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Implementing enterprise risk management - John Fraser

Year 2015


ForewordCHAPTER 1. Enterprise Risk Management Case Studies: An Introduction and OverviewTHE EVOLUTION OF ENTERPRISE RISK MANAGEMENTWHY THE NEED FOR A BOOK WITH ERM CASE STUDIES?SUMMARY OF THE BOOK CHAPTERSPART I: OVERVIEW AND INSIGHTS FOR TEACHING ERMPART II: ERM IMPLEMENTATION AT LEADING ORGANIZATIONSPART III: LINKING ERM TO STRATEGY AND STRATEGIC RISK MANAGEMENTPART IV: SPECIALIZED ASPECTS OF RISK MANAGEMENTPART V: MINI-CASES ON ERM AND RISKPART VI: OTHER CASE STUDIESCONCLUSIONABOUT THE EDITORSPART I Overview and Insights for Teaching ERMCHAPTER 2 An Innovative Method to Teaching Enterprise Risk Management: A Learner-Centered Teaching ApproachLEARNER-CENTERED TEACHING: THE WHYLearner-Centered TeachingWhy LCT?FIVE KEY CHANGES TO PRACTICE THE WHATThe Balance of PowerThe Function of ContentThe Role of the TeacherThe Responsibility for LearningEvaluation Purpose and ProcessCONCLUSIONQUESTIONSAPPENDIX: LCT ERM EXAMPLES FROM THE HOWExample #1. Chapter 2: A Brief History of Risk ManagementExample #2. Chapter 3: ERM and Its Role in Strategic Planning and Strategy ExecutionExample #3. Chapter 5: Becoming the Lamp Bearer – The Emerging Roles of the Chief Risk OfficerExample #4. Chapter 8: Identifying and Communicating Key Risk IndicatorsExample #5. Chapter 11: How to Prepare a Risk ProfileExample #6. Chapter 13: Quantitative Risk Assessment in ERMExample #7. Chapter 14: Market Risk Management/Credit Risk ManagementExample #8. Chapter 16: Operational Risk ManagementExample #9. Chapter 17: Types of RiskExample #10. Chapter 18: Managing Financial RiskExample #11. Chapter 19: Bank Capital Regulation and Enterprise Risk ManagementExample #12. Chapter 20: Legal Risk Post-SOX and the Subprime FiascoExample #13. Chapter 23: Academic Research on Enterprise Risk ManagementExample #14. Chapter 10: How to Plan and Run a Risk Management Workshop; Chapter 22: Who Reads What Most Often?ABOUT THE CONTRIBUTORSPART II ERM Implementation at Leading OrganizationsCHAPTER 3 ERM at Mars, Incorporated: ERM for Strategy and OperationsMARS' ERM HISTORYFailure and RetrenchmentPHASE 2 – SUCCESSGLOBAL ROLLOUTREPORTING2007 OPERATING PLAN WORKSHOPSTECHNOLOGYAGGREGATIONTEMPLATE EVOLUTIONSPECIAL SITUATIONSMAJOR ACQUISITIONCONCLUSIONABOUT THE CONTRIBUTORCHAPTER 4 Value and Risk: Enterprise Risk Management at StatoilERM AT STATOIL: A BRIEF HISTORYERM FOUNDATIONSERM PROCESSES IN STATOIL TODAYOPTIMIZING TOTAL RISKTOTAL RISK OPTIMIZATION: LESSONS LEARNEDRISK AGGREGATIONTHE FRONTIERSCONCLUSIONABOUT THE CONTRIBUTORSCHAPTER 5 ERM in Practice at the University of California Health SystemTHE ENTERPRISE RISK MANAGEMENT PROGRAMLeveraging Technology to Support ERMCreating a Risk-Aware CultureHealth System Specialized ProgramsPREMIUM REBATE PROGRAMERM AND THE CENTER FOR HEALTH QUALITY AND INNOVATIONPROTECTED HEALTH INFORMATION VALUE ESTIMATOR (PHIve)Reputational RepercussionsFinancial RepercussionsLegal and