Risk management is not just a part of good management - it is all of it

Risk Management………Not just part of good management

it’s all of it!!

Presented on 11 February 2008

Presented by Mike RobertsonManaging Director

© Risk Solutions 2007

Slide 2

Outline

Quick review of history

Some definitions / terminology

Risk management in practice

Demonstration that risk management and good

management are the same thing


Slide 3

Historical origins of risk thinking

Pierre de Fermat(1601-1665)

Blaise Pascal(1623-1662)

Gerolama Cardano

(1501-1665)

Daniel Bernoulli(1700-1782)

Jakob Bernoulli(1654-1705)

Abraham de Moivre(1667-1754)

Thomas Bayes(1702 – 1761)


Slide 4

Historical origins of risk thinking

Pierre de Fermat(1601-1665)

Blaise Pascal(1623-1662)

Gerolama Cardano

(1501-1665)

Daniel Bernoulli(1700-1782)

Jakob Bernoulli(1654-1705)

Abraham de Moivre(1667-1754)

Thomas Bayes(1702 – 1761)


Slide 5

Recent drivers of risk thinking

1980s 1990s 2000s


Slide 6

Key UK Government reports


Slide 7

Key UK Government reports

http://www.hse.gov.uk/risk/theory/r2p2.htm

http://www.hm-treasury.gov.uk./documents/public_spending_reporting/governance_risk/psr_governance_risk_riskguidance.cfm

http://www.cabinetoffice.gov.uk/strategy/work_areas/risk.aspx

http://archive.cabinetoffice.gov.uk/brc/


Slide 8

Definitions / Terminology

Definition(What?)

Identification(To whom?)

Estimation(How bad? Often?)

Evaluation(So what?)

Action(Implement,

monitor)

Risk Analysis

Risk Assessment

Risk Management


Slide 9

Risk management actions

Transfer▲ e.g. insure against the threat being realised

Tolerate▲ Requires some criteria to be tested against▲ concept of ‘risk appetite’

Treat▲ Apply additional or more effective controls

Terminate▲ Eliminate the threat completely


Slide 10

Defining ‘risk appetite’

H

MH

ML

L

L ML MH H

Likelihood

Impact


Slide 11

Examples of impact scales

Journey delay< 2 mins

Low (L)

Journey delay> 2 mins

Medium Low (ML)

Station closureMedium High (MH)

Partial line closure (or worse)

High (H)

ImpactScale

Operations managers on LUL

TrivialLow (L)

Short term damage to business

Medium Low (ML)

Long term damage to business

Medium High (MH)

Threatens business survival

High (H)

ImpactScale

Board of a battery manufacturer


Slide 12

Examples of likelihood scales

Greater than once per year

Low (L)

Greater than once per month

Medium Low (ML)

Greater than once per week

Medium High (MH)

Greater than once per day

High (H)

LikelihoodScale

Operations managers on LUL

Once every twenty yearsLow (L)

Once every five years

Medium Low (ML)

Once a yearMedium High (MH)

Once a monthHigh (H)

LikelihoodScale

Board of a battery manufacturer


Slide 13

H

MH

ML

L

L ML MH H

Likelihood

Impact

Risk assessment

X11

X6

X3

X2

X7

X12X9

X1

X8

X5

X10

X4


Slide 14

H

MH

ML

L

L ML MH H

Likelihood

Impact

Risk management

X11

X6

X3

X2

X7

X12X9

X1

X8

X5

X10

X4Treat

Tre

at

Terminate

Transfer


Slide 15

Tolerability of risk and ALARP

Source: Risk: Improving government’s capability to respond to risk anduncertainty, Strategy Unit, Cabinet Office, November 2002

Risk of death:Worker: 1 in 1,000 per yearPublic: 1 in 10,000 per year

Risk of death:Worker & public:1 in 1,000,000 per year


Slide 16

Risk decision making framework

Adapted from : A Framework for Risk Related Decision Support,UKOOA, 1999

Decision context

A

B

C

• Nothing new or unusual• Risks well understood• Established practice• No major stakeholder implications

• Lifecycle implications• Some risk trade-offs / risk transfer• Some uncertainty or deviation from established or best practice• Significant cost implications

• Very novel or challenging• Strong stakeholder views and perceptions• Significant risk trade-offs / transfer• Large uncertainties• Perceived lowering of safety standards

Codes

&

stan

dards

Good p

ract

ice

Engineering ju

dgement

Risk based analysis

e.g. QRA, C

BA

Company values

Societa

l

values

Input to decision making process


Slide 17

Evolution of risk management

Source: Risk: Improving government’s capability to respond to risk anduncertainty, Strategy Unit, Cabinet Office, November 2002


Slide 18

Risk management = good management?

Inboundlogistics

Operations Outboundlogistics

Marketingand sales

Service

Procurement

Technology development

Human resource management

Firm infrastructure

Margin

Mar

gin

Source: M E Porter, Competitive Advantage, 1985

How robust are our:• Processes?• IT/IM Systems?• Financial control?• Governance?

How robust is our:• Recruitment policy?• Development processes?• Succession planning?• HR system (up-to-date)?• Reward systems?

Is our technology:• Safe?• Out-dated?• Reliable?• Expensive to maintain?• Leading edge or good practice?


Slide 19

Final thoughts

Risk management is an evolving discipline Process is generic ………but one size does not fit all

▲ FITNESS FOR PURPOSE !

Objectives of good risk management are to:1. minimise risk to your business2. maximise chance of realising opportunity3. recognise and understand how uncertainty can affect your

decisions4. do all this in a transparent and auditable way

…….which is what good managers do anyway!

Risk management is not just a part of good management - it is all of it

Business

risk management x

risk tradeoffs risk

risk assessment x

risk decision

tolerability of risk

risk management actions

year risk of death

historical origins of