims not a true measure o...
RISK BASED MAINTENANCE MANAGEMENT
REQUIRES COMPUTER BASED MEASUREMENT AND
MODELLING
Small components
Often initiate failur...
TRUE CAUSE OF LOSS NOT EVIDENT
A COMPREHENSIVE LOSS RECORDING AND ANALYSIS
SYSTEM CAN BE INVALUABLE
Diabetic drivers
Low b...
INFORMATION NEEDS IN ORDER TO
IDENTIFY TRENDS FOR PHYSICAL RISK CONTROL
RECORD AND ANALYSE ALL LOSSES
Major incidents norm...
TRUE COST OF RISK
RECORD AND ANALYSE ALL COSTS
Traditional loss reporting concentrates on
insurance claim
Costs that can b...
HIDDEN COSTS
SOME ARE READILY QUANTIFIED, OTHERS ARE NOT,
ALL ARE IMPORTANT
Down time
Management time
Lost production
Lost...
OPTIMISE RISK MANAGEMENT FOR LOWEST OVERALL
COST AND LOWEST HIDDEN COST
Corporate Support 39.0%
24.0%
Hardware 18.0%
Softw...
INTERNAL COMMUNICATION NEEDS
PROVIDE A SINGLE RISK MANAGEMENT INFRASTRUCTURE
AND COMMON DATABASE
Risk control and insuranc...
INTERNAL COMMUNICATION NEEDS
PROVIDE A SINGLE RISK MANAGEMENT INFRASTRUCTURE
AND COMMON DATABASE
Capability to report full...
INTEGRATED INFORMATION SYSTEM
COMPREHENSIVE RECORDING OF ALL LOSSES
All risk related information:
Planned maintenance
Risk...
CASE HISTORY
ISO 9000 CERTIFICATION
EXPECTED INCREASED COSTS :
ACCOMPLISHED INCREASED PLANT EFFICIENCY
AND REDUCED COSTS
D...
THE BENEFITS OF ESTABLISHING
AN INTEGRATED LOSS DATABASE
IMPROVED PROFITABILITY
Permits holistic risk improvement
Accounta...
THE BENEFITS OF ESTABLISHING
AN INTEGRATED LOSS DATABASE
IMPROVED PROFITABILITY
Early identification of adverse trends
Min...
THE BENEFITS OF ESTABLISHING
AN INTEGRATED LOSS DATABASE
IMPROVED PROFITABILITY
Better decision making
Big picture
Drill d...
THE BENEFITS OF ESTABLISHING
AN INTEGRATED LOSS DATABASE
IMPROVED PROFITABILITY
Effective risk management coordination
Sum...
CONCEPTUAL REQUIREMENTS FOR THE
IMPLEMENTATION OF AN EFFECTIVE RISK
MANAGEMENT SYSTEM
EFFECTIVE PLANNING AND IMPLEMENTATIO...
CONCEPTUAL REQUIREMENTS FOR THE
IMPLEMENTATION OF AN EFFECTIVE RISK
MANAGEMENT SYSTEM
Integrate risk management with busin...
CASE STUDY OF AN IMPLEMENTATION
DRAMATIC BENEFITS AND MORE ARE EXPECTED
Major corporation
Previously self insured
Full ris...
CASE STUDY OF AN IMPLEMENTATION
DRAMATIC BENEFITS AND MORE ARE EXPECTED
More than 10,000 loss incidents per year
Four oper...
CONCLUSION
Effective management of risk will give rise to
significant improvements in operational efficiency
and profitabi...
CONCLUSION
Effective management of risk will give rise to
significant improvements in operational efficiency and
profitabi...
CONCLUSION
Effective management of risk will give rise to
significant improvements in operational efficiency and
profitabi...
CONCLUSION
Effective management of risk will give rise to
significant improvements in operational efficiency and
profitabi...
