FRT - 110530 - BED - Why are some companies luckier than others - Frank Leenders
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This document discusses how companies can transform their risk management approaches to create strategic value. It notes that while companies recognize the need to improve risk governance, many are overspending on risk management and not focusing on the most important risks. The document advocates aligning risk management more closely with business strategies to reduce costs, enhance transparency and improve performance. It outlines a risk performance model that companies can use to strengthen governance, integrate risk functions and measure risk management's impact on business objectives.
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FRT - 110530 - BED - Why are some companies luckier than others - Frank Leenders
- 1. Why are some companies luckier than others? Transforming risk to create strategic value Flevum Roundtable, May 2011 Frank Leenders Senior Manager Advisory Services Ernst & Young Advisory - Risk Services Solution Manager GRC BeNe
- 2. Competing in the “new normal” Pressure on margins Increasing market variation Globalization and increasing competition Changing business models Increasing Improving regulatory pressure Greater market volatility shareholder value Enhancing transparency Increasing executive accountability Improving investor Greater stakeholder scrutiny confidence Managing stakeholder Addressing the risks that expectations matter Avoiding risk/ Securing requisite capital security breaches Three focus areas: Value, cost and risk © 2011 EYGM Limited Transforming risk to create strategic value| 1 All Rights Reserved
- 3. Observations on risk management Risk management survey results „ Fundamental need to enhance the GRC functions of the company „ A clear view on the “what” and “why,” but a lot of uncertainty about the “how”: „ The main investment focus is on risk management because GRC seems to be „ Companies recognize increasing external pressure on their GRC functions and synonymous with companies’ risk management function. experience that shareholders as well as investors keep an eye on companies’ GRC efforts. „ Almost three out of four companies believe that they already have a fully integrated GRC function, which might not be the case when just 5% of the companies say that „ There is a difference between leadership and operational levels in evaluating the value they have their GRC implementation completed when asked for more details. for money of the GRC functions. „ Finally, three out of four companies believe that their GRC needs are aligned „ In the light of increasing GRC needs and necessary improvements, 41% of the between the corporate and business unit levels but there are concerns due to the companies plan GRC investments: different reporting lines of GRC functions. „ Assessing GRC function, revising risk management and intensifying the internal audit efforts are the top three GRC initiatives in the upcoming 12 to 18 months. © 2011 EYGM Limited Transforming risk to create strategic value| 2 All Rights Reserved
- 4. Observations on risk management What we are seeing with our clients Companies are … Risk management remains a concern Overspending on risk by at least 30% Gaps — CEO’s and CFO’s indicate their risk oversight processes are immature and insufficient to deal with the rapid „ Hidden costs in risk spend change in risks in the near future „ Inefficient activities Scrutiny — Boards and executives face greater scrutiny for risk „ Overlap and redundancy management oversight from regulators and external stakeholders Value — 82% of institutional investors are willing to pay a Not focused on the risks that matter and create value premium for companies that are transparent and can „ Capital structure and strategic demonstrate effective risk management „ New market entry and product development Silos — 73% of companies have seven or more separate risk functions operating independently „ Merger and acquisition Efficiency — 62% of companies believe they can get more risk coverage for less spend through better aligned and coordinated Failing to anticipate and respond to unforeseen risks efforts „ Risk not integrated with planning and performance management „ Risk exposure in major initiatives and programs „ Lack of alignment and communication at all levels of the enterprise © 2011 EYGM Limited Transforming risk to create strategic value| 3 All Rights Reserved
- 5. Balancing risk, cost and value Managing upside opportunity with the potential of downside threat Risk Value Risk Value Risk Value Cost Cost Cost „ What are the risks that matter most? „ What are we spending to manage our key risks? „ How effective are we at aligning the risks we take to our „ How do we know we are accepting the right level of risk? „ Where are there possible duplicative or overlapping risk business strategies and objectives? „ How effective is our risk reporting for executive functions? „ What is the return on our risk investment? management and the Board? „ Where can we further leverage automated controls versus „ What process improvement ideas are we obtaining? „ How do we know if our risks are being properly manual controls? „ What risks are we taking to achieve competitive managed? „ Do we have the right mix of skills at the right cost? advantage? „ How comprehensive is our existing risk framework? „ How effective are we in using technology to manage risk? „ Is risk management slowing me down or helping me go „ What is internal audit doing to understand the risks that „ How effective are we in using alternative sourcing strategies faster? our company faces? to reduce costs? © 2011 EYGM Limited Transforming risk to create strategic value| 4 All Rights Reserved