Regulatory RepercussionsOperational RepercussionsClinical RepercussionsTotal the ImpactsERM and StrategyQUESTIONSABOUT THE CONTRIBUTORCHAPTER 6 Strategic Risk Management at the LEGO Group: Integrating Strategy and Risk ManagementABOUT THE LEGO GROUPTHE LEGO GROUP STRATEGYLEGO STRATEGIC RISK MANAGEMENTStrategic Risk Management Lab CommentaryENTERPRISE RISK MANAGEMENT (STEP 1)Strategic Risk Management Lab CommentaryMONTE CARLO SIMULATION (STEP 2)Risk ToleranceStrategic Risk Management Lab CommentaryAROP: ACTIVE RISK ASSESSMENT OF BUSINESS PROJECTS (STEP 3)Common Language and Common FrameworkStrategic Risk Management Lab CommentaryPREPARING FOR UNCERTAINTY: DEFINING AND TESTING STRATEGIES (STEP 4)Four Strategic ScenariosTHE PAPA MODELStrategic Risk Management Lab CommentarySTATEGIC RISK MANAGEMENT RETURN ON INVESTMENTStrategic Risk Management Lab CommentaryCONCLUSIONABOUT THE CONTRIBUTORSCHAPTER 7 Turning the Organizational Pyramid Upside Down: Ten Years of Evolution in Enterprise Risk Management at United Grain GrowersBACKGROUND – OPERATING ENVIRONMENTGOVERNANCELeadershipERM/Integrated Risk OutcomesERM CREDIT FINANCING OUTCOMESAGRICORE UNITEDHARVESTING VALUECONCLUSIONACKNOWLEDGMENTSABOUT THE CONTRIBUTORCHAPTER 8 Housing Association Case Study of ERM in a Changing MarketplaceBACKGROUNDSECTOR ISSUESCHARITABLE STATUSSector RisksSOME USEFUL METHODOLOGYRisk Appetite DeterminationRisk Assessment MethodologyFOUR ASSOCIATIONSASSOCIATION A: LONDON & QUADRANTMission StatementPerceived RisksChoices Made in 2012/2013ASSOCIATION B: RCT HOMESThe RCT SubsidiariesPerceived RisksASSOCIATION C: ABILITY HOUSING ASSOCIATIONPerceived RisksASSOCIATION D: GREENSQUAREObjectives and StrategyREFERENCESABOUT THE CONTRIBUTORCHAPTER 9 Lessons from the Academy: ERM Implementation in the University SettingTHE HIGHER EDUCATION ENVIRONMENTOrganizational Type Impacts Institutional CultureRisks Affecting Higher EducationEMERGENCE OF ERM IN HIGHER EDUCATIONADOPTING AND IMPLEMENTING ERM IN COLLEGES AND UNIVERSITIESTHE UNIVERSITY OF WASHINGTON: A JOURNEY OF DISCOVERYInstitutional ProfileCulture at UWImplementation History at UWLeadership from the Top: President Outlines the ChargeAdvisory Committee Recommendations: Create a Culture-Specific ERM ProgramScope of the Risk FrameworkOrganizational StructurePhilosophy of the ProgramEVOLUTION OF ERM AT UWERM STRUCTURE AT UWUW UnitsERM Program StaffCompliance, Operations, and Finance Council (COFi)President's Advisory Committee on ERM (PACERM)Internal AuditUW President and ProvostUW'S ERM MODELAdopting and Adapting the COSO ModelTools and TechniquesOUTCOMES AND LESSONS LEARNEDWHAT NEXT?: CURRENT PRIORITIES AND FUTURE DIRECTIONCONCLUSIONABOUT THE CONTRIBUTORCHAPTER 10 Developing Accountability in Risk Management: The British Columbia Lottery Corporation Case StudyBACKGROUNDTHE BEGINNINGS OF THE RISK MANAGEMENT JOURNEYLEARNING FROM THE FIRST ERM INITIATIVERESTARTING THE PROGRAM-2006-2008KEY STEPS IN THE DEVELOPMENT OF THE ERM PROGRAMREVITALIZING THE ERM PROGRAM – 2009-2010STRENGTHENING