QUESTIONS ?
dS2
THE REAL ISSUES IN OUTSOURCING
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018 Designing and Implementing an Integrated Risk Management System that Effectively Minimizes your Exposure -- CRM Risk Control Case Study -- by Dr James A Robertson PrEng

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CRM Risk Control: Designing and Implementing an Integrated Risk Management System -- Integrated Risk Management Conference


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018 Designing and Implementing an Integrated Risk Management System that Effectively Minimizes your Exposure -- CRM Risk Control Case Study -- by Dr James A Robertson PrEng

  1. 1. RISK MANAGEMENT CONFERENCE DESIGNING AND IMPLEMENTING AN INTEGRATED RISK MANAGEMENT SYSTEM THAT EFFECTIVELY MINIMIZES YOUR EXPOSURE Dr James A Robertson PrEng : Managing Director Differentiated Strategic Solutions (Pty) Ltd and George J Paton : Director CRM Risk Control Consultants (Pty) Ltd dS2
  2. 2. THE DIFFERENCE BETWEEN WHAT IS EXPECTED AND WHAT IS EXPERIENCED dS2 DEFINITION OF RISK RISK = DEGREE OF VARIABILITY
  3. 3. dS2 LB ML UB 0 10 20 30 40 50
  4. 4. Lower Bound Most Likely Upper Bound Amount 0 10 20 30 40 50 dS2 NEED TOOLS TO MEASURE
  5. 5. ACHIEVE LASTING BUSINESS BENEFIT Manage Physical Risk Manage Finance Risk Minimize Risk & Maximize Profit ) ) ) dS2 WHY INTEGRATED RISK MANAGEMENT SYSTEMS?
  6. 6. WHY INTEGRATED RISK MANAGEMENT SYSTEMS? SMALL INCIDENTS UNRECORDED GIVE RISE TO CATASTROPHES MOST INCIDENTS CAN BE PREVENTED Treat the cause Not the symptoms ) ) dS2
  7. 7. WHY INTEGRATED RISK MANAGEMENT SYSTEMS? REQUIRES DECISION SUPPORT INFORMATION Analyse trends in a manner that enables proactive action to be taken to anticipate and prevent major losses and to identify the true cause of recurrent losses. dS2
  8. 8. DESIGNING A RISK MANAGEMENT SOLUTION INTEGRATE INTO DECISION FRAMEWORK Assess potential impact of hazards Define steps to achieve objectives Develop risk improvement programs Develop strategies to control consequences of risk and impact ) ) ) ) dS2
  9. 9. DETERMINE COST OF RISK BALANCE COST OF RISK IMPROVEMENT AND LEVEL OF RISK FINANCE Insurance premium cost Retention costs Risk control expenditure Maintenance programmes Training costs Fire protection & security Management & administration ) ) 5 5 5 ) ) dS2
  10. 10. THE RISK MANAGEMENT OBJECTIVE dS2 RISK MANAGEMENT OBJECTIVER I S K I M P R O V E M E N T EXCELLENT FAIR GOOD OPTIMAL PATH INSURE ALL CATASTROPHE COVER LARGE SELF FUND INSURANCE SELF INSURANCE DEDUCTIBLES INSURANCE DEDUCTIBLES RISK FINANCING
  11. 11. WHY INTEGRATED RISK MANAGEMENT SYSTEMS? A COMPUTER BASED SOLUTION IS THE ONLY WAY A means of acquiring and analyzing comprehensive and detailed loss statistics is essential. dS2
  12. 12. RISK MANAGEMENT DEFINED ACHIEVE LASTING BUSINESS BENEFIT A comprehensive range of activities for dealing with risks Manage the interdependence between alternatives A integral part of the business ) ) ) dS2
  13. 13. RISK MANAGEMENT PHILOSOPHY & STRATEGY BUSINESS PHILOSOPHY & STRATEGY Marketing YOUR ORGANISATION Finance ProductionHuman Resources FUTURE CONTRACTS CHANGING POLITICS CHANGING ECONOMICS THE RISK MANAGEMENT ENVIRONMENT ETC
  14. 14. SHARE CAPITAL GROW EQUITY PAY DIVIDENDS MAXIMISE OPTIMISE PRESERVE LOAN CAPITAL REV ENUE OPERATIONS ASSETS OBJECTIVES RISK M I N I M I S E C O S T P R O F I T THE BUSINESS IMPLICATIONS OF RISK
  15. 15. DEFINITIONS Pure risk: Loss, damage, disruption, injury, etc Without potential gain, profit or other advantage Risk control: Provision of standards of protection Avoid transfer or acceptance of risk ) 5 5 ) 5 5 dS2
