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Aligning Enterprise Risk Management with Strategy Through the BSC:
The Bank of Tokyo-Mitsubishi Approach
Group A2T A Pai Management Institute, Manipal
The Risk
If you Google’d “Enterprise Risk Management,” how many hits would you get? About 79,200,000 (24 March, 2013)
Risk & Strategy
“You can resist an invading army: you cannot resist an idea whose time has come.” - Victor Hugo
“Less than 10% of strategies effectively formulated are effectively executed.” – Fortune Magazine
Why? We can’t DESCRIBE a strategy We don’t MANAGE strategy
“Strategy that lacks alignment to risk management is not only insufficient but downright dangerous… Risk management is pointless unless it is closely tied to the company’s strategic objectives.”
- T. Nagumo, Bank of Tokyo-Mitsubishi
Risk & Strategy
COSO-ERM and BSC Linkage
ERM & BSC
• ERM can be incorporated into performance management systems that translate strategy into actionable terms such as the balanced scorecard (BSC)
• The BSC communicates strategy and strategic objectives through performance metrics that are segmented into four major stakeholder perspectives
ERM & BSC
• Customer: How do customers view the organization?
• Internal process: Where must the organization excel?
• Learning/growth: How can the organization continuously improve and create value?
• Financial: How do shareholders view the organization?
ERM & BSC
ERM & BSC
ERM & BSC
Strategy Risk Management Double Loop
In Bank of Tokyo-Mitusbishi
Conclusion
• ERM requires one to take a broad view of their organization to understand the risks that affect all business units. Similar to ERM, the BSC requires one to adopt a comprehensive viewpoint of the organization through its four perspectives
• The BSC enables ERM efforts to be aligned to corporate strategy and drive individuals to understand their roles in managing risk
Thank you!