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Risk Management……… Not just part of good management it’s all of it!! Presented on 11 February 2008 Presented by Mike Robertson Managing Director

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Outline <ul><li>Quick review of history </li></ul><ul><li>Some definitions / terminology </li></ul><ul><li>Risk management in practice </li></ul><ul><li>Demonstration that risk management and good management are the same thing </li></ul>

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Historical origins of risk thinking Pierre de Fermat (1601-1665) Blaise Pascal (1623-1662) Gerolama Cardano (1501-1665) Daniel Bernoulli (1700-1782) Jakob Bernoulli (1654-1705) Abraham de Moivre (1667-1754) Thomas Bayes (1702 – 1761)

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Historical origins of risk thinking Pierre de Fermat (1601-1665) Blaise Pascal (1623-1662) Gerolama Cardano (1501-1665) Daniel Bernoulli (1700-1782) Jakob Bernoulli (1654-1705) Abraham de Moivre (1667-1754) Thomas Bayes (1702 – 1761)

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Recent drivers of risk thinking 1980s 1990s 2000s

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Key UK Government reports

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Key UK Government reports http://www.hse.gov.uk/risk/theory/r2p2.htm http://www.hm-treasury.gov.uk./documents/ public_spending_reporting/governance_risk/ psr_governance_risk_riskguidance.cfm http://www.cabinetoffice.gov.uk/strategy/work_areas/risk.aspx http://archive.cabinetoffice.gov.uk/brc/

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Definitions / Terminology Risk Analysis Risk Assessment Risk Management Definition (What?) Identification (To whom?) Estimation (How bad? Often?) Evaluation (So what?) Action (Implement, monitor)

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Risk management actions <ul><li>Transfer </li></ul><ul><ul><li>e.g. insure against the threat being realised </li></ul></ul><ul><li>Tolerate </li></ul><ul><ul><li>Requires some criteria to be tested against </li></ul></ul><ul><ul><li> concept of ‘risk appetite’ </li></ul></ul><ul><li>Treat </li></ul><ul><ul><li>Apply additional or more effective controls </li></ul></ul><ul><li>Terminate </li></ul><ul><ul><li>Eliminate the threat completely </li></ul></ul>

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Defining ‘risk appetite’

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Examples of impact scales Journey delay < 2 mins Low (L) Journey delay > 2 mins Medium Low (ML) Station closure Medium High (MH) Partial line closure (or worse) High (H) Impact Scale Operations managers on LUL Trivial Low (L) Short term damage to business Medium Low (ML) Long term damage to business Medium High (MH) Threatens business survival High (H) Impact Scale Board of a battery manufacturer

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Examples of likelihood scales Greater than once per year Low (L) Greater than once per month Medium Low (ML) Greater than once per week Medium High (MH) Greater than once per day High (H) Likelihood Scale Operations managers on LUL Once every twenty years Low (L) Once every five years Medium Low (ML) Once a year Medium High (MH) Once a month High (H) Likelihood Scale Board of a battery manufacturer

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Risk assessment X 11 X 6 X 3 X 2 X 7 X 12 X 9 X 1 X 8 X 5 X 10 X 4

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Risk management X 11 X 6 X 3 X 2 X 7 X 12 X 9 X 1 X 8 X 5 X 10 X 4 Treat Treat Terminate Transfer

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Tolerability of risk and ALARP Source: Risk: Improving government’s capability to respond to risk and uncertainty, Strategy Unit, Cabinet Office, November 2002 Risk of death: Worker: 1 in 1,000 per year Public: 1 in 10,000 per year Risk of death: Worker & public: 1 in 1,000,000 per year

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Risk decision making framework Adapted from : A Framework for Risk Related Decision Support , UKOOA, 1999 Input to decision making process Decision context A B C <ul><li>Nothing new or unusual </li></ul><ul><li>Risks well understood </li></ul><ul><li>Established practice </li></ul><ul><li>No major stakeholder implications </li></ul><ul><li>Lifecycle implications </li></ul><ul><li>Some risk trade-offs / risk transfer </li></ul><ul><li>Some uncertainty or deviation from established or best practice </li></ul><ul><li>Significant cost implications </li></ul><ul><li>Very novel or challenging </li></ul><ul><li>Strong stakeholder views and perceptions </li></ul><ul><li>Significant risk trade-offs / transfer </li></ul><ul><li>Large uncertainties </li></ul><ul><li>Perceived lowering of safety standards </li></ul>Codes & standards Good practice Engineering judgement Risk based analysis e.g. QRA, CBA Company values Societal values

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Evolution of risk management Source: Risk: Improving government’s capability to respond to risk and uncertainty, Strategy Unit, Cabinet Office, November 2002

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Risk management = good management? Source: M E Porter, Competitive Advantage, 1985 <ul><li>How robust are our: </li></ul><ul><li>Processes? </li></ul><ul><li>IT/IM Systems? </li></ul><ul><li>Financial control? </li></ul><ul><li>Governance? </li></ul><ul><li>How robust is our: </li></ul><ul><li>Recruitment policy? </li></ul><ul><li>Development processes? </li></ul><ul><li>Succession planning? </li></ul><ul><li>HR system (up-to-date)? </li></ul><ul><li>Reward systems? </li></ul><ul><li>Is our technology: </li></ul><ul><li>Safe? </li></ul><ul><li>Out-dated? </li></ul><ul><li>Reliable? </li></ul><ul><li>Expensive to maintain? </li></ul><ul><li>Leading edge or good practice? </li></ul>Inbound logistics Operations Outbound logistics Marketing and sales Service Procurement Technology development Human resource management Firm infrastructure Margin Margin

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Final thoughts <ul><li>Risk management is an evolving discipline </li></ul><ul><li>Process is generic ………but one size does not fit all </li></ul><ul><ul><li>FITNESS FOR PURPOSE ! </li></ul></ul><ul><li>Objectives of good risk management are to: </li></ul><ul><ul><li>minimise risk to your business </li></ul></ul><ul><ul><li>maximise chance of realising opportunity </li></ul></ul><ul><ul><li>recognise and understand how uncertainty can affect your decisions </li></ul></ul><ul><ul><li>do all this in a transparent and auditable way </li></ul></ul><ul><li>…….which is what good managers do anyway! </li></ul>