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© OECD
RISK MANAGEMENT IN TIMES
OF COVID-19 AND BEYOND
GUIDELINES
Mónica Caballero Jarilla
Virtual event - 10 March 2021
1
AGENDA
1. INTRODUCTION: CONTEXT AND OBJECTIVES
2. WHY IS IT IMPORTANT TO IMPLEMENT A RISK MANAGEMENT
SYSTEM?
3. BASIC METHODOLOGY
COULD SOMEONE SAY WE WERE
NOT WARNED?
• BIRD FLU (2004-2006)
• TYPE A INFLUENZA (2009-2010)
• EBOLA (2014-2016)
• ZIKA VIRUS (2015-2016)
2
3
CONTEXT: COVID 19
COVID 19 CRISIS: long term and massive health, financial and
economic crisis
• HEALTH CRISIS
• DAMAGE TO BUSINESS
• UNEMPLOYMENT
• NEED OF PROTECTION MATERIAL AND HEALTH CARE
PRODUCTS
• NEED OF HEALTH WORKERS AND INFRASTRUCTURES
• MASSIVE ECONOMIC SUPPORT PROGRAMMES
• TELEWORKING AND ELECTRONIC ADMINISTRATION
• VACCINATION: MASS PURCHASE OF VACCINES AND THE
ORGANIZATION AND INFRASTRUCTURE NECESSARY TO
STORE AND ADMINISTER THEM MASSIVELY
• (…)
4
CONTEXT: COVID 19
CHALLENGES FOR THE PUBLIC ADMINISTRATION:
• QUICK PURCHASING
• TELEWORKING
• RELAX CONTROLS
• RISK OF FRAUD
• RISK OF STOCK BREAKAGE
• RISK OF RISING PRICES
• DEMAND FOR TRANSPARENCY AND EFFICIENCY FROM
INSTITUTIONS
• (…)
5
OBJECTIVES
• Illustrate the importance of the implementation of a risk
management system in the public sphere, emphasizing that it is
not a goal in itself, but a means to increase the chances of
achieving objectives.
• Provide a basic manual for the implementation of a risk
management system in any organization or institution.
• Provide managers with a tool that helps them to assess the
development of their internal control system and identify those
areas in which improvements need to be made. This will
facilitate the identification of risks in the internal control area.
• Identify risks in the key fields of public financial management:
public procurement, internal control, internal audit and
budgeting.
6
WHY IS IT IMPORTANT?
BUSINESS EXAMPLE: VUELING CRISIS (2016)
7
SIMILARITIES BETWEEN THE VUELING
CRISIS AND THE COVID 19 CRISIS
PROBLEM
LACK OF PLANNIG
LACK OF FORECASTING
LACK OF CONTINGENCY
PLAN
LACK OF COMMUNICATION
PLAN
VUELING
- TOO MANY FLIGHTS
- FEW STAFF
STRIKE RISK WITH HIGH
PROBABILITY AND HIGH
IMPACT
SUBCONTRACTING WITH
OTHER COMPANIES
COMMUNICATION FROM
THE BEGINNING ASSUMING
RESPONSIBILITIES
COVID19
- FULL HOSPITALS
- FEW ICU BEDS
-LACK OF PROTECTIVE
MATERIAL, RESPIRATORS,…
- LITTLE HEALTH STAFF
PANDEMIC RISK WITH HIGH
PROBABILITY AND
ENORMOUS IMPACT
NON PERMANENT
HOSPITALS
COMMUNICATION FROM THE
BEGINNING ASSUMING
RESPONSIBILITIES
8
INTERNAL CONTROL SYSTEM
• This guide is primarily based on the five components of the
COSO Internal Control Framework.
• All five components must exist, function and interact with each
other.
9
BASIC METHODOLOGY FOR THE
IMPLEMENTATION OF A RISK
MANAGEMENT SYSTEM
1. Identification of objectives
2. Setting context
3. Identifying risks
4. Risk assessment
5. Evaluation of existing controls
6. Level of risk exposure / heat map
7. Risk response
Source: ISO 31000
10
IDENTIFICATION OF OBJECTIVES
• STRATEGIC: Related to the fulfillment of the entity's mission
and vision.