  16. 16. DEFINITIONS MEASUREMENT TECHNIQUES ARE VITAL Risk financing Provision of funds for recovery Risk evaluation Quantitative / qualitative measure of risk Gauge potential severity and frequency Risk identification Potential risks to which organization is exposed ) 5 ) 5 5 ) 5 dS2
  17. 17. PURE RISK IMPROVEMENT TECHNIQUES REQUIRES INFORMATION Avoidance Action to prevent occurrence Retention Accept risk in present form Transfer Insurance or contractual transfer of consequences Control Reduce by controlling frequency and severity ) 5 ) 5 ) 5 ) 5 dS2
  18. 18. RISK FINANCING REQUIRES INFORMATION IN ORDER TO TAKE INFORMED DECISIONS Provide funds to assist business to survive and recover from losses Internal (self) financing Funds and budget Unbudgeted External financing Insurance ) ) 5 5 ) 5 dS2
  19. 19. PHYSICAL FACTORS GIVING RISE TO EXCESSIVE RISK TRUE CAUSES OF LOSS ARE OFTEN OBSCURE Insurance claims not a true measure of risk Focus on overall cost of risk Identify physical factors that exacerbate risk Maintenance Health Environmental etc ) ) ) 5 5 5 5 dS2
  20. 20. RISK BASED MAINTENANCE MANAGEMENT REQUIRES COMPUTER BASED MEASUREMENT AND MODELLING Small components Often initiate failures or losses Not high profile Frequently neglected Develop a risk oriented maintenance approach ) 5 5 5 ) dS2
  21. 21. TRUE CAUSE OF LOSS NOT EVIDENT A COMPREHENSIVE LOSS RECORDING AND ANALYSIS SYSTEM CAN BE INVALUABLE Diabetic drivers Low blood sugar High accident rate Drivers rise at 01h00 Poor concentration by 10h00 Often only identified When insurance premium raised When insurance refused ) 5 5 ) 5 ) 5 5 dS2
  22. 22. INFORMATION NEEDS IN ORDER TO IDENTIFY TRENDS FOR PHYSICAL RISK CONTROL RECORD AND ANALYSE ALL LOSSES Major incidents normally preceded by series of minor incidents Minor incidents do not individually attract attention Accumulated real cost of "small" losses may exceed cost of high profile losses ) ) ) dS2
  23. 23. TRUE COST OF RISK RECORD AND ANALYSE ALL COSTS Traditional loss reporting concentrates on insurance claim Costs that can be recovered Not true costs Real cost is the hidden cost ) 5 5 ) dS2
  24. 24. HIDDEN COSTS SOME ARE READILY QUANTIFIED, OTHERS ARE NOT, ALL ARE IMPORTANT Down time Management time Lost production Lost market opportunities Customer dissatisfaction Unremunerated overtime Staff dissatisfaction etc ) ) ) ) ) ) ) ) dS2
  25. 25. OPTIMISE RISK MANAGEMENT FOR LOWEST OVERALL COST AND LOWEST HIDDEN COST Corporate Support 39.0% 24.0% Hardware 18.0% Software 10.0% Training 7.0% Data Access 2.0% IDENTIFIABLE HIDDEN Reduced expenditure on risk management gives rise to increased hidden costs. dS2 HIDDEN COSTS Down time Management time Lost production Lost market opportunities Customer dissatisfaction Unremunerated overtime Staff dissatisfaction etc ) ) ) ) ) ) ) ) VISIBLE
  26. 26. INTERNAL COMMUNICATION NEEDS PROVIDE A SINGLE RISK MANAGEMENT INFRASTRUCTURE AND COMMON DATABASE Risk control and insurance departments and decisions often unrelated and uncoordinated No optimization is possible Wrong insurance cover provided Wrong level of cover provided Claims not met Re-structure in order to support strategic decision making ) 5 5 5 5 ) dS2
  27. 27. INTERNAL COMMUNICATION NEEDS PROVIDE A SINGLE RISK MANAGEMENT INFRASTRUCTURE AND COMMON DATABASE Capability to report full financial implications of past losses Single risk management department for physical and financial risk Comprehensive risk management information system ) ) ) dS2
  28. 28. INTEGRATED INFORMATION SYSTEM COMPREHENSIVE RECORDING OF ALL LOSSES All risk related information: Planned maintenance Risk audit Unaccounted losses All loss information ) 5 5 5 5 dS2