THE PROGRAM – 2010-2013BUILDING THE RISK PROFILETHE ROLE OF RISK MANAGERS, CHAMPIONS, AND COMMITTEESDEVELOPING A MORE SOPHISTICATED APPROACH TO RISK ANALYSIS AND EVALUATIONCONCLUSIONABOUT THE CONTRIBUTORCHAPTER 11 Starting from Scratch: The Evolution of ERM at the Workers' Compensation FundTOWARD ERM PROGRAM INITIATIONINITIAL ACTIONSMATURING: YEARS 1 AND 2THE FUTUREABOUT THE CONTRIBUTORCHAPTER 12 Measuring Performance at Intuit: A Value-Added Component in ERM ProgramsINTUIT'S ERM JOURNEYERM MATURITY MODELBENEFITS OF MEASURING PERFORMANCE IN ERM PROGRAMSUsing Key Performance Indicators to Measure Risk Management EffectivenessAnalyzing Performance DataUsing Key Risk Indicators to Understand Potential New Risks or Changing RisksERM PERFORMANCE MEASUREMENT AND REPORTING AT INTUITFirst Evolution: ERM Process AdoptionSecond Evolution: Risk Mitigation Progress MeasurementThird Evolution: Multidimensional Risk Management Performance MeasurementCONCLUSIONABOUT THE CONTRIBUTORCHAPTER 13 TD Bank's Approach to an Enterprise Risk Management ProgramBACKGROUNDERM at TD BankUnderstanding an Organization's Risks Helps Reinforce the Risk CultureRisk Governance StructureRisk Identification, Assessment, and ReportingRisk MeasurementRisk ControlRisk Monitoring and ReportingCONCLUSIONREFERENCESABOUT THE CONTRIBUTORSPART III Linking ERM to Strategy and Strategic Risk ManagementCHAPTER 14 A Strategic Approach to Enterprise Risk Management at Zurich Insurance GroupENTERPRISE RISK MANAGEMENT AT ZURICHTangible ResultsOptimizing the Risk and Reward Balance at ZurichRisk Culture at ZurichZURICH GROUP'S ENTERPRISE RISK MANAGEMENT FRAMEWORKRisk Governance Approach at Zurich with Three Lines of DefenseIntegrated Assessment and AssuranceInternal Control FrameworkROLE OF THE CHIEF RISK OFFICER AND GROUP RISK MANAGEMENT AT ZURICHBoard-Level Risk Committee and Executive Risk Committee ResponsibilitiesEmerging Risk GroupWORKING WITH EXTERNAL STAKEHOLDERSZURICH'S PROPRIETARY TOOLS USED IN ERM FRAMEWORKTotal Risk Profiling ToolZurich Hazard Analysis ToolZurich's Risk RoomCATEGORIZING VARIOUS RISKS AT ZURICHStrategic RisksInsurance RisksMarket RisksCredit RisksLiquidity RisksOperational RisksReputation RisksCAPITAL MANAGEMENTZurich Economic Capital ModelAnalysis of Capital AdequacyZURICH'S BUSINESS RESILIENCE TOOLSHOW ZURICH USES ITS ERM TOOLS TO CREATE NEW VALUECONCLUSIONAPPENDIXREFERENCESABOUT THE CONTRIBUTORSCHAPTER 15 Embedding ERM into Strategic Planning at the City of EdmontonCONTEXT – CITY OF EDMONTONCity GovernmentERM DEVELOPMENT IN THE PASTCity Auditor's ReportCURRENT OVERALL ERM DEVELOPMENTLINKS TO STRATEGIC PLAN AND TO OTHER STRATEGIC TOOLSResults-Based BudgetingCapital Budgeting ModelsSELECTING AND TESTING A STRATEGIC RISK MANAGEMENT MODELPilot pm2 Risk Scorecard MethodologyInitial PlanningStep 1: Identify StrategyStep 2: Identify Key Risk ElementsStep 3: Score Risk ElementsStep 4: Link Programs, Initiatives, and RisksStep 5: Determine Indicators and Mitigation ActionsSELECTING AN ERM FRAMEWORKComparison