• OPERATIONAL: Referring to the effectiveness and efficiency of
the entity's operations, processes and resource allocation to
achieve the strategic objectives.
• INFORMATION: Referring to reparation of reports to be used by
the organization and other interested parties, taking into
account veracity, opportunity and transparency. Reports relate
to financial and non-financial, internal and external information,
and cover aspects of trust, opportunity, transparency and other
concepts established by recognized bodies or entity policies.
• COMPLIANCE: Related to compliance with laws and regulations
to which the entity is subject.
11
SETTING CONTEXT
• EXTERNAL FACTORS: institutional environment, from a social,
economic, cultural, political, legal or technological point of
view.
• INTERNAL FACTORS: understanding of the institution itself
through the examination of its organizational structure,
operational model, compliance with plans and programs,
information systems, documentation of processes and
procedures and financial resources, among the most relevant.
• Interviews
• Questionnaires
• Brainstorming
• Interviews with people outside the entity
• Flow charts to locate possible risks in processes
• Analyze different scenarios
• Periodically review economic, technological and regulatory
factors, among others, that may affect how the institution
operates.
12
IDENTIFYING RISKS
TECNIQUES:
• Process mapping
• Self-assessment workshops
• Brainstorming
• Analysis of performance indicators
• Interviews and questionnaires
• Materialized risk records.
According to ISO 31000, risk is the “effect of uncertainty on
objectives”
13
RISK ASSESSMENT
The analysis must consider the potential impact or consequences
and their probability of occurrence, which combine to produce an
estimated level, called Risk Severity.
RISK SEVERITY
= Probability x Impact
14
RISK ASSESSMENT
• Qualitative: through the judgment of experts, who know
precisely the activities, processes and environment in which the
institution operates.
• Quantitative: determining the value of a risk using statistical
models and calculating the expected loss due to its
materialization. Ideally, the institution has records of
materialized risks for, at least, the last five years. If not, the
calculation can be carried out through questionnaires,
interviews, checklists, etc.
15
RISK ASSESSMENT: PROBABILITY
Category Value Description
Very
Likely
5
Risk probability is very high, that is, equal to or
greater than 90% certainty that it occurs.
Likely 4
Risk probability is high, that is, there is between
66% to 89% certainty that it occurs.
Possible 3
Risk probability is medium, that is, there is
between 31% to 65% certainty that it occurs.
Unlikely 2
Risk probability is low, that is, there is between
11% to 30% certainty that it occurs.
Very
unlikely
1
Risk probability is very low, that is, there is
between 1% and 10% certainty that it occurs.
The probability of occurrence consists of calculating the
possibilities that the risk materializes.
16
RISK ASSESSMENT: IMPACT
The impact is evaluated by taking into account the consequences
that risk materialization can have on the institution.
Category Value Description
Catastrophic 5
Risk materialisation seriously influences the development of
the process and the fulfillment of its objectives, ultimately
preventing it from developing.
Major 4
Risk materialisation would significantly damage the
development of the process and the fulfillment of its
objectives, preventing it from developing normally.
Moderate 3
Risk materialisation would cause a deterioration in the
development of the process by hindering or delaying the
fulfillment of its objectives, preventing it from developing
properly.
Minor 2
Risk that causes minor damage to the development of the
process and does not majorly affect the fulfillment of its
strategic objectives.
Insignificant 1
Risk that may have a small or no effect on the development of
the process and does not affect the fulfillment of its strategic
objectives
17
EVALUATION OF EXISTING CONTROLS
• Review the control activities that already exist in the organization
to mitigate risks.
• These controls not only have to exist, they also have to be well
designed and effective.
• Measurement of the effectiveness of controls can be done by
taking into account their characteristics (design), their use and
efficacy (effectiveness) or both.