- 6. There are significant opportunities to improve the current state risk management landscape © 2011 EYGM Limited Transforming risk to create strategic value| 5 All Rights Reserved
- 7. Realignment and refocused effort can reduce the risk spend, increasing value Future State Board oversight Governance Audit Compensation Risk Other committee committee committees committee Effective, responsive, accountable risk oversight Executive management CEO CFO CRO General Counsel Risk management and integrated capabilities Internal control Reduce or eliminate redundancy, overlap and duplication in the identification and Aligned mandate and scope assessment, analysis, control, measurement, Coordinated infrastructure and people monitoring, mitigation, Consistent methods and practices testing Common information and technology and reporting of risk Business-level Performance Business Business Business Business unit unit unit unit Valued- Added, improved operational risk Increased value, reduced costs and improved business performance performance © 2011 EYGM Limited Transforming risk to create strategic value| 6 All Rights Reserved
- 8. Leading practices are emerging „ Changing attitudes: Risk is now everybody’s responsibility and plays a major role in „ Board communications: A majority of organizations indicate they are changing the decision-making across the organization frequency and substance of their Board-level risk discussions „ Comprehensive: Organizations are taking a more holistic risk view to better „ Risk committees: Companies have added committees focused on enterprise risk and / or understand risk interdependencies and aggregate impacts crisis management „ Proactive: Companies are becoming more forward-looking and predictive, „ Specialty Skills: Leading companies are enhancing their risk and control functions and incorporating stress-testing and scenario analysis leveraging specialty skills to address business risk on a comprehensive basis „ Risk tolerance: Leading organizations are defining risk tolerances and building a consistent organizational risk management culture „ Monitoring: Ongoing monitoring and the escalation of risk has become more robust with greater clarity or information and enhanced consistency across risk functions „ Transparency: Sharing of data, open decision-making and enhanced reporting to executive management has become increasingly important „ Governance: Overall, leading organizations are driving “Risk Governance” from a holistic business perspective © 2011 EYGM Limited Transforming risk to create strategic value| 7 All Rights Reserved
- 9. Leading companies transform their risk landscape to achieve strategic advantage by... to achieve... Improved visibility, accountability and Strengthening risk governance transparency to stakeholders Governance Embedding risk management principles Risk management that supports strategic objectives Integrating multiple risk functions Cost efficiencies Enhancing business level and business performance performance EY Risk Performance Model © 2011 EYGM Limited Transforming risk to create strategic value| 8 All Rights Reserved
- 10. Agenda/session overview Risk Transformation Workshop topics Marketplace challenges Board/ senior management oversight Audit commit t ee Risk commit t ee Ot her commit t ees „ „ Strategic risk management issues 1. Setting the stage 60 minutes Int ernal Audit Risk Management Compliance Int ernal Cont rol Informat ion Legal and Technology Regulat ory Ext ernal Audit „ Achieving strategic advantage Business Business Business Business „ <Company> strategies and initiatives unit unit unit unit Siloed risk funct ions impede value, increase cost s and reduce business level performance „ Exercise 1: Desired risk outcomes 2. Understanding your risk 45 minutes „ Exercise 2: Continuum philosophy „ Exercise 3: Risk vision statements „ Overview/Prioritize four levels Governance „ Drill-down discussions 3. Risk performance model „ Leading practices 180 minutes discussions „ Current state observations „ Maturity assessment EY Risk Perf ormance Model „ Improvement opportunities Deliver/Sustain Governance Leverage risk data analytics/predictive modeling to Improve decision making Risk „ Validation/prioritization of proposed efforts Design/Deliver management 4. Prioritization, roadmap Refine and operationalize governance model Measure and monitor risk performance 45 minutes „ Business case development Diagnose/Design Pilot risk integration Roll-out risk and next steps integration strategy Define risk enterprise-wide Int egrat ed appetite capabilit ies Action plan/next steps Adopt a common risk Demonstrate „ framework technology enablement Identify, redundancies Identify/Diagnose and overlap Improve on and Identify gaps to implement at the achieve future state business level Understand Embed risk capabilities risk capabilities into the business Validate GRC business objectives Business- level Document the rhythm of performance the business Assess GRC process maturity Phase 1 Phase 2 Phase 3 Phase 4 © 2011 EYGM Limited Transforming risk to create strategic value| 9 All Rights Reserved
- 11. Defining a practical path forward Conduct a visioning session © 2011 EYGM Limited Transforming risk to create strategic value| 10 All Rights Reserved
Hinweis der Redaktion
