How do you build resilience using risk management? Understanding the relationship dynamics and balancing the voices of risk and reward helps you achieve sustainable rewards in your organisation.

1. Building Resilience by creating a
Happy Marriage between RISK and REWARD
David Tattam
Director Research and Training

2. 1. Meet the Partners
2. Relationship Dynamics
3. Managing the marriage
4. Reporting on marriage performance
Agenda

3. 1. Meet the Partners
o A look at Reward
o A look at Risk
2. Relationship Dynamics
o How do risk and reward interact?
o Enemies or best friends?
3. Managing the marriage
o The keys to a happy sustainable marriage
o Making great relationship decisions
o Incentives for success
4. Reporting on marriage performance
Agenda

4. Meet the partners

5. RiskReward
Reward
The degree to
which we meet our
objectives. This
includes financial
and non-financial
reward.
Risk
The effect of
uncertainty on
objectives.

6. Reward
The degree to which we meet our
objectives. This includes financial
and non-financial reward.
Objectives should cover our
objectives for ALL stakeholders:
• Shareholder
• Customer
• Member
• Employee
• Vendors / Suppliers / Partners
• Regulators
• Society
• Environment

7. Risk
The effect of uncertainty on
objectives.
As objectives cover objectives for
ALL stakeholders, risk covers risk
for all stakeholders:
• Shareholder
• Customer
• Member
• Employee
• Vendors / Suppliers / Partners
• Regulators
• Society
• Environment

8. Risk
the effect of uncertainty on objectives
ISO 31000: 2009

9. Objectives
To:
1. Have fun and adventure
2. Maintain wellbeing and health
3. Comply with park rules

10. Critical Processes / Steps
To:
1. Get up to the top of the rock safely
2. Play on top of the rock safely
3. Get back to ground level safely

11. Risks
1. Fall

12. Causes
1. Human error
2. Liquid hazard on ground
3. Inadequate process
4. Breakage in ladder leg
5. Slippery rock

13. 1. Inspections and Clean Up
2. Training
3. Non Slip Shoes
4. Cushion
5. Safety Hat
6. First Aid
Controls

14. Fall
Inadequate
process
Injury
Rules
Breach
Failure to
have fun
and
adventure
“ladder”
breakage
Hit
ground
Failure to
reach top
of rock
Liquid
Hazard
Manufacture
defect
Human
error
Failure
to play
on rock
The Risk Bow Tie – “FALL”
Causes Events Impacts
Weak
materials
Water on
floor
Equipment
failure
Slip
But Why? But What Next?
Risk – The complete picture
Moss
hazard
Slippery
Rock
Training Cushion
First Aid
Safety
Hat
Inspections & Clean
up
Non slip
shoes
14

15. 1. Meet the Partners
o A look at Reward
o A look at Risk
2. Relationship Dynamics
o How do risk and reward interact?
o Enemies or best friends?
3. Managing the marriage
o The keys to a happy sustainable marriage
o Making great relationship decisions
o Incentives for success
4. Reporting on marriage performance
Agenda

16. Risk: the effect of uncertainty on objectives
Risk Management
Risk Management =
Objectives Management =
Outcome Management
Risk Management: managing the effect of uncertainty on objectives

17. Outcome Management
Approach. Drive flat out
and ignore the holes
Result. Failure – don’t
achieve any objectives
Objective. Get to the end the
road safely and efficiently
17

18. Approach. Don’t attempt
it. Avoid the road
Result. Failure – don’t
achieve objective of
getting to end of road
Objective. Get to the end the
road safely and efficiently
Outcome Management
18

19. Approach. Invest in
expensive process and
lots of controls
Result. Partial
success, but not
efficient (high cost
and slow)
Objective. Get to the end the
road safely and efficiently
Outcome Management
19

20. Objective. Get to the end the
road safely and efficiently
Approach. Manouvre
smartly around the holes
Result. Success – get
to the end of the road
safely and efficiently
Outcome Management
20

21. Partner Focus
Reward Risk Result
Main focus Secondary or no focus –
“She’ll be right!”
Boom / Bust
Secondary or no focus –
“everything’s too risky”
Main focus Zero boom – long term
failure
50% focus 50% focus Long term sustainability

22. Partner Interactions
1. The greater the risk, the greater the average expected reward
2. The greater the risk, the greater the potential variation around the expected
outcome, both positive and negative

23. Return
Risk
Relationship between Risk and Reward
Risk Appetite
Low High
High
Low

24. 1. Meet the Partners
o A look at Reward
o A look at Risk
2. Relationship Dynamics
o How do risk and reward interact?
o Enemies or best friends?
3. Managing the marriage
o The keys to a happy sustainable marriage
o Making great relationship decisions
o Incentives for success
4. Reporting on marriage performance
Agenda

25. Keys to Success
1. Understanding each partner intimately – understand RISK
2. Understand the needs of each partner:
1. Reward - Strategic and Business Plans
2. RISK – Risk Targets
3. Understand the boundaries – RISK Appetite
4. Ensure both partners have equal say in the relationship
5. Ensure the performance of the marriage is measured based on the optimal outcome for BOTH
partners
6. Ensure that those that make decisions that affect the partnership are incentivised for Risk /
Reward performance.

26. Reward - Strategic and Business Plans
Strategic Plan Business Plan

27. Freedom within Boundaries
Risk Appetite
“the degree of risk that the organisation is prepared to accept in pursuit of its strategic objectives
and business plan”

28. Appetite
- Big
Tolerance
- 22 metres
Trigger
15 metres
Capacity
Boundary
Risk Appetite - Illustration

29. Decision Making
1. Can I?
• Is the risk within Risk Appetite?
• Does it breach any compliance obligations?
2. Should I?
• Is the reward worth it for the level of risk?
Reward Risk

30. Appetite
- Big
Tolerance
- 22 metres
Trigger
15 metres
Capacity
Boundary
Risk Appetite - Illustration

31. 1. Meet the Partners
o A look at Reward
o A look at Risk
2. Relationship Dynamics
o How do risk and reward interact?
o Enemies or best friends?
3. Managing the marriage
o The keys to a happy sustainable marriage
o Making great relationship decisions
o Incentives for success
4. Reporting on marriage performance
Agenda

32. Performance Framework

33. Balancing the Voices
Key Lessons
• The objectives of different stakeholders (shareholders, customers etc.)
must be balanced. The voice of finance and the voice of customer
must be heard equally.
• The short and long-term objectives must be balanced.
• The voice of risk must be balanced with the voice of reward.
• Bonuses linked directly to sales volume and sales targets should be
removed.
• Bonuses should be linked to a balance of metrics covering all
relevant stakeholders (including customer) and both risk and
reward.

34. Balancing the Voices
Stakeholders








Shareholder
Regulator
Customer
Employee
Society

35. Performance Reporting
Reward and Risk Example

36. Components of Risk

37. Incentive Schemes / Remuneration
Key Lessons
 Bonuses linked directly to sales volume and sales targets should be
removed.
 Bonuses should be linked to a balance of metrics covering all relevant
stakeholders (including customer) and both risk and reward.

38. Tips for a Resilient Marriage
1. RISK and REWARD partners are equal. They have equal voices.
2. One partner, RISK, supports the other partner, REWARD.
3. REWARD requires RISK. REWARD cannot be achieved without RISK.
4. RISK and REWARD are best friends, not enemies.
5. RISK and REWARD must consider every STAKEHOLDER in the relationship.
This will achieve
SUSTAINABLE REWARD

41. Building Resilience by creating a
Happy Marriage between RISK and REWARD
David Tattam
Director Research and Training