CHARACTERISTICS CONTROL DESIGN
CLASIFICATION
VALUE CONTROL
DESIGN
PERIODICITY OPORTUNITY
PERMANENT PREVENTIVE
OPTIMAL 5
PERMANENT CORRECTIVE
PERMANENT DETECTIVE
WELL 4
PERIODICAL PREVENTIVE
PERIODICAL CORRECTIVE
MODERATE 3
PERIODICAL DETECTIVE
OCCASIONAL PREVENTIVE
POOR 2
OCCASIONAL CORRECTIVE
OCCASIONAL DETECTIVE VERY POOR 1
NOT DETERMINED NOT DETERMINED NON EXISTENT -
18
LEVEL OF RISK EXPOSURE
RISK SEVERITY
CONTROL VALUE
RISK
EXPOSURE =
RISK EXPOSURE INDICATOR VALUE
LEVEL OF
EXPOSURE TO
RISK
RISK SEVERITY
CONTROL VALUE
8.0 – 25.0 UNACCEPTABLE
4.0 – 7.99 MAJOR
3.0 – 3.99 MEDIUM
0.2 - 2.99 MINOR
19
HEAT MAP
CONTROL VALUE
5 4 3 2 1
RISK
SEVERITY
25
20
16
15
12
10
9
8
6
5
4
3
2
1
RISK
20
AVOIDANCE
Erradicate the
risk altogether
by eliminating
the cause of
the risk event
MITIGATION
Reduce the
impact and
probability of
the risk event
to an
acceptable
level
TRANSFER
Contractually
transfer the
risk and loss
exposure to a
third party
(Insurance)
ACCEPTANCE
Retain the risk
and develop
plans to cover
the financial
consequences
RISK RESPONSE STRATEGIES
21
EXAMPLE: RISK OF PANDEMIC
PROBABILITY: 36% (There has been four pandemics between 2004
and 2015). VALUE: 3.
IMPACT: Catastrophic. VALUE: 5.
SEVERITY: 3 X 5 = 15
EXISTING CONTROLS: Very Poor (value 1)
RISK EXPOSURE: 15 (UNNACCEPTABLE)
CONTROL VALUE
5 4 3 2 1
RISK
SEVERITY
25
20
16
15
12
10
9
8
6
5
4
3
2
1
RISK
22

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Monica Caballero, risk management in times of COVID 19 and beyond, SIGMA 10 March 2021

  • 1. © OECD RISK MANAGEMENT IN TIMES OF COVID-19 AND BEYOND GUIDELINES Mónica Caballero Jarilla Virtual event - 10 March 2021
  • 2. 1 AGENDA 1. INTRODUCTION: CONTEXT AND OBJECTIVES 2. WHY IS IT IMPORTANT TO IMPLEMENT A RISK MANAGEMENT SYSTEM? 3. BASIC METHODOLOGY
  • 3. COULD SOMEONE SAY WE WERE NOT WARNED? • BIRD FLU (2004-2006) • TYPE A INFLUENZA (2009-2010) • EBOLA (2014-2016) • ZIKA VIRUS (2015-2016) 2
  • 4. 3 CONTEXT: COVID 19 COVID 19 CRISIS: long term and massive health, financial and economic crisis • HEALTH CRISIS • DAMAGE TO BUSINESS • UNEMPLOYMENT • NEED OF PROTECTION MATERIAL AND HEALTH CARE PRODUCTS • NEED OF HEALTH WORKERS AND INFRASTRUCTURES • MASSIVE ECONOMIC SUPPORT PROGRAMMES • TELEWORKING AND ELECTRONIC ADMINISTRATION • VACCINATION: MASS PURCHASE OF VACCINES AND THE ORGANIZATION AND INFRASTRUCTURE NECESSARY TO STORE AND ADMINISTER THEM MASSIVELY • (…)
  • 5. 4 CONTEXT: COVID 19 CHALLENGES FOR THE PUBLIC ADMINISTRATION: • QUICK PURCHASING • TELEWORKING • RELAX CONTROLS • RISK OF FRAUD • RISK OF STOCK BREAKAGE • RISK OF RISING PRICES • DEMAND FOR TRANSPARENCY AND EFFICIENCY FROM INSTITUTIONS • (…)
  • 6. 5 OBJECTIVES • Illustrate the importance of the implementation of a risk management system in the public sphere, emphasizing that it is not a goal in itself, but a means to increase the chances of achieving objectives. • Provide a basic manual for the implementation of a risk management system in any organization or institution. • Provide managers with a tool that helps them to assess the development of their internal control system and identify those areas in which improvements need to be made. This will facilitate the identification of risks in the internal control area. • Identify risks in the key fields of public financial management: public procurement, internal control, internal audit and budgeting.