- There continues to be multiple reasons that risk management is top of mind. This slide highlights some common themes from various EY surveys on risk. It may be used to establish themes that are relevant to the client. The key point is that risk is taking on a higher profile in the public markets. Note: S&P Proposed ERM Rating: The last bullet mentions S&P’s proposed ERM evaluation in their debt rating scores. S&P has a proposal out for comment and with an expected release date for the final framework of April 1, 2008, although timing of implementation would be spread over the remainder of 2008. If enacted, S&P will provide a rating system similar to what they are doing with financial service entities. (Scores will be “weak, adequate, strong, excellent.”) The rating would evaluate four key areas: Analysis of risk-management culture and governance Analysis of risk controls including Policy, Infrastructure and Methods (PIM) Analysis of emerging risk preparation Analysis of strategic risk management S&P has indicated that they will probably begin with industries that have been historically more heavily regulated – the intent is to lead with those industries that maintain, on average, more sophisticated approaches to ERM than others. The sequencing is expected to begin with Utilities, Oil and Gas, and Pharmaceuticals. Other industries would follow. Again, further evidence that risk is taking on a higher profile in the public markets. Sources: Ernst & Young/Economist Intelligence Unit (2009). Business responses to the credit crisis [need to verify title on this one] Ernst & Young (2008). Escalating the role of internal audit Ernst & Young (2007 ). Strategic Business Risk 2008: The top 10 risks for business Ernst & Young (2006) . Companies on Risk: The benefits of alignment Ernst & Young (2005). Investors on Risk: The need for transparency
- Book end – if this business case discussion embedded in another Risk Transformation presentation, it would start here, after the spaghetti chart
- 1.) focus on priority areas: eliminate uncoordinated, overly complex or overlapping activities. Spend from low-value risk management activities, which may be routine and deliver comfort but are not business critical, needs to be redirected to other higher-risk priorities. 2.) Manage the performance of overall GRC capability: by adopting a holistic and cohesive risk transformation approach, companies can better align risk and strategic business processes. Governance - Risk governance strategy is driven by and better aligned to key strategic risks and business objectives. Effective risk management - Deeper and more robust risk insight is applied to enhance the design and effectiveness of the overall control environment. This optimizes risk and control mechanisms to enhance decision-making and, potentially, facilitate greater risk-taking. Integration - Rather than stand-alone functions, risk is managed on a business-wide footing to protect value and improve performance across the enterprise, delivering an appropriate ROI for the investment. Business performance - An effective and agile GRC capability contributes to the protection and enhancement of overall business performance.
- There continues to be multiple reasons that risk management is top of mind. This slide highlights some common themes from various EY surveys on risk. It may be used to establish themes that are relevant to the client. The key point is that risk is taking on a higher profile in the public markets. Note: S&P Proposed ERM Rating: The last bullet mentions S&P’s proposed ERM evaluation in their debt rating scores. S&P has a proposal out for comment and with an expected release date for the final framework of April 1, 2008, although timing of implementation would be spread over the remainder of 2008. If enacted, S&P will provide a rating system similar to what they are doing with financial service entities. (Scores will be “weak, adequate, strong, excellent.”) The rating would evaluate four key areas: Analysis of risk-management culture and governance Analysis of risk controls including Policy, Infrastructure and Methods (PIM) Analysis of emerging risk preparation Analysis of strategic risk management S&P has indicated that they will probably begin with industries that have been historically more heavily regulated – the intent is to lead with those industries that maintain, on average, more sophisticated approaches to ERM than others. The sequencing is expected to begin with Utilities, Oil and Gas, and Pharmaceuticals. Other industries would follow. Again, further evidence that risk is taking on a higher profile in the public markets. Sources: Ernst & Young/Economist Intelligence Unit (2009). Business responses to the credit crisis [need to verify title on this one] Ernst & Young (2008). Escalating the role of internal audit Ernst & Young (2007 ). Strategic Business Risk 2008: The top 10 risks for business Ernst & Young (2006) . Companies on Risk: The benefits of alignment Ernst & Young (2005). Investors on Risk: The need for transparency
- Strengthening risk governance Defining oversight and accountability for risk management at the Board and Executive levels Embedding risk management principles Incorporating enterprise risk assessment and monitoring into business planning and performance management Integrating multiple risk functions Increasing leverage across multiple risk functions to expand coverage, reduce cost and enhance value to the business Enhancing business level performance Enabling the organization to better manage risk with optimized processes and rationalized controls at the business unit level Footnotes Aon, Global Enterprise Risk Management Survey, 2010 Ernst & Young, Investors on Risk: The need for transparency, 2005 Marsh, Excellence in Risk Management VI: Strategic Risk Management in Practice, 2009 Standard & Poor’s, Standard & Poor’s to Apply Enterprise Risk Analysis to Corporate Ratings, RatingsDirect, 2008; Progress Report: Integrating Enterprise Risk Management Analysis into Corporate Credit Ratings, RatingsDirect 2009
