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Risk Analysis and Assessment - Tools (English)

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Risk Analysis and Assessment - Tools (English)

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Waqas Yousafzai, Policy and Government Relations Advisor with the Mongolian Wool and Cashmere Collaborative Council presents to Mongolian SMEs on the topic of Risk Management, Enterprise Risk Management, Risk Identification, Risk Mitigation, Risk Analysis, Risk Monitoring and some best practices.

Waqas uses examples from his background as a member of the Board of Directors of two Canadian NGOs and years of experience with government agencies. The examples provided to participants focused on the audience - i.e fibre sector SME managers and executives as well as power plant managers.

Presented at the Darkhan Polytechnical Institute and at the government offices of Erdenet Aimag. Program funded by the Government of Canada through the World University Service of Canada's Mongolia office.

Time: 3hrs
Translation services: Enkhmaa B-E. (WUSC-Mongolia)
Presenter: Waqas Yousafzai

Waqas Yousafzai, Policy and Government Relations Advisor with the Mongolian Wool and Cashmere Collaborative Council presents to Mongolian SMEs on the topic of Risk Management, Enterprise Risk Management, Risk Identification, Risk Mitigation, Risk Analysis, Risk Monitoring and some best practices.

Waqas uses examples from his background as a member of the Board of Directors of two Canadian NGOs and years of experience with government agencies. The examples provided to participants focused on the audience - i.e fibre sector SME managers and executives as well as power plant managers.

Presented at the Darkhan Polytechnical Institute and at the government offices of Erdenet Aimag. Program funded by the Government of Canada through the World University Service of Canada's Mongolia office.

Time: 3hrs
Translation services: Enkhmaa B-E. (WUSC-Mongolia)
Presenter: Waqas Yousafzai

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Risk Analysis and Assessment - Tools (English)

