MOHSG Nov 2005 CHALLENGING BOUNDARIES The Risk Management Standard Jeff Roycroft Risk Manager Northern & Central Europe Rhodia UK Limited

MOHSG Nov 2005 CHALLENGING BOUNDARIES

The Risk Management Standard

Jeff Roycroft

Risk Manager Northern & Central Europe

Rhodia UK Limited

2MOHSG Nov 2005 CHALLENGING BOUNDARIES

Agenda

• What is risk?

• Define risk management

• Standard structure

• Examples of use

• Summary

• Questions.


Definition of risk

• Risk defined as the combination of the probability of an event and its consequences

• In the safety field, risk is generally regarded as negative

• Risk management focus on prevention and mitigation of harm.


Definition of risk

• The RM Std considers risk as:• Potential for opportunities (upside)

• Threats (downside)

• Risk as uncertainty

• The standard has a loss bias.


Risk management

• Central to strategic management

• Process of addressing risks attaching to their activities

• Goal of achieving sustained benefit within each activity and across the portfolio of all activities.


Risk management

• Fragmentation• Health & safety

• Insurance

• Financial

• Corporate governance.


Risk drivers

Strategic

Operational

Hazard

Financial

Internallydriven

Externally driven

Externally driven

Externally drivenE

xter

nally

driv

en


Background

• Standard prepared by 3 leading UK risk bodies:• The Institute of Risk Management (IRM)

• The Association of Insurance and Risk Managers (AIRMIC)

• ALARM - The National Forum for Risk Management in the Public Sector.


Background

• Aims was to standardise risk management in terms of:• Terminology and words used

• The risk management process

• Organisation structure for risk management

• Risk management objectives

• Implicitly to bring RM ‘under one roof’.


Risk management process

Organisationalstrategic

objectives

Risk assesment &analysis

Risk reporting(threats &

opportunities)

Decision

Risk treatment

Residual riskreporting

Monitoring

Risk evaluation


Risk management process

Organisationalstrategic

objectives

Risk assesment &analysis

Risk reporting(threats &

opportunities)

Decision

Risk treatment

Residual riskreporting

Monitoring

Risk evaluationFormal audit


Risk assessment

• Assuming a high level of knowledge• Identify risks

• Describe risks

• Estimate risks.


Risk evaluation

• Evaluate to determine how to treat:• Anticipate

• Eliminate

• Reduce

• Control

• Transfer

• Retain (with knowledge).


Reporting, treatment & monitoring

• Internal reporting for decision making• e.g. via audit committee

• External reporting for information• via annual reports.

• Decide how to treat

• Implement measures

• Determine residual risk

• Monitor effectiveness.


Some case studies


The importance of good risk management

• General Motors• Health care for retirees• Huge liabilities• May be forced into bankruptcy protection in 2006• Once the world’s largest company• Ford is not far behind

• Risk management solution• Consideration of future impacts• Should not be a surprise• GM retained a risk w/o knowledge.



• Nokia vs Ericsson• Fire at Phillips chips plant in USA

• Key supplier for both companies

• Phillips reassurance over disruption

• Nokia aggressively sought alternative suppliers

• Ericsson waited until it was too late

• Disruption was serious after all

• Nokia became world leader

• Risk management• Nokia had a superior business continuity plan.



• Pfizer• Developed a drug to treat angina

• ‘Interesting’ side effects

• Drug developed and marketed for another type of patient

• Its name?

• Viagra

• Risk management• Pfizer were able to capitalise on an unexpected opportunity.



• Apple• Sony world leaders in portable music players

• Managed transition from tape to CD

• Sony missed the download revolution

• Apple quickly cornered the market with the iPod

• Sales of $2.9bn Q1 2005

• Risk management• Apple anticipated the shift to downloads

• Had a plan should Sony stumble.


Closing thoughts

• Source of sustainable competitive advantage

• Differentiate from competition

• Difficult for ‘mature’ products & services

• Consider internal processes.


Summary

• Risk management is important

• Currently a fragmented discipline

• The RM std brings it all under one roof

• Methodology as a philosophy rather that an ISO type standard

• Not a panacea

• Must select correct treatment options

• If used very well can differentiate from competition.


Questions

Documents

MOHSG Nov 2005 CHALLENGING BOUNDARIES The Risk Management Standard Jeff Roycroft Risk Manager Northern & Central Europe Rhodia UK Limited