This document discusses how companies can transform their risk management approaches to create strategic value. It notes that while companies recognize the need to improve risk governance, many are overspending on risk management and not focusing on the most important risks. The document advocates aligning risk management more closely with business strategies to reduce costs, enhance transparency and improve performance. It outlines a risk performance model that companies can use to strengthen governance, integrate risk functions and measure risk management's impact on business objectives.
FRT - 110530 - BED - Why are some companies luckier than others - Frank Leenders
1. Why are some companies luckier than others?
Transforming risk to create strategic value
Flevum Roundtable, May 2011
Frank Leenders
Senior Manager Advisory Services
Ernst & Young Advisory - Risk Services
Solution Manager GRC BeNe
There continues to be multiple reasons that risk management is top of mind. This slide highlights some common themes from various EY surveys on risk. It may be used to establish themes that are relevant to the client. The key point is that risk is taking on a higher profile in the public markets. Note: S&P Proposed ERM Rating: The last bullet mentions S&P’s proposed ERM evaluation in their debt rating scores. S&P has a proposal out for comment and with an expected release date for the final framework of April 1, 2008, although timing of implementation would be spread over the remainder of 2008. If enacted, S&P will provide a rating system similar to what they are doing with financial service entities. (Scores will be “weak, adequate, strong, excellent.”) The rating would evaluate four key areas: Analysis of risk-management culture and governance Analysis of risk controls including Policy, Infrastructure and Methods (PIM) Analysis of emerging risk preparation Analysis of strategic risk management S&P has indicated that they will probably begin with industries that have been historically more heavily regulated – the intent is to lead with those industries that maintain, on average, more sophisticated approaches to ERM than others. The sequencing is expected to begin with Utilities, Oil and Gas, and Pharmaceuticals. Other industries would follow. Again, further evidence that risk is taking on a higher profile in the public markets. Sources: Ernst & Young/Economist Intelligence Unit (2009). Business responses to the credit crisis [need to verify title on this one] Ernst & Young (2008). Escalating the role of internal audit Ernst & Young (2007 ). Strategic Business Risk 2008: The top 10 risks for business Ernst & Young (2006) . Companies on Risk: The benefits of alignment Ernst & Young (2005). Investors on Risk: The need for transparency
Book end – if this business case discussion embedded in another Risk Transformation presentation, it would start here, after the spaghetti chart
1.) focus on priority areas: eliminate uncoordinated, overly complex or overlapping activities. Spend from low-value risk management activities, which may be routine and deliver comfort but are not business critical, needs to be redirected to other higher-risk priorities. 2.) Manage the performance of overall GRC capability: by adopting a holistic and cohesive risk transformation approach, companies can better align risk and strategic business processes. Governance - Risk governance strategy is driven by and better aligned to key strategic risks and business objectives. Effective risk management - Deeper and more robust risk insight is applied to enhance the design and effectiveness of the overall control environment. This optimizes risk and control mechanisms to enhance decision-making and, potentially, facilitate greater risk-taking. Integration - Rather than stand-alone functions, risk is managed on a business-wide footing to protect value and improve performance across the enterprise, delivering an appropriate ROI for the investment. Business performance - An effective and agile GRC capability contributes to the protection and enhancement of overall business performance.
There continues to be multiple reasons that risk management is top of mind. This slide highlights some common themes from various EY surveys on risk. It may be used to establish themes that are relevant to the client. The key point is that risk is taking on a higher profile in the public markets. Note: S&P Proposed ERM Rating: The last bullet mentions S&P’s proposed ERM evaluation in their debt rating scores. S&P has a proposal out for comment and with an expected release date for the final framework of April 1, 2008, although timing of implementation would be spread over the remainder of 2008. If enacted, S&P will provide a rating system similar to what they are doing with financial service entities. (Scores will be “weak, adequate, strong, excellent.”) The rating would evaluate four key areas: Analysis of risk-management culture and governance Analysis of risk controls including Policy, Infrastructure and Methods (PIM) Analysis of emerging risk preparation Analysis of strategic risk management S&P has indicated that they will probably begin with industries that have been historically more heavily regulated – the intent is to lead with those industries that maintain, on average, more sophisticated approaches to ERM than others. The sequencing is expected to begin with Utilities, Oil and Gas, and Pharmaceuticals. Other industries would follow. Again, further evidence that risk is taking on a higher profile in the public markets. Sources: Ernst & Young/Economist Intelligence Unit (2009). Business responses to the credit crisis [need to verify title on this one] Ernst & Young (2008). Escalating the role of internal audit Ernst & Young (2007 ). Strategic Business Risk 2008: The top 10 risks for business Ernst & Young (2006) . Companies on Risk: The benefits of alignment Ernst & Young (2005). Investors on Risk: The need for transparency