  1. 1. Introduction to Organizational Risk Management Waqas I. Yousafzai Вакас И. Юзафзэй Policy and Government Relations Advisor The Uniterra program receives funding from the Government of Canada, provided through Global Affairs Canada.
  2. 2. Risk 101: DefinitionsUnderstanding Risk - What do you think when someone says ‘Risk’ - What does someone saying “that is risky” mean to you? Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  3. 3. Risk 101: DefinitionsWhat is Risk? Risk is the “effect of uncertainty on objectives” - ISO 31000 Definition Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  4. 4. Hazard is defined as anything that has the potential to cause harm, ill health, injury, damage to property, products or the environment, production losses or an increase in liabilities Risk is the combination of the likelihood of a hazardous event occurring and the subsequent consequences of the event Risk = likelihood x consequence Risk 101: DefinitionsHazard vs. Risk Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  5. 5. Risk 101: DefinitionsRisk Explained • Risks are an expression of uncertainty • Risks are events that may occur, and if they occur, have harmful or negative effects on the achievement of results Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  6. 6. Risk 101: Definitions For Business: • Risks are closely related to the results and should consequently be analysed against the results framework of the organization • Risk analyses strengthen the basis for choosing realistic objectives and level of ambitions Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  7. 7. 7 Risk Management Risk management includes an assessment/evaluation of the risks and its related components. There are four components : - Risk Assessment/Risk Evaluation - Risk Communication - Risk Perception - Risk Management Objective is to minimize risk because it can never be fully eliminated Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  8. 8. 8 Definition of Enterprise Risk Management (ERM) 1. It is a strategic discipline that supports the achievement of an organization’s objectives 2. It addresses the full spectrum of risks and manages the combined impact as an interrelated risk portfolio. Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  9. 9. 9 Benefits of Enterprise Risk Management  Reduces surprises o Improve control of adverse events and take action  Exploitation of opportunities o Seek opportunities  Improved planning, performance, effectiveness and utilization of resources. Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  10. 10. 10 Benefits of Enterprise Risk Management  Positive effect on ‘Reputation’ o Attracts-investors, employees, improved quality  Documentation for actions and enquiries o liability coverage  Accountability, assurance and governance o Maintain integrity and confidence Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  11. 11. 11 Four ‘types’ of Risks Trends in Risk: • Measured and maintained by organization • Oversight by Executive management • Oversight by Board of Directors through an Audit committee Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  12. 12. 12 Risk 101 Internal organizational functions Related to ERM Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  13. 13. 13 Risk 101 Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  14. 14. 14 ISO 31000 Risk Framework and Process Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  15. 15. 15 Risk 101
  16. 16. 16 Risk 101 RISK can be measured at any level Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  17. 17. 17 Risk Attitude Risk Avoiding Risk SeekingRisk Optimizing Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  18. 18. 18 Risk Appetite and Tolerance Risk Appetite: Amount and type of risk that an organization is willing to pursue or retain. Risk Tolerance: Organization’s or stakeholder’s readiness to bear the risk after risk treatment in order to achieve its objectives.  Organizational Risk Appetite comes from Executive Management  Tries to answer: How much risk is acceptable? What is tolerable? Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  19. 19. 19 Risk and Assumptions • A lot of risk comes from untested assumptions. • Assumptions are: • Necessary conditions that allow for a succesful cause- and-effect relationship between the different levels of results. • Critical success factors. • Formulated after the objectives, to ensure results are anchored in reality Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  20. 20. 20 Example of Assumptions Outcome Company increases its net revenues and increases its shares of sector profits by 10% from 2014-2017 Output Sales of wool products increase by 30% from 2014 to 2017. Assumption Machinery, Electricity, and other inputs are operational and function without fail Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  21. 21. 21 Risk Identification Risk identification: • Done in all phases of a company or value chain • Requires several contributers from different areas of business • is expressed as negative statements in relation to achievement of the desired result or final outcomes • May include perception of conflict of interest regarding sharing information on risks (i.e maybe perceived as ’weakness’) • Always document your risk identification, analysis and mitigation Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  22. 22. 22 Risk Categories There are no specific number of categories that risk can fall into. Examples include: 1) Governance Risk (Institutional, management, transparency, accountability) 2) Strategic Risk 3) Compliance Risk 4) Operational/Technical Risk 5) Regulatory Risk (compliance, corruption, procurement) 6) Financial Risk 7) Reputational Risk 8) Systemic Risk 9) Environmental Risk 10) Partner Risk Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  23. 23. Examples of Human Risk • Death • Owner • Employee • Illness • Short term • Long term • Indefinite Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor Source: Participant Risk Management, Small Business Administration (US)
  24. 24. • Theft and fraud • Product and inventory theft • Time sheet/Employee fraud • Accounting and cash fraud • Low morale, dissatisfaction • Failure to perform • Sabotage of systems, equipment or customers Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor Source: Participant Risk Management, Small Business Administration (US)
  25. 25. Examples of Operational Risks • Equipment breakdowns • New equipment integration • Worn older equipment • Damage to vehicles, machiners, building, etc. Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor Source: Participant Risk Management, Small Business Administration (US)
  26. 26. • IT/Computer system downtime • Lack of backup or recovery system • Updates and repairs • Power and connectivity (physical damage and outdated systems) • Lack of administrative controls Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor Source: Participant Risk Management, Small Business Administration (US)
  27. 27. Examples of Other Internal Risk • Physical plant repairs • Breaks in lines or utilities • Routine maintenance time • Incidents • Work related injuries • Damage to others’ property by employees • Damage to your property by othersSource: Participant Risk Management, Small Business Administration (US) Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  28. 28. Example of Financial Risks • Cash flow changes • Unexpected costs • Loss of credit lines • Expenses to establish lines of credit Source: Participant Risk Management, Small Business Administration (US) Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  29. 29. Examples of External Risks: Competition and Market Risks • Loss of clients or customers • Loss of employees • Decrease in sales prices/fluctuating markets • Increases in vendor costs • Oil or gasoline price increases • Fixed cost changes (e.g., rent) Source: Participant Risk Management, Small Business Administration (US) Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  30. 30. Examples of External Risks: Business Environment Risks • Laws • Weather • Natural Disaster • Community Source: Participant Risk Management, Small Business Administration (US) Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  31. 31. SME/Micro Enterprises’ Unique Risks • Family obligations, illnesses or deaths • Events of disaster that affect the home • Community involvement • Complacency Source: Participant Risk Management, Small Business Administration (US) Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  32. 32. 32 Risk Assessment • Risk assessment is a forward-looking exercise • Make sure to distinguish probability and consequence • The aim is not to avoid all risks • High risk is often acceptable in contexts where expected impact and benefits are higher than the potential risk.
  33. 33. 33 Risk Identification and Analysis Best Practice is to incorporate the risk identification, analysis, and mitigation process as part of the annual work and strategic planning process. Increasingly donor agencies, banks and credit agencies, auditors, and partner organizations are asking for risk assessments. It is important to utilize ‘outside the box’ thinking Вакас И. Юзафзэй | Waqas I. Yousafzai Policy and Government Relations Advisor
  34. 34. 34 The Uniterra program receives funding from the Government of Canada, provided through Global Affairs Canada. -- Lunch Break -- https://www.facebook.com/WUSCofMongolia