- Speaker’s Notes: Review this self-diagnostic with the client to assess where the company is along the spectrum of basic to leading. The objective is to identify areas where the client may require assistance that will lead to a discussion on the next page about next steps. In addition to understanding where the client currently is, ask about where they want to be in an ideal future state. It may not be the client’s intent to be leading practice on all aspects of its risk and controls functions – they may simply want to become established or advanced in some areas of their risk and control functions. We would like the client to recognize the benefits of moving along this continuum can be reflected in risk, cost and value, and – ultimately – improved performance of the business. If the meeting has gone well, you may be able to initiate the self-diagnostic based upon the issues the client has already raised earlier in the discussion. As appropriate, we should take the opportunity with that C-suite executive to get permission to expand the dialogue with other owners of the risk and control areas.
- It is possible to apply this template to exiting presentations. Have the latest presentation template open Click on the View tab and select Normal Delete all unwanted slides Click on the Insert tab from the menu bar and select Slides from Files Click on Browse . Navigate to the presentation you wish to update with the new template. Highlight the presentation and click Open Wait for the slides from the presentation to load and click on Insert All . Then click Close Check the inserted slides to ensure that the most appropriate master slide has been used on each slide To change the master applied to a slide select the slide you wish to apply a different master to then click on the Format tab from the menu bar and select Slide Design From the Used in This Presentation section choose the master you wish to apply to the slide and hover over it to reveal a drop-down arrow. Click on the arrow and select Apply to Selected Slides It is important to thoroughly check the presentation to ensure that no further formatting is needed.
- It is possible to apply this template to exiting presentations. Have the latest presentation template open Click on the View tab and select Normal Delete all unwanted slides Click on the Insert tab from the menu bar and select Slides from Files Click on Browse . Navigate to the presentation you wish to update with the new template. Highlight the presentation and click Open Wait for the slides from the presentation to load and click on Insert All . Then click Close Check the inserted slides to ensure that the most appropriate master slide has been used on each slide To change the master applied to a slide select the slide you wish to apply a different master to then click on the Format tab from the menu bar and select Slide Design From the Used in This Presentation section choose the master you wish to apply to the slide and hover over it to reveal a drop-down arrow. Click on the arrow and select Apply to Selected Slides It is important to thoroughly check the presentation to ensure that no further formatting is needed.
- It is possible to apply this template to exiting presentations. Have the latest presentation template open Click on the View tab and select Normal Delete all unwanted slides Click on the Insert tab from the menu bar and select Slides from Files Click on Browse . Navigate to the presentation you wish to update with the new template. Highlight the presentation and click Open Wait for the slides from the presentation to load and click on Insert All . Then click Close Check the inserted slides to ensure that the most appropriate master slide has been used on each slide To change the master applied to a slide select the slide you wish to apply a different master to then click on the Format tab from the menu bar and select Slide Design From the Used in This Presentation section choose the master you wish to apply to the slide and hover over it to reveal a drop-down arrow. Click on the arrow and select Apply to Selected Slides It is important to thoroughly check the presentation to ensure that no further formatting is needed.
- It is possible to apply this template to exiting presentations. Have the latest presentation template open Click on the View tab and select Normal Delete all unwanted slides Click on the Insert tab from the menu bar and select Slides from Files Click on Browse . Navigate to the presentation you wish to update with the new template. Highlight the presentation and click Open Wait for the slides from the presentation to load and click on Insert All . Then click Close Check the inserted slides to ensure that the most appropriate master slide has been used on each slide To change the master applied to a slide select the slide you wish to apply a different master to then click on the Format tab from the menu bar and select Slide Design From the Used in This Presentation section choose the master you wish to apply to the slide and hover over it to reveal a drop-down arrow. Click on the arrow and select Apply to Selected Slides It is important to thoroughly check the presentation to ensure that no further formatting is needed.