Strengthening risk governance Defining oversight and accountability for risk management at the Board and Executive levels Embedding risk management principles Incorporating enterprise risk assessment and monitoring into business planning and performance management Integrating multiple risk functions Increasing leverage across multiple risk functions to expand coverage, reduce cost and enhance value to the business Enhancing business level performance Enabling the organization to better manage risk with optimized processes and rationalized controls at the business unit level Footnotes Aon, Global Enterprise Risk Management Survey, 2010 Ernst & Young, Investors on Risk: The need for transparency, 2005 Marsh, Excellence in Risk Management VI: Strategic Risk Management in Practice, 2009 Standard & Poor’s, Standard & Poor’s to Apply Enterprise Risk Analysis to Corporate Ratings, RatingsDirect, 2008; Progress Report: Integrating Enterprise Risk Management Analysis into Corporate Credit Ratings, RatingsDirect 2009
Speaker’s Notes: Review this self-diagnostic with the client to assess where the company is along the spectrum of basic to leading. The objective is to identify areas where the client may require assistance that will lead to a discussion on the next page about next steps. In addition to understanding where the client currently is, ask about where they want to be in an ideal future state. It may not be the client’s intent to be leading practice on all aspects of its risk and controls functions – they may simply want to become established or advanced in some areas of their risk and control functions. We would like the client to recognize the benefits of moving along this continuum can be reflected in risk, cost and value, and – ultimately – improved performance of the business. If the meeting has gone well, you may be able to initiate the self-diagnostic based upon the issues the client has already raised earlier in the discussion. As appropriate, we should take the opportunity with that C-suite executive to get permission to expand the dialogue with other owners of the risk and control areas.
It is possible to apply this template to exiting presentations. Have the latest presentation template open Click on the View tab and select Normal Delete all unwanted slides Click on the Insert tab from the menu bar and select Slides from Files Click on Browse . Navigate to the presentation you wish to update with the new template. Highlight the presentation and click Open Wait for the slides from the presentation to load and click on Insert All . Then click Close Check the inserted slides to ensure that the most appropriate master slide has been used on each slide To change the master applied to a slide select the slide you wish to apply a different master to then click on the Format tab from the menu bar and select Slide Design From the Used in This Presentation section choose the master you wish to apply to the slide and hover over it to reveal a drop-down arrow. Click on the arrow and select Apply to Selected Slides It is important to thoroughly check the presentation to ensure that no further formatting is needed.
It is possible to apply this template to exiting presentations. Have the latest presentation template open Click on the View tab and select Normal Delete all unwanted slides Click on the Insert tab from the menu bar and select Slides from Files Click on Browse . Navigate to the presentation you wish to update with the new template. Highlight the presentation and click Open Wait for the slides from the presentation to load and click on Insert All . Then click Close Check the inserted slides to ensure that the most appropriate master slide has been used on each slide To change the master applied to a slide select the slide you wish to apply a different master to then click on the Format tab from the menu bar and select Slide Design From the Used in This Presentation section choose the master you wish to apply to the slide and hover over it to reveal a drop-down arrow. Click on the arrow and select Apply to Selected Slides It is important to thoroughly check the presentation to ensure that no further formatting is needed.
It is possible to apply this template to exiting presentations. Have the latest presentation template open Click on the View tab and select Normal Delete all unwanted slides Click on the Insert tab from the menu bar and select Slides from Files Click on Browse . Navigate to the presentation you wish to update with the new template. Highlight the presentation and click Open Wait for the slides from the presentation to load and click on Insert All . Then click Close Check the inserted slides to ensure that the most appropriate master slide has been used on each slide To change the master applied to a slide select the slide you wish to apply a different master to then click on the Format tab from the menu bar and select Slide Design From the Used in This Presentation section choose the master you wish to apply to the slide and hover over it to reveal a drop-down arrow. Click on the arrow and select Apply to Selected Slides It is important to thoroughly check the presentation to ensure that no further formatting is needed.
It is possible to apply this template to exiting presentations. Have the latest presentation template open Click on the View tab and select Normal Delete all unwanted slides Click on the Insert tab from the menu bar and select Slides from Files Click on Browse . Navigate to the presentation you wish to update with the new template. Highlight the presentation and click Open Wait for the slides from the presentation to load and click on Insert All . Then click Close Check the inserted slides to ensure that the most appropriate master slide has been used on each slide To change the master applied to a slide select the slide you wish to apply a different master to then click on the Format tab from the menu bar and select Slide Design From the Used in This Presentation section choose the master you wish to apply to the slide and hover over it to reveal a drop-down arrow. Click on the arrow and select Apply to Selected Slides It is important to thoroughly check the presentation to ensure that no further formatting is needed.