Enterprise Risk Management: Aligning Risk with Strategy ... · 26/06/2017 · Aligning Risk with . Strategy & Performance. June 26, 2017 ... • COSO Enterprise Risk Management –

Enterprise Risk Management:Aligning Risk with

Strategy & PerformanceJune 26, 2017

3:45 p.m. – 4:45 p.m.

Presented by:Marc WinklerDirectorP&G Associates646 Highway 18East Brunswick, NJ 08816P: 877-651-1700E: [email protected]

Agenda• COSO and Enterprise Risk Management• 2004 ERM Integrated Framework • ERM Framework Update• Bank Strategic Planning• Aligning Risk with Strategy & Performance• Q&A

Committee of Sponsoring Organizations of the Treadway Commission (COSO) SCOSO is a private sector initiative, jointly sponsored and funded by:

• American Accounting Association

• American Institute of Certified Public Accountants

• Financial Executives International

• Institute of Management Accountants

• The Institute of Internal Auditors

Enterprise Risk Management Current

• COSO 2004 Enterprise Risk Management – Integrated Framework

Proposed• COSO Enterprise Risk Management – Aligning Risk with

Strategy and Performance Exposure Draft• Updated version expected to be released in mid-2017

Unchanged:• COSO 2013 Internal Control – Integrated Framework

COSO 2004 ERM – Integrated Framework s

COSO 2004 ERM – Why Update? s• Obtain Better Value from Enterprise Risk Management

• Provide Greater Insight into Strategy and the Role of ERM in the Setting and Execution of Strategy

• Enhances the Alignment Between Organizational Performance and ERM

ERM Framework – Key Changes s• Emphasizes the relationship between risk and value

• Renews the focus on the integration of ERM

• Examines the role of culture

• Elevates discussion of strategy

• Enhances the alignment between performance and ERM

• Links ERM into decision-making more explicitly

• Refines risk appetite and acceptable variation in performance (risk tolerance)

ERM Framework Update – 5 Components s• Risk Governance and Culture

• Risk, Strategy and Objective Setting

• Risk in Execution

• Risk Information, Communication and Reporting

• Monitoring ERM Performance

ERM – Aligning Risk with Strategy and Performance Exposure Draft___________

Risk Management Principles SRisk Governance and Culture

1. Exercises Board Risk Oversight

2. Establishes Governance and Operating Model

3. Defines Organizational Behaviors

4. Demonstrates Commitment to Integrity and Ethics

5. Enforces Accountability

6. Attracts, Develops and Retains Talented Individuals

Risk Management Principles SRisk, Strategy and Objective Setting

7. Considers Risk and Business Context

8. Defines Risk Appetite

9. Evaluates Alternative Strategies

10. Considers Risk while Establishing Business Objectives

11. Acceptable Variation from Performance

Risk Management Principles SRisk in Execution

12. Identifies Risk in Execution

13. Assesses Severity of Risk

14. Prioritizes Risks

15. Identifies and Selects Risk Responses

16. Assesses Risk in Execution

17. Develops Portfolio View

Risk Management Principles SRisk Information, Communication and Reporting

18. Uses Relevant Information

19. Leverages Information Systems

20. Communicates Risk Information

21. Reports on Risk, Culture and Performance

Risk Management Principles SMonitoring Risk Management Performance

22. Monitors Substantial Change

23. Monitors Enterprise Risk Management

Bank Strategic Planning S• Mission, Values and Vision

• Generally use SWOT (Strengths, Weaknesses, Opportunities, Threats) Methodology

• Establishes Goals – Financial, Products and Services, Operations

• Identifies Tactics and Strategies

• Defines Responsibilities

• Review Process in Place

Bankers are Experienced Risk Managers s• Defined Policies – Risk Tolerances

• Defined Responsibilities

• Robust Internal Controls

• Robust Reporting Requirements

• Monitoring Processes

• Stress Testing

• Oversight – Board Committees

Traditional Risk Silos S

Cred

it Ri

sk

Liqu

idity

Risk

Regu

lato

ry R

isk

Tran

sact

ion

Risk

Repu

tatio

nal R

isk

Mar

ket/

Dem

ogra

phic

Ris

k

Stra

tegi

c Ri

sk

Inte

rest

Rat

e Ri

sk

Aligning Risk with Strategy & Performance s

Econ

omic

Ris

k –

Nat

iona

l

Tech

nolo

gy R

isk

Pers

onne

l Ris

k

Mar

ket/

Com

petit

ion

Risk

Dem

ogra

phic

Ris

k

Econ

omic

Ris

k –

Loca

l

Trad

ition

al R

isks

Stra

tegi

c Ri

sk

Strategic Planning – Breaking Down the Silos S

Credit Risk

Interest Rate Risk Reputational Risk

Liquidity Risk

Regulatory Risk

Transaction Risk

Market/Competition Risk

Economic Risk – National

Strategic Risk

Technology Risk

Economic Risk – Local

Demographic Risk

Personnel Risk

Aligning Risk with Strategy & Performance s

Impact

Risk – RecessionGDP Growth Decreasing

Strategy & Performance

• Increasing Unemployment• Decreasing Asset Values• Root Cause – Increasing Inflation,

FRB Increases Rates

• Performance Objective –9% ROE

• Texas Ratio Objective –less than 10%

• Past due and non-performing loans increase

• Increased provision for loan losses• Reduced loan growth/reduced

revenue growth

• Result – Bank does not meet performance objectives

Marc WinklerDirectorP&G Associates646 Highway 18East Brunswick, NJ 08816P: 877-651-1700E: [email protected]

THANK YOU!Enterprise Risk Management:

Aligning Risk with Strategy & Performance

Questions?