Translating Operational Risk to the Boardroom
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Safety Governance is often overlooked in the space of risk governance. However with globalisation of our markets, newly increased penalities and the positive duty of due diligence for directors and officers, the focus on safety governance must be reignited. Managing the non-financial risk in an organisation is often difficult to visualise. Here we discuss the Translation of Operational Risk to the Boardroom
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Translating Operational Risk to the Boardroom
- 1. 1 Translating Operational Risks to the Boardroom REDUCED DAMAGE CO$T$ = INCREA$ED PROFIT$ JL HAMILTON 22 August 2018
- 2. 2 Translating Risk & Damage • To be Informed • Non-Financial Risks • Language • Safety Financial Reporting • The Numbers Don’t Lie • ROI (Proving Value in Prevention) • The Costs of Damage • Risk Dollarisation® • Create Action • Futuristic Thinking
- 3. 3 Operations Duty to Inform • If your duty is to be informed • It is the operations responsibility to appropriately inform you • How to define appropriate? • Due Diligence Definition • Informed in a relatable manner – financial
- 4. 4 Non-Financial Risks • Where everything else is numbers… • Where all the rest of the decisions are made…
- 5. 5 Non-Financial Risks • Non-Financial Risk is those items of risk that are not normally managed in monetary or financially reported: – Operational Risk – Compliance Risk – Conduct Risk – IT Risk – Cyber Risk – Third- Party Risk
- 6. 6 Damage Costs • The cost incurred by repercussions (effects) of direct environmental impacts (for example, from the emission of pollutants) such as the degradation of land or human-made structures and health effects. In environmental accounting, it is part of the costs borne by economic agents. • The word “damage” is chosen and used to speak to the commercial/ business/ operational parties of a business whom regularly speak in these terms for stock and accounts of widgets worldwide. • The words and phrases are to frame a commercial approach to risk and its management in terms business owners know, understand and are comfortable to operate within.
- 8. 8 AUS vs UK vs NZ
- 9. 9 Why Do People Go Into Business?
- 10. 10 Profit Goals
- 11. 11 MONEY TALKS • NO MATTER WHICH LANGUAGE –Dolarização do risco –Dolarización del riesgo –リスクのドル化 –Risk Dollarization –Dollarisation des risques –Risico-Dollarisering –风险 货币
- 14. 14 Perceptions..
- 16. 16 Financial Approach Safety • Improved Economic Outcomes • New Language • Clear, Transparent & Accurate • Marked, Measured & Manage • Lets Commercially focused people understand Non-Financial Risk • Risk DollarisationTM has positive impacts & results for all entities including workers and companies.
- 17. 17 Damage Costs? IMPORTANT NUMBERS Suitable Duties Medical Counsellors Investigators Public Liability Legal Physio External provider Common law Claims Surveillance Doctors Insurance
- 18. 18 Financial Values Reduce Costs and Identify Value Gather the Hearts, Minds & Pockets
- 20. 20 Why Does it Matter Refer to SWA “Measuring and Reporting on Workplace Health and Safety” - March 2017
- 21. 21 SWA Recommend WHS INDICATORS INTERNAL REPORTS EXTERNAL REPORTS Boards WHS Investors Community Financial indicators of WHS performance # workers’ compensation claims ^ $ workers’ compensation costs ^ $ fines and regulatory penalties $ legal fees ^ ^ $ lost revenues ^ ^ $ reputational repair costs ^ $ contingent liabilities ^ $ WHS incentives paid ^ ^ ^
- 23. 23 QLD, NSW, SA, NZ Damage Costs Sprains & Strains, Muscular Skeletal % & Back Specifically Industry QLD Claims Cost (17/18FY) NSW Claims Cost (14-15FY) SA Claims (14-15FY) NZ Claims (16/17FY) Back Injury % Sprains Strains M/Skeleta SSM% Mining - Coal $61,371 $26,400 $18,008 $2,236 19% 49% 25% 74% Electricity - Supply $40,529 $13,800 $18,008 $2,236 19% 31% 28% 59% Construction - Roads & Infrastructure $57,130 $14,700 $18,680 $2,236 15% 49% 25% 71% Transport, Postal & Warehousing – Rail $26,085 $13,600 $25,081 $2,236 19% 41% 27% 68% Public Admin & Safety - Sec & Govt $16,619 $13,000 $18,008 $2,236 19% 51% 25% 76% Education & Training – Primary & Sec $15,904 $10,800 $18,008 $2,236 19% 36% 19% 56% Health Care & Soc Ass - Aged Care $11,581 $8,000 $18,329 $2,236 19% 51% 29% 81%
- 25. 25 Create Action
- 27. 27 Engagement Types -Employees -Gig Workers -Contractors (ABN) -Labour Hire -Subcontractors -Volunteers
- 28. 28 Plan You Business Future Quantify your Insurance Future?
- 29. 29 Set for Success New Ventures? Restructures? Safety & Insurance Planning
Editor's Notes
- It should be noted the concept is not primarily focused on “damages” in the above legal sense. Whilst damages of this nature are included in The Financial Approach to Non-Financial Risk, it is essential that the focus is on avoidance of damage, which in turn results in avoidance of damages. Damage Costs are all those costs associated with harm in a business environment. “Environment” should be taken broadly as the OECD approaches as the whole operation and the environment in which it operates.