  29. 29. CASE HISTORY ISO 9000 CERTIFICATION EXPECTED INCREASED COSTS : ACCOMPLISHED INCREASED PLANT EFFICIENCY AND REDUCED COSTS Database of all major items Boilers, etc All legislative requirements Prioritized and scheduled all maintenance ) 5 ) ) dS2
  30. 30. THE BENEFITS OF ESTABLISHING AN INTEGRATED LOSS DATABASE IMPROVED PROFITABILITY Permits holistic risk improvement Accountability for losses through business model True cost including hidden costs established Quality of risk management improved and duplication of effort avoided ) ) ) ) dS2
  31. 31. THE BENEFITS OF ESTABLISHING AN INTEGRATED LOSS DATABASE IMPROVED PROFITABILITY Early identification of adverse trends Minimize probability of catastrophe Informed disaster recovery planning Accurate centralized information Simplify risk management Reduce costs Better results ) 5 5 ) 5 5 5 dS2
  32. 32. THE BENEFITS OF ESTABLISHING AN INTEGRATED LOSS DATABASE IMPROVED PROFITABILITY Better decision making Big picture Drill down to all levels of organization Direct access to information at all levels Benchmark comparable business units Improved communication ) ) 5 5 5 ) dS2
  33. 33. THE BENEFITS OF ESTABLISHING AN INTEGRATED LOSS DATABASE IMPROVED PROFITABILITY Effective risk management coordination Summarization and drill down enable focus on key issues Monitor insurance policy endorsements and limitations Reduce risk of policy being revoked Enable aggregate and fund management Best balance of self funding and insurance ) ) ) 5 5 5 dS2
  34. 34. CONCEPTUAL REQUIREMENTS FOR THE IMPLEMENTATION OF AN EFFECTIVE RISK MANAGEMENT SYSTEM EFFECTIVE PLANNING AND IMPLEMENTATION Develop risk exposure profile Identify core business activities impacted Analyse past losses & trends Determine market factors ) ) ) ) dS2
  35. 35. CONCEPTUAL REQUIREMENTS FOR THE IMPLEMENTATION OF AN EFFECTIVE RISK MANAGEMENT SYSTEM Integrate risk management with business strategy Make part of the corporate culture Address environmental issues as part of cost Restructure risk management and risk finance Implement a centralized loss information acquisition system ) ) ) ) ) dS2
  36. 36. CASE STUDY OF AN IMPLEMENTATION DRAMATIC BENEFITS AND MORE ARE EXPECTED Major corporation Previously self insured Full risk management program Risk management information system installed in 1992 ) 5 5 ) dS2
  37. 37. CASE STUDY OF AN IMPLEMENTATION DRAMATIC BENEFITS AND MORE ARE EXPECTED More than 10,000 loss incidents per year Four operators instead of twelve Six regions Full loss reporting and analysis Major enhancements planned ) ) ) ) ) dS2
  38. 38. CONCLUSION Effective management of risk will give rise to significant improvements in operational efficiency and profitability ) dS2
  39. 39. CONCLUSION Effective management of risk will give rise to significant improvements in operational efficiency and profitability A holistic approach to risk management and risk finance is required ) ) dS2
  40. 40. CONCLUSION Effective management of risk will give rise to significant improvements in operational efficiency and profitability A holistic approach to risk management and risk finance is required The application of an integrated risk management information system is vital ) ) ) dS2
  41. 41. CONCLUSION Effective management of risk will give rise to significant improvements in operational efficiency and profitability A holistic approach to risk management and risk finance is required The application of an integrated risk management information system is vital ) ) ) dS2 AN EFFECTIVE SOLUTION THAT WILL IMPROVE LONG TERM PERFORMANCE AND PROFITABILITY
  42. 42. QUESTIONS ? dS2 THE REAL ISSUES IN OUTSOURCING

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