of pm2 and ISO 31000 FrameworksRECOMMENDED STRATEGIC ERM MODELLESSONS LEARNEDKey Success FactorsFindings on the Process of Selecting and Implementing a FrameworkCONCLUSIONAPPENDIX: SUMMARY OF THE WAY AHEAD, EDMONTON'S STRATEGIC PLANABOUT THE CONTRIBUTORCHAPTER 16 Leveraging ERM to Practice Strategic Risk ManagementERM: A REEXAMINATION OF PURPOSEREGULATORY ENVIRONMENTLEVERAGING ERM TO PRACTICE STRATEGIC RISK MANAGEMENTMANAGING AND MEASURING VALUE CREATIONRISK MANAGEMENT FAULT LINEVALUE MAPSADDITIONAL TOOLS AND TECHNIQUESCONCLUSIONABOUT THE CONTRIBUTORSPART IV Specialized Aspects of Risk ManagementCHAPTER 17 Developing a Strategic Risk Plan for the Hope City Police ServiceTHE CONTEXTSOME BACKGROUND ON THE HOPE CITY POLICE SERVICEWHAT THE CONSULTANT HEARDChief Administrative Officer of the CityChair of Police Service BoardInterviews within the Police ServicePresident of the Police AssociationChair of Hope City Chamber of CommerceEditor of the Hope City TelegraphCitizens against Racism Community GroupEast End Residents AssociationHope City Citizens for Responsible GovernmentOther InputCOMMUNITY VIEWS ON POLICE ISSUESABOUT THE CONTRIBUTORCHAPTER 18 Blue Wood ChocolatesBACKGROUNDTHE COMPANYMARKET OVERVIEWMajor Competitive FactorsCocoa Markets OverviewSugar Markets OverviewMilk Markets OverviewBLUE WOOD FINANCIAL PERFORMANCECONCLUSIONAPPENDIX I: BLUE WOOD CHOCOLATESAPPENDIX II: THE HERSHEY COMPANYAPPENDIX III: ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.ABOUT THE CONTRIBUTORSCHAPTER 19 Kilgore Custom MillingBACKGROUNDKILGORE CUSTOM MILLINGTHE MANAGEMENT TEAMTHE COMPANYTHE NEW CONTRACTTHE FINANCIAL RISK MANAGEMENT MEETINGABOUT THE CONTRIBUTORSCHAPTER 20 Implementing Risk Management within Middle Eastern Oil and Gas CompaniesCOMPANY BACKGROUNDORGANIZATION CULTURELOCAL CULTUREMECO STRUCTUREMECO RISK MANAGEMENT BACKGROUNDRISK MANAGEMENT PRACTICES WITHIN MECOInformation TechnologyProject ManagementFinanceEnvironmental Protection DepartmentLawCORPORATE RISK EXERCISERisk Management Information Gathering Exercise (January 2010 to June 2011)ConsolidationRisk FrameworkRisk Management ApproachManagement Committee Meeting, December 2011Operational Excellence, June 2012 to December 2012Risk Management Move to Corporate Planning, December 2012 to PresentCONCLUSIONABOUT THE CONTRIBUTORCHAPTER 21 The Role of Root Cause Analysis in Public Safety ERM ProgramsPOLICING AND RISKGetting to the Root of the ProblemFIVE WHYS ANALYSISCAUSE AND EFFECT ANALYSISExample: Cause and Effect Analysis on Homelessness and the Criminal Justice SystemFAILURE MODE, EFFECTS, AND CRITICALITY ANALYSISFMECA Example 1: Engineering ProcessFMECA Example 2: Operational Tactics Review ProcessFORCE FIELD ANALYSISINFLUENCE DIAGRAMSComparing RCA ToolsCONCEPT FANSCASE STUDY EXAMPLE: TACKLING VIOLENT CRIMECase Facts: General BackgroundSpecific IssueDeveloping the ApproachUnderstanding the IssuesTHE FMECA PROCESSBringing It All TogetherCONCLUSIONABOUT THE CONTRIBUTORCHAPTER 22 JAA Inc. – A Case Study in Creating Value