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Part 2 of 3 of a panel presentation at Warwick Business School 11/02/2008Mike Robertson
Citation preview
Risk Management………Not just part of good management
it’s all of it!!
Presented on 11 February 2008
Presented by Mike RobertsonManaging Director
© Risk Solutions 2007
Slide 2
Outline
Quick review of history
Some definitions / terminology
Risk management in practice
Demonstration that risk management and good
management are the same thing
© Risk Solutions 2007
Slide 3
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)
© Risk Solutions 2007
Slide 4
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)
© Risk Solutions 2007
Slide 5
Recent drivers of risk thinking
1980s 1990s 2000s
© Risk Solutions 2007
Slide 6
Key UK Government reports
© Risk Solutions 2007
Slide 7
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/
© Risk Solutions 2007
Slide 8
Definitions / Terminology
Definition(What?)
Identification(To whom?)
Estimation(How bad? Often?)
Evaluation(So what?)
Action(Implement,
monitor)
Risk Analysis
Risk Assessment
Risk Management
© Risk Solutions 2007
Slide 9
Risk management actions
Transfer▲ e.g. insure against the threat being realised
Tolerate▲ Requires some criteria to be tested against▲ concept of ‘risk appetite’
Treat▲ Apply additional or more effective controls
Terminate▲ Eliminate the threat completely
© Risk Solutions 2007
Slide 10
Defining ‘risk appetite’
H
MH
ML
L
L ML MH H
Likelihood
Impact
© Risk Solutions 2007
Slide 11
Examples of impact scales
Journey delay< 2 mins
Low (L)
Journey delay> 2 mins
Medium Low (ML)
Station closureMedium High (MH)
Partial line closure (or worse)
High (H)
ImpactScale
Operations managers on LUL
TrivialLow (L)
Short term damage to business
Medium Low (ML)
Long term damage to business
Medium High (MH)
Threatens business survival
High (H)
ImpactScale
Board of a battery manufacturer
© Risk Solutions 2007
Slide 12
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)
LikelihoodScale
Operations managers on LUL
Once every twenty yearsLow (L)
Once every five years
Medium Low (ML)
Once a yearMedium High (MH)
Once a monthHigh (H)
LikelihoodScale
Board of a battery manufacturer
© Risk Solutions 2007
Slide 13
H
MH
ML
L
L ML MH H
Likelihood
Impact
Risk assessment
X11
X6
X3
X2
X7
X12X9
X1
X8
X5
X10
X4
© Risk Solutions 2007
Slide 14
H
MH
ML
L
L ML MH H
Likelihood
Impact
Risk management
X11
X6
X3
X2
X7
X12X9
X1
X8
X5
X10
X4Treat
Tre
at
Terminate
Transfer
© Risk Solutions 2007
Slide 15
Tolerability of risk and ALARP
Source: Risk: Improving government’s capability to respond to risk anduncertainty, Strategy Unit, Cabinet Office, November 2002
Risk of death:Worker: 1 in 1,000 per yearPublic: 1 in 10,000 per year
Risk of death:Worker & public:1 in 1,000,000 per year
© Risk Solutions 2007
Slide 16
Risk decision making framework
Adapted from : A Framework for Risk Related Decision Support,UKOOA, 1999
Decision context
A
B
C
• Nothing new or unusual• Risks well understood• Established practice• No major stakeholder implications
• Lifecycle implications• Some risk trade-offs / risk transfer• Some uncertainty or deviation from established or best practice• Significant cost implications
• Very novel or challenging• Strong stakeholder views and perceptions• Significant risk trade-offs / transfer• Large uncertainties• Perceived lowering of safety standards
Codes
&
stan
dards
Good p
ract
ice
Engineering ju
dgement
Risk based analysis
e.g. QRA, C
BA
Company values
Societa
l
values
Input to decision making process
© Risk Solutions 2007
Slide 17
Evolution of risk management
Source: Risk: Improving government’s capability to respond to risk anduncertainty, Strategy Unit, Cabinet Office, November 2002
© Risk Solutions 2007
Slide 18
Risk management = good management?
Inboundlogistics
Operations Outboundlogistics
Marketingand sales
Service
Procurement
Technology development
Human resource management
Firm infrastructure
Margin
Mar
gin
Source: M E Porter, Competitive Advantage, 1985
How robust are our:• Processes?• IT/IM Systems?• Financial control?• Governance?
How robust is our:• Recruitment policy?• Development processes?• Succession planning?• HR system (up-to-date)?• Reward systems?
Is our technology:• Safe?• Out-dated?• Reliable?• Expensive to maintain?• Leading edge or good practice?
© Risk Solutions 2007
Slide 19
Final thoughts
Risk management is an evolving discipline Process is generic ………but one size does not fit all
▲ FITNESS FOR PURPOSE !
Objectives of good risk management are to:1. minimise risk to your business2. maximise chance of realising opportunity3. recognise and understand how uncertainty can affect your
decisions4. do all this in a transparent and auditable way
…….which is what good managers do anyway!
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