  • 7. 6 WHY IS IT IMPORTANT? BUSINESS EXAMPLE: VUELING CRISIS (2016)
  • 8. 7 SIMILARITIES BETWEEN THE VUELING CRISIS AND THE COVID 19 CRISIS PROBLEM LACK OF PLANNIG LACK OF FORECASTING LACK OF CONTINGENCY PLAN LACK OF COMMUNICATION PLAN VUELING - TOO MANY FLIGHTS - FEW STAFF STRIKE RISK WITH HIGH PROBABILITY AND HIGH IMPACT SUBCONTRACTING WITH OTHER COMPANIES COMMUNICATION FROM THE BEGINNING ASSUMING RESPONSIBILITIES COVID19 - FULL HOSPITALS - FEW ICU BEDS -LACK OF PROTECTIVE MATERIAL, RESPIRATORS,… - LITTLE HEALTH STAFF PANDEMIC RISK WITH HIGH PROBABILITY AND ENORMOUS IMPACT NON PERMANENT HOSPITALS COMMUNICATION FROM THE BEGINNING ASSUMING RESPONSIBILITIES
  • 9. 8 INTERNAL CONTROL SYSTEM • This guide is primarily based on the five components of the COSO Internal Control Framework. • All five components must exist, function and interact with each other.
  • 10. 9 BASIC METHODOLOGY FOR THE IMPLEMENTATION OF A RISK MANAGEMENT SYSTEM 1. Identification of objectives 2. Setting context 3. Identifying risks 4. Risk assessment 5. Evaluation of existing controls 6. Level of risk exposure / heat map 7. Risk response Source: ISO 31000
  • 11. 10 IDENTIFICATION OF OBJECTIVES • STRATEGIC: Related to the fulfillment of the entity's mission and vision. • OPERATIONAL: Referring to the effectiveness and efficiency of the entity's operations, processes and resource allocation to achieve the strategic objectives. • INFORMATION: Referring to reparation of reports to be used by the organization and other interested parties, taking into account veracity, opportunity and transparency. Reports relate to financial and non-financial, internal and external information, and cover aspects of trust, opportunity, transparency and other concepts established by recognized bodies or entity policies. • COMPLIANCE: Related to compliance with laws and regulations to which the entity is subject.
  • 12. 11 SETTING CONTEXT • EXTERNAL FACTORS: institutional environment, from a social, economic, cultural, political, legal or technological point of view. • INTERNAL FACTORS: understanding of the institution itself through the examination of its organizational structure, operational model, compliance with plans and programs, information systems, documentation of processes and procedures and financial resources, among the most relevant. • Interviews • Questionnaires • Brainstorming • Interviews with people outside the entity • Flow charts to locate possible risks in processes • Analyze different scenarios • Periodically review economic, technological and regulatory factors, among others, that may affect how the institution operates.
  • 13. 12 IDENTIFYING RISKS TECNIQUES: • Process mapping • Self-assessment workshops • Brainstorming • Analysis of performance indicators • Interviews and questionnaires • Materialized risk records. According to ISO 31000, risk is the “effect of uncertainty on objectives”
  • 14. 13 RISK ASSESSMENT The analysis must consider the potential impact or consequences and their probability of occurrence, which combine to produce an estimated level, called Risk Severity. RISK SEVERITY = Probability x Impact
  • 15. 14 RISK ASSESSMENT • Qualitative: through the judgment of experts, who know precisely the activities, processes and environment in which the institution operates. • Quantitative: determining the value of a risk using statistical models and calculating the expected loss due to its materialization. Ideally, the institution has records of materialized risks for, at least, the last five years. If not, the calculation can be carried out through questionnaires, interviews, checklists, etc.