from Uncertainty: Best Practices in Managing RiskSETTING THE CONTEXTBusiness BackgroundInitial Steps: Strategic Planning and Business ObjectivesEstablishing the Governance SystemBusiness OperationsExternal AuditorsEvolution of Risk ManagementINTRODUCTION OF ISO 31000 AND HB 436 TO THE COMPANYDefining the Context of JAADefining Risk CriteriaBringing Everything TogetherMoving Forward: Overseeing Strategy and RisksLooking to the Future: JAA's Management of UncertaintyAPPENDIX A: JAA INC. FINANCIAL STATEMENTSAPPENDIX B: RISK MANAGEMENT POLICYPurposeScopeObjectives of Risk ManagementTerminologyRisk Oversight PrinciplesRoles and ResponsibilitiesRisk Management MethodologyGeneral Risk Management PoliciesPART A – QUESTIONSPART B – QUESTIONSREFERENCESABOUT THE CONTRIBUTORSCHAPTER 23 Control Complacency: Rogue Trading at Societe GeneralePART ONE: KERVIEL'S TRIAL – A MEDIA CIRCUSSociete Generale – The Rise of TradingFrom Business to Retail to Investment Banking, from Private to Public to State OwnershipCIB Gets a Boost from Trading TalentSociete Generale Group Snapshot, December 2006Jerome Kerviel, an Ambitious OutsiderAt First a Few Side Bets, Then Massive SpeculationDiscovery, Damage Control, and RetributionPostmortemManagerial SupervisionControl EnvironmentSystem ReliabilityRisk-Sensitive CultureWho Was to Blame?ExercisePART TWO: OUTCOME AND LESSONS LEARNEDWhat Actually HappenedREFERENCESABOUT THE CONTRIBUTORCHAPTER 24 The Role of VaR in Enterprise Risk Management: Calculating Value at Risk for Portfolios Held by the Vane Mallory Investment BankRISK AND VALUE AT RISK OVERVIEWValue at RiskHistory, Characteristics, and Assumptions of VaRAdvantages and Criticisms of VaRCalculating Value at RiskYOUR TASK: CALCULATING PORTFOLIO VaR FOR VANE MALLORYPortfolio 1: Energy CommoditiesPortfolio 2: EquitiesCONCLUSIONREFERENCESABOUT THE CONTRIBUTORSCHAPTER 25 Uses of Efficient Frontier Analysis in Strategic Risk Management: A Technical ExaminationSTRATEGIC RISK MANAGEMENT FRAMEWORK EXAMINEDMODERN PORTFOLIO THEORY AS A FOUNDATION FOR EFFICIENT FRONTIER ANALYSISPRACTICAL APPLICATIONS OF RISK MEASUREMENT FOR INSURANCEModern Portfolio Theory (MPT)Efficient Frontier Insurance FrameworkSAMPLE CASE STUDYCase Study General FindingsINTENDED USES FOR OUR APPROACHMODERN PORTFOLIO CONCERNS CONTAINED IN THE FRAMEWORKCONSIDERATION OF BEHAVIORAL CONCERNS IN STRUCTUREACKNOWLEDGMENTSREFERENCESABOUT THE CONTRIBUTORSPART V Mini-Cases on ERM and RiskCHAPTER 26 Bim Consultants Inc.ABOUT THE CONTRIBUTORCHAPTER 27 Nerds GaloreABOUT THE CONTRIBUTORCHAPTER 28 The Reluctant General CounselABOUT THE CONTRIBUTORCHAPTER 29 Transforming Risk Management at Akawini CopperTHE ACQUISITION AND DUE DILIGENCETHE TRANSFORMATION PROCESSGAINING SENIOR MANAGEMENT OWNERSHIP FOR TRANSFORMATIONTHE TRANSFORMATION PLANREFERENCEABOUT THE CONTRIBUTORCHAPTER 30 Alleged Corruption at Chessfield: Corporate Governance and the Risk Oversight Role of the Board of DirectorsCHESSFIELD INC. AND ITS BOARD OF DIRECTORSWHISTLE-BLOWER COMPLAINTMESSAGE FROM