Risk Scorecard Making risk visible and actionable…. Brett Knowles CMA Foundation Thought Leader for Performance Measurement Performance Management [email protected] © pm2Consulting.com 1
Dec 17, 2015
Risk ScorecardMaking risk visible and actionable….
Brett KnowlesCMA Foundation Thought Leader forPerformance MeasurementPerformance [email protected]
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Our clients have been profiled by the Thought-Leaders
Over the last 10 years, every book written by the founders of the Balanced Scorecard, Drs Kaplan and Norton have profiles our clients.
Four Clients have become Kaplan-Norton Hall of Fame Winners!
Hall of fame Winner – 1999. Quadrupling of share price, Growth 30% above industry, exceptional customer and employee satisfaction.
Hall of fame Winner – 2001. 8-Fold increase in share price, ground-breaking development of intangible asset measurement, exceptional stakeholder satisfaction.
Drs Kaplan and Norton’s prestigious Hall of Fame award, presented by Kaplan & Norton to the best scorecards in the world.
Hall of Fame Winner – 2004. Breakthrough performance results including average annual revenue growth of 20 percent, net income improvement from $19.4 million to $100.9 million.
Hall of fame Winner – 2011. In three years revenues grew 8%, productivity 8.5%, and profit 27%. Customer satisfaction is up 13% and employee engagement is up 12%.
Datacraft
9) Strategic Management Practices
Risk Scorecard’s Location in the e-MAGs
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Strategy
1) Strategy Model Performance Metrics
2) Balanced Scorecard
Core Processes
Process Improvement
Initiatives
5) Initiative Strategic Performance Analysis
4) Strategic –Organization
Design
6) Performance Dashboards
7) Process Improvement Management
8) Accountability & Compensation
3) Process Strategic Performance Analysis
Risk Ledger 10) Risk Scorecard
The Risk Scorecard
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RISK ELEMENTS
1 2 3 4 5 6 7 8
A
B
C
D
STRATEGICGOALS &
PRIORITIES
The Risk Scorecard
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RISK ELEMENTS
1 2 3 4 5 6 7 8
A
B
C
D
STRATEGICGOALS &
PRIORITIES
The Risk Scorecard
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RISK ELEMENTS
1 2 3 4 5 6 7 8
A
B
C
D
STRATEGICGOALS &
PRIORITIES
The Risk Scorecard
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RISK ELEMENTS
1 2 3 4 5 6 7 8
A 10%
B 50%
C 20%
D 20%
STRATEGICGOALS &
PRIORITIES
The Risk Scorecard
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RISK ELEMENTS
1 2 3 4 5 6 7 8
A 10%
B 50%
C 20%
D 20%
STRATEGICGOALS &
PRIORITIES
The Risk Scorecard
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What benefit would this offer your leadership team?
Benefits to the Leadership Team
Visibility of the risks Alignment around criticality of each
risk Ability to focus on the few Actionable information
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The Risk Scorecard
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What benefit would this offer your Board?
Benefits to the Board of Directors
Confidence in the Leadership Team Visibility of risks Alignment and support with the
Leadership Team Ability to focus on the few
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The Risk Scorecard
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What benefit would this offer your Investors?
Benefits to Investors
Confidence in the Leadership Team Visibility of risks Ability to take risks into account
when determining risk tolerance
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The Risk Scorecard
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If you could build this next week, would you?
USE CASE EXAMPLE
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STRATEGY
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The Overall Process
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STRATEGY RISKS
STRATEGIC RISK REGISTER
RISK SCORECARD
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Frederick Industries Story
Frederick
CU
STO
MER
SIN
TER
NA
LEN
AB
LER
SFI
NA
NC
IAL
v1
F1: Profitable Growth
C1: Build Loyalty
C3: Quality ProductC2: Low Price
E2: Embrace Change
I1: Continuous Improvement
E3:Promote a Safe Work Place
E1: Invest in Our People E4: Leverage Technology
I2: Develop New Products
I3: Improve Inventory Management
F2: Low Cost Producer
I4: Anticipate Customer Needs
C4: Great Service
5% 5%
3%
15% 4% 4%
16%
5% 10% 15%
6% 6%4% 4%
To be our customers’ supplier of choice by providing a quality product with exceptional service at a competitive price. Frederick
The Overall Process
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STRATEGY RISKS
STRATEGIC RISK REGISTER
RISK SCORECARD
RISK CATEGORIES
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There are countless Frameworks…
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STRATEGIC RISK ASSESSMENT
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Your Strategic Risk Assessment
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STRATEGY RISKS
STRATEGIC RISK REGISTER
RISK SCORECARD
Strategic Risk Analysis
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Strategic Risk Analysis
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Strategic Risk Analysis
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Strategic Risk Matrix
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Low impact/Low probability – Risks in the bottom left corner are low level, and can often be ignored.Low impact/High probability – Risks in the top left corner are of moderate importance – if these things happen, you can cope with them and move on. However, you should try to reduce the likelihood that they'll occur.High impact/Low probability – Risks in the bottom right corner are of high importance if they do occur, but they're very unlikely to happen. For these, however, you should do what you can to reduce the impact they'll have if they do occur, and you should have contingency plans in place just in case they do.High impact/High probability – Risks towards the top right corner are of critical importance. These are your top priorities, and are risks that you must pay close attention to.
RISK SCORECARD
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The Risk Scorecard
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STRATEGY RISKS
STRATEGIC RISK REGISTER
RISK SCORECARD
Building the Risk Scorecard
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Pulling in the Impact Estimates
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Finding Leading Indicators
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Leading indicator of that aspect of risk occurring.
In this example, a leading indicator of the ERP Implementation Failing on the Strategic Objective Profitable Growth might be:• ERP Customer Profitability Roll-up vs. non-ERP roll-up• ERP Revenue growth projections based on ERP numbers
Graphing the Impact
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Graphical representation of the leading-indicator’s projection of risk that is occurring with respect to that strategic objective.
(Strategic Weighting) * (Impact) * (Leading Indicator Performance)
Understanding the Graphs
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Even though they both have a risk-impact of four and a poorly performing risk indicator, because C4 has a weighting of 4% it has a shorter bar-graph than I1 with a weighting of 16%
Looking at Each Risk
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Providing the Predictive Indicator for each risk is the sum of:
(Strategic Weighting) * (Impact) * (Leading Indicator Performance) across all strategic objectives.
The Impact of Strategic Weighting
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The Impact of Strategic Weighting
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Key Risk Points
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NEXT STEPS
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Next Steps
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1. CMA Risk Scorecard
2. RiskScorecard.net
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