  • 16. 15 RISK ASSESSMENT: PROBABILITY Category Value Description Very Likely 5 Risk probability is very high, that is, equal to or greater than 90% certainty that it occurs. Likely 4 Risk probability is high, that is, there is between 66% to 89% certainty that it occurs. Possible 3 Risk probability is medium, that is, there is between 31% to 65% certainty that it occurs. Unlikely 2 Risk probability is low, that is, there is between 11% to 30% certainty that it occurs. Very unlikely 1 Risk probability is very low, that is, there is between 1% and 10% certainty that it occurs. The probability of occurrence consists of calculating the possibilities that the risk materializes.
  • 17. 16 RISK ASSESSMENT: IMPACT The impact is evaluated by taking into account the consequences that risk materialization can have on the institution. Category Value Description Catastrophic 5 Risk materialisation seriously influences the development of the process and the fulfillment of its objectives, ultimately preventing it from developing. Major 4 Risk materialisation would significantly damage the development of the process and the fulfillment of its objectives, preventing it from developing normally. Moderate 3 Risk materialisation would cause a deterioration in the development of the process by hindering or delaying the fulfillment of its objectives, preventing it from developing properly. Minor 2 Risk that causes minor damage to the development of the process and does not majorly affect the fulfillment of its strategic objectives. Insignificant 1 Risk that may have a small or no effect on the development of the process and does not affect the fulfillment of its strategic objectives
  • 18. 17 EVALUATION OF EXISTING CONTROLS • Review the control activities that already exist in the organization to mitigate risks. • These controls not only have to exist, they also have to be well designed and effective. • Measurement of the effectiveness of controls can be done by taking into account their characteristics (design), their use and efficacy (effectiveness) or both. CHARACTERISTICS CONTROL DESIGN CLASIFICATION VALUE CONTROL DESIGN PERIODICITY OPORTUNITY PERMANENT PREVENTIVE OPTIMAL 5 PERMANENT CORRECTIVE PERMANENT DETECTIVE WELL 4 PERIODICAL PREVENTIVE PERIODICAL CORRECTIVE MODERATE 3 PERIODICAL DETECTIVE OCCASIONAL PREVENTIVE POOR 2 OCCASIONAL CORRECTIVE OCCASIONAL DETECTIVE VERY POOR 1 NOT DETERMINED NOT DETERMINED NON EXISTENT -
  • 19. 18 LEVEL OF RISK EXPOSURE RISK SEVERITY CONTROL VALUE RISK EXPOSURE = RISK EXPOSURE INDICATOR VALUE LEVEL OF EXPOSURE TO RISK RISK SEVERITY CONTROL VALUE 8.0 – 25.0 UNACCEPTABLE 4.0 – 7.99 MAJOR 3.0 – 3.99 MEDIUM 0.2 - 2.99 MINOR
  • 20. 19 HEAT MAP CONTROL VALUE 5 4 3 2 1 RISK SEVERITY 25 20 16 15 12 10 9 8 6 5 4 3 2 1 RISK
  • 21. 20 AVOIDANCE Erradicate the risk altogether by eliminating the cause of the risk event MITIGATION Reduce the impact and probability of the risk event to an acceptable level TRANSFER Contractually transfer the risk and loss exposure to a third party (Insurance) ACCEPTANCE Retain the risk and develop plans to cover the financial consequences RISK RESPONSE STRATEGIES
  • 22. 21 EXAMPLE: RISK OF PANDEMIC PROBABILITY: 36% (There has been four pandemics between 2004 and 2015). VALUE: 3. IMPACT: Catastrophic. VALUE: 5. SEVERITY: 3 X 5 = 15 EXISTING CONTROLS: Very Poor (value 1) RISK EXPOSURE: 15 (UNNACCEPTABLE) CONTROL VALUE 5 4 3 2 1 RISK SEVERITY 25 20 16 15 12 10 9 8 6 5 4 3 2 1 RISK
  • 23. 22