THE CEO REQUESTING TO MEET THE AUTHORGOVERNANCE DOCUMENTS, INTERVIEWS, AND ON-SITE OBSERVATION REQUESTED BY THE AUTHORDocument ReviewInterview DataCEO COMPENSATION ISSUERISK MANAGEMENTSELF-DEALING ISSUEBoard CompositionPreparation of the Author's Report and Communication with the RegulatorCHESSFIELD BOARD MEETING TO DISCUSS THE AUTHOR'S RECOMMENDATIONSTWO CONTENTIOUS RECOMMENDATIONSRecommending a Woman to Serve on the BoardCONCLUSIONREFERENCESABOUT THE CONTRIBUTORCHAPTER 31 Operational Risk Management Case Study: Bon BoulangerieABOUT THE CONTRIBUTORPART VI Other Case StudiesCHAPTER 32 Constructive Dialogue and ERM: Lessons from the Financial CrisisCONSTRUCTIVE DIALOGUE: THE ESSENTIAL DIFFERENCE BETWEEN FIRMS THAT NAVIGATED THE CRISIS AND THOSE THAT FAILEDSUCCESSFUL FIRMS: JPMORGAN CHASE, GOLDMAN SACHS, WELLS FARGO, AND TD BANKJPMorgan ChaseGoldman SachsWells FargoToronto Dominion Bank (TD Bank)FIRMS THAT FAILED TO NAVIGATE THE CRISISJPMORGAN CHASE AFTER THE CRISIS: THE PERILS OF HUBRISCONCLUSIONABOUT THE CONTRIBUTORCHAPTER 33 Challenges and Obstacles of ERM Implementation in PolandMETHODOLOGY TO DIAGNOSE THE STATUS OF ERM IMPLEMENTATIONMAIN ISSUES IN POLAND'S ERM IMPLEMENTATIONBOARD PERCEPTION OF ERM: "WE HAVE TO CHANGE THE WAY WE RUN THE BUSINESS, BECAUSE LACK OF ERM CREATES INEFFICIENT MANAGEMENT"WHO IS GETTING MANAGEMENT BUY-IN FOR ERM?SPECIFIC CHALLENGES AND OBSTACLES OBSERVED IN RISK MANAGEMENTTerminologyPrinciplesRisk Management FrameworksRisk OwnersOrganizational Placement of ERMThe Influence of the Size of OrganizationsRisk Management ProcessWE HAVE TO BUILD THE CHIEF RISK OFFICER/RISK MANAGER PROFESSION FROM SCRATCHWHAT NUMBERS SAY ABOUT ERM MATURITYRISK MANAGEMENT FRAMEWORK – ACCOUNTABILITYIMPACT OF THE RISK ASSESSMENT TOOLS ON THE PERFORMANCE OF THE COMPANIESCAPITAL ALLOCATION: A FREQUENTLY MISSED PART OF THE ERM FRAMEWORK AND RISK TREATMENTCONCLUSIONREFERENCESABOUT THE CONTRIBUTORSCHAPTER 34 Turning Crisis into Opportunity: Building an ERM Program at General MotorsBACKGROUND AND IMPLEMENTATIONGENERAL MOTORS' APPROACH TO ENTERPRISE RISK MANAGEMENTLessons Learned: Identifying RisksLessons Learned: Developing Top Risks Lists and Reporting to Senior ManagementLessons Learned: Understanding Corporate CultureLessons Learned: Strategic Risk Mitigation and Decision SupportGAME THEORYWar Gaming and Scenario PlanningLOOKING FORWARDCONCLUSIONABOUT THE CONTRIBUTORSCHAPTER 35 ERM at Malaysia's Media Company Astro: Quickly Implementing ERM and Using It to Assess the Risk-Adjusted Performance of a Portfolio of Acquired Foreign CompaniesMALAYSIAThe Astro GroupCORPORATE GOVERNANCE IN MALAYSIAENTERPRISE RISK MANAGEMENT AT ASTROASTRO OVERSEAS LIMITEDEVOLUTION OF ERM AT AOLROLE OF ERM IN THE ACQUISITION PROCESSThe Monitor and Review Step – Focus of AOL's ERMRISK PROFILE: RISK MAP AND ACTION PLANSTHE INVESTMENT PERFORMANCE DASHBOARDHELPING THE BOARD MAKE INVESTMENT DECISIONSCONCLUSIONREFERENCESABOUT THE CONTRIBUTORSAbout the Editors
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