- Once I switched that perception The dark side They thought we put money Cold hard facts many peple think like this That’s why we say risk…. Pwc Rob Ashley board meeting – how do you get them to listen to you?? Directors piped up skull and cross bones scarf But I simply said I have them by the hip pocket I talk in dollars this was back in 2011 when it had to start My job was on seek about 3 times whilst i worked there!!
- We aim to avoid the catastrophic positions in business We have all heard of the Grenfell Incident, Dreamworld , Rana Plaza and Deep Water horizon Why is it that we talk about risks in dollar terms only when it's absolutely too late? If we don’t address the true value of risk and avoid managing this as we would any other budget item – we would simply expect a catastrophic event to occur. We need to talk about it in dollars before it's far too late Risk Dollarisation means true cost benefit analysis can be applied and ensures the financial experts listen, understand and that all parties are speaking the same language.
- Once I switched that perception The dark side They thought we put money Cold hard facts many peple think like this That’s why we say risk…. Pwc Rob Ashley board meeting – how do you get them to listen to you?? Directors piped up skull and cross bones scarf But I simply said I have them by the hip pocket I talk in dollars this was back in 2011 when it had to start My job was on seek about 3 times whilst i worked there!!
- Once I switched that perception The dark side They thought we put money Cold hard facts many peple think like this That’s why we say risk…. Pwc Rob Ashley board meeting – how do you get them to listen to you?? Directors piped up skull and cross bones scarf But I simply said I have them by the hip pocket I talk in dollars this was back in 2011 when it had to start My job was on seek about 3 times whilst i worked there!!
- Applying a financial approach to non-financial risk provides a common way of thinking for all stakeholders. What language do you speak? Do you know your numbers (and im not speaking about frequency rates – I am asking the costs of operations)? Can you quantify your costs to show the benefits. HSEQ professionals must be able to quantify in dollars their areas of responsibility. By using financial terms stakeholders are clear on their positions as they are clearly defined, accountable and visible. It removes the ambiguity and assigns a specific economic value for risk rather than today’s current qualitative terms. Risk Dollarisation increases the importance & understanding of the current non-financial functions of an entity as they will be represented in financial terms. Risk Dollarisation quantifies items of damage risk that are normally not costed It ensures all damage risk are marked, measured and managed in financial terms just as any other financial cost can be, not just at catastrophe stage. Risk Dollarisation allows commercially focused people to assign dollars to what they usually consider Non Financial aspects of the entity. This application of dollars helps them understand It is clear Transparent Visible and accurate The numbers don’t lie. It WILL improve the decision making process and the economic outcomes This philosophy challenges the concept of assigning costs, people and damage in one conversation, so everyone is on the same page and talking the same language. It is Quantitative versus Qualitative reporting This ensures it is presented as objective data instead of subjective terms just like any budget item.
- It is our job to $$$ CEO CFO
- Once I switched that perception The dark side They thought we put money Cold hard facts many peple think like this That’s why we say risk…. Pwc Rob Ashley board meeting – how do you get them to listen to you?? Directors piped up skull and cross bones scarf But I simply said I have them by the hip pocket I talk in dollars this was back in 2011 when it had to start My job was on seek about 3 times whilst i worked there!!
- Not sure they know how to talk in specifically finanicial terms But they did finally in their last report attempt to have people start to report in this form
- Linmted Guidance Metric Driver helps you do this
- Just a short time ago I was a safety guy at a company just like you The sad fact is that safety isnt always first I was struggling to be heard So I changed my language Soon people started to listen as I created a financial relevance Today we explore creating a financial relevance We will cover the abovve topics We want to share wuth you how to gather the hearts minds and pockets of the ceo cfo and plant managers
- Once I switched that perception The dark side They thought we put money Cold hard facts many peple think like this That’s why we say risk…. Pwc Rob Ashley board meeting – how do you get them to listen to you?? Directors piped up skull and cross bones scarf But I simply said I have them by the hip pocket I talk in dollars this was back in 2011 when it had to start My job was on seek about 3 times whilst i worked there!!
- MONEY TALKS Aphra Behn Money makes sense in a language all nations understand
- “Looking ahead, reduced margins and profits by all business due to insurance premium increases will be a significant challenge for our clients. Collection gaps Gig Economy players Less Insurable “Units” as people are replaced with rebots; Increased Legal Action ASX Australia Sueing nation exceeded the USA CAR INSURANCE National Disability Scheme NSW Icare Reform – THEY want to join QLD as the 2nd sueing state
- Once I switched that perception The dark side They thought we put money Cold hard facts many peple think like this That’s why we say risk…. Pwc Rob Ashley board meeting – how do you get them to listen to you?? Directors piped up skull and cross bones scarf But I simply said I have them by the hip pocket I talk in dollars this was back in 2011 when it had to start My job was on seek about 3 times whilst i worked there!!
- Once I switched that perception The dark side They thought we put money Cold hard facts many peple think like this That’s why we say risk…. Pwc Rob Ashley board meeting – how do you get them to listen to you?? Directors piped up skull and cross bones scarf But I simply said I have them by the hip pocket I talk in dollars this was back in 2011 when it had to start My job was on seek about 3 times whilst i worked there!!
- Once I switched that perception The dark side They thought we put money Cold hard facts many peple think like this That’s why we say risk…. Pwc Rob Ashley board meeting – how do you get them to listen to you?? Directors piped up skull and cross bones scarf But I simply said I have them by the hip pocket I talk in dollars this was back in 2011 when it had to start My job was on seek about 3 times whilst i worked there!!