Notes de l'éditeur

  • The human component of your business is a source of risk. Think about these possible human risks to your business:
     
    Illness and death. A business owner may be ill for a day or be unable to work for months. The same situation could happen to an employee. The death of a person involved in a business poses a risk to continued operations.
     
  • Theft and fraud. Most businesses want to have an honest working environment, yet theft by employees and employee fraud are major risks businesses face. Timecard fraud is a risk. Diverting funds to fictitious accounts are accounting risks.
     
    Low morale and employee dissatisfaction. Unhappy employees can cost money through negligence or through willful acts. For example, an employee who forgets to reorder inventory is a risk to sales because back orders lead to cancellations.
  • Older equipment may run slower or require more maintenance than new equipment. New equipment may require adjustments to work with older equipment.
     
    Worn parts may cause damage or cause company vehicles to break down. What would a broken-down delivery van cost a business for one day?
  • Downtime from physical damage or outdated systems may slow business profits. Most businesses rely on a computer system to process credit cards. These systems are risks to continued business when they are not working, especially if no backup plan exists. Lack of administrative controls may lead to downtime, in addition to fraud and theft.
  • Another source of risk might be the physical plant of your business. Phone lines and other utilities are risks to a business. The appearance of a building such as its walls, windows, and doors may require maintenance to continue to draw customers.
     
    Injuries and damages may be caused by your business or your business may receive damage. For example, a storm may cause damage to a business or a business may cause damage by selling a faulty product. Either way, injuries and damages come with a cost.
  • Cash flow is the lifeline of a business. When unexpected costs affect the ability of a business to meet monthly expenses or when credit lines are lost, a business may fail. A plan to maintain cash flow is crucial.
     
    Even new financing has its own cost-associated risks. The risks can include the following:
    Appraisal costs
    Closing costs
    Costs for points to buy down rates
    Deposits placed on hold as collateral
     
    Are you prepared?
  • Market changes will cause businesses to change. Competitors advertise sales, wholesale costs go up and down, and oil and gasoline prices affect your costs and those of your vendor.
     
    Employees may leave to go to a competitor’s shop, taking loyal customers with them.
     
    Rent increases may be caused by increased demand for space. For example, getting a lease when construction on new space is not completed can start at a lower rent, but when the lease renews and there is a demand for your space, rent may go up.
  • Your environment is more than the space you rent or buy. What happens around your business affects it. Here are some examples of environmental changes:
     
    Federal, state, county, and city laws and ordinances can and will change.
     
    Weather and natural disasters can shut down a business for a short period or close it.
     
    Structural changes in the community may be the result of progress or may be due to empty stores and offices in a declining market.
     
    Your community may change as the needs, age groups, spending habits, and incomes of the population change.
  • Personal conflicts are external risks that can be stumbling blocks to both business owners and employees. Families and homes do not cease to exist at the start of a work day. Children become ill. Medical emergencies, or worse, will happen. Broken heating systems and plumbing repairs will be required at home.
     
    For a small business owner, involvement in the community creates visibility. However, the visibility comes with a cost, namely time. Employees and their children are involved in outside activities as well. We don’t usually think of outside activities as a risk, but consider how you would handle this situation: your most reliable manager wants to attend an out-of-town playoff game with her child on the busiest day of the month.
     
    Even complacency is a risk. Complacency comes from being comfortable. Your business may be successful and has been for a while. You may be comfortable with the hours you are working, but you may miss opportunities for growth because you do not want to expend the extra effort. Now, multiply the effect of complacency because complacency also happens to employees.

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