RIMS Fellow Workshop 1 STRATEGIC RISK CONTROL © 2007 Risk & Insurance Management Society © 2007 KCS All rights reserved

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RIMS Fellow Workshop

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STRATEGIC RISK CONTROL

© 2007 Risk & Insurance Management Society © 2007 KCS All rights reserved

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Presented by

Dr. James Kallman, ARM

Kallman Consulting Services700 Furlong DriveAustin, Texas [email protected]

Practical Applications of Enterprise Risk Management

Risk Management Training, Consulting, & Research

knowledge confidence simplicity

K SCknowledge confidence simplicity

K SC


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Learning Objectives

This course provides the essential knowledge to control risks and assess the implications of a risk control program. The focus is on strategic risks.

The course explores risk control history, theory, and practical applications, including:• Setting up a risk control program• Behavior modification• Process management• Engineering safety• Legal risk control


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Learning Objectives

Upon completion you should be able to:• Understand the importance of risk control• Understand the risk control process• Create and implement a risk control program• Understand and apply risk control techniques• Recognize and identify legal risks• Evaluate and explain the value of risk control


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Course Outline

Part I: Theoretical and Practical Foundations• Introduction to strategic risk control• The importance of risk control• History of risk control – risk control theories• Risk control Programs• Links to other RIMS workshops

Part II: Risk Control Analysis• Strategic goals • Strategic risk identification• Risk control measurement• Records and rates


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Course Outline

Part III: Risk Control Practical Applications • Income statement risk control

• Operations management• Net income management

• Balance sheet risk control• Asset management • Equity management• Legal liability management

Part IV: More Risk Control Practical Applications• Human resource risk control

• Behavior modification• Engineering solutions• Managerial solutions• Process management

• Human resource legal risk control


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Theoretical and Practical Foundations

• Why be concerned about strategic risk management?• Who should be concerned about it?• What is strategic risk management?

• Management• Definition: the decision making process of

planning, organizing, leading, controlling, and allocating scarce resources of people, materials, and time to help the organization achieve its goals.

• Five functions of management – and risk control• Three scarce resources:• The stakeholder model


Introduction to strategic risk control

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Stakeholder Model

ORGANIZATION

Management

Labor

OWNERSSole Proprietor

PartnershipCorporation

SOCIETY

Governments

SUPPLIERSLabor

CapitalMaterials

CONSUMERSHouseholdsBusinesses

Governments

Board ofDirectors

Head HuntersInvestment Bankers

Wholesalers

RetailersBrokers

LobbyistsRegulatorsInspectors


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SUPPLIERSCapitalLabor

Materials

OWNERSSole Proprietor

PartnershipCorporation

ORGANIZATIONManagement

Labor

SOCIETY

Governments

CONSUMERSHouseholdsBusinesses

Governments

Board ofDirectors

Head HuntersInvestment Bankers

Wholesalers

RetailersBrokers

LobbyistsRegulatorsInspectors

COMPETITIONSubstitute goods

Win/Lose

Trade Assns

COOPETITIONComplementary goods

Win/Win

VentureCapitalists

Theoretical and Practical Foundations Stakeholder model

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Theoretical and Practical FoundationsThe importance of risk control

Value defined – achieving the organization’s goals

• Financial: increasing revenues, decreasing expenses, stabilizing cash flows, preserving assets

• Reputation: preserving image, quality control, employee attraction, satisfaction, and retention

• Social responsibility: Environmental compliance, employment stability, increase tax contributions, enables charitable programs


VALUE

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Damage, Illnesses, andInjuries

Incidents and Accidents

HazardousConditions

Faults in People

Theoretical and Practical Foundations History of risk control

1930’s Industrial Psychology – H.W. Heinrich, INADomino theory

© 2007 Risk & Insurance Management Society © 2007 KCS All rights reservedFaults in Society

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1940’s Process ManagementGeneral Methods of Control


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1960’s Engineering ApproachWilliam Haddon, Jr., Physician, Editor of Accident Research, National Highway Traffic Safety Administration, Insurance Institute for Highway Safety, Energy Release Theory, OSHA


The Energy release theory of accident causation revolves around engineering solutions for:(1) controlling & preventing the buildup of dangerous energy; (2) creating an environment/materials not conducive to buildup of unwanted energy; and (3) using measures to counteract or separate the injurious buildup of

energy.

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1980’s Managerial ApproachDan Petersen (D.A. Weaver)Protégé of Heinrich, Industrial Accident Prevention: A Safety Management

Approach by H. W. Heinrich, Dan Petersen, Nestor R. Roos, Julienne Brown, Susan Hazlett (1980)

Technique of Operations Review


TOR identifies management failures rather than ‘blaming’ employees. Uses a work sheet answering a series of yes/no questions; requiring a group consensus on the answers.

Four steps in the TOR analysis process: 1) Establish the facts;2) Trace the root causes;3) Eliminate insignificant causes; and 4) Identify realistic actions

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1990’s System Safety Approach

Bertalanffy (c.1940) General Theory of Systems;

• Analytic decomposition• Safety must be a part of every component• Previous theories are true• Every system has a life cycle


Start-up Growth Mature Cash-cow

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2000’s Behavior Modification Approach

• Empower people with knowledge and they will be motivated to perform safely

• Positive rewards are more effective than ignoring or punishing unwanted behavior

• Positive reinforcements include affirmation, approval, compliments, and encouragement

• 5 compliments per complaint is most effective in altering behavior


'Those who cannot remember the past are condemned to repeat it.' George Santayana, Life of Reason, Reason in Common Sense, Scribner's, 1905, p. 284

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2000’s ERM Approach - Speculative Risk Control

• Create conditions and events that “enables” the likelihood that the desired results occur• Marketing – building long-term client relations

• Advertising – market position, “promotion”• “Price” – assuring stability in price

• Employment Practices – employee relations & stability• Social responsibility – proactive participation in social programs• Sustainability risk management• Innovation – R&D

• Create conditions and events that “enhance” the values of the desired results• Statistical Quality Control – “product”• Sustainable competitive advantage - reputation• “Place” – efficient distribution to markets


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Theoretical and Practical Foundations Risk control Programs

• Understand the organization: what it does, its strategic goals

• Understand the risks: speculative and pure, interactions

• Know what can be done: risk control theories & applications

• Know the costs and benefits: quantitative & qualitative analyses

• Use sound decision models: fiduciary duty of care

• Get support: at all levels, but especially the top

• Implement the change: change management

• Monitor the outcomes: Statistical quality control, 6-δ

• Report success: Make sure people know what you’ve done


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• Techniques of Risk Management• Risk Analysis Tools for Effective Risk Management • Enterprise Risk Management • Enterprise Risk Mgmt. for the Advanced Practitioner • Business Continuity/Disaster Planning and Management • Finance for the Risk Manager • Claims Management • Developing a Risk Mgmt. Program for Your Organization • Alternative Risk Financing Techniques • Developing An Environmental Risk Management Strategy• Pandemic Influenza: Building a Continuity Plan


Links to other RIMS workshops

Documents

RIMS Fellow Workshop 1 STRATEGIC RISK CONTROL © 2007 Risk & Insurance Management Society © 2007 KCS All rights reserved