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Risk Management……… Not just part of good management it’s all of it!!

Risk Management……… Not just part of good management it’s all of it!!. Presented by Mike Robertson Managing Director. Presented on 11 February 2008. Outline. Quick review of history Some definitions / terminology Risk management in practice

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Risk Management……… Not just part of good management it’s all of it!!

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  1. Risk Management………Not just part of good managementit’s all of it!! Presented by Mike Robertson Managing Director Presented on 11 February 2008

  2. Outline • Quick review of history • Some definitions / terminology • Risk management in practice • Demonstration that risk management and good management are the same thing

  3. Historical origins of risk thinking Pierre de Fermat (1601-1665) Jakob Bernoulli (1654-1705) Blaise Pascal (1623-1662) Gerolama Cardano (1501-1665) Abraham de Moivre (1667-1754) Daniel Bernoulli (1700-1782) Thomas Bayes (1702 – 1761)

  4. Historical origins of risk thinking Pierre de Fermat (1601-1665) Jakob Bernoulli (1654-1705) Blaise Pascal (1623-1662) Gerolama Cardano (1501-1665) Abraham de Moivre (1667-1754) Daniel Bernoulli (1700-1782) Thomas Bayes (1702 – 1761)

  5. Recent drivers of risk thinking 1980s 1990s 2000s

  6. Key UK Government reports

  7. Key UK Government reports http://www.hse.gov.uk/risk/theory/r2p2.htm http://www.cabinetoffice.gov.uk/strategy/work_areas/risk.aspx http://www.hm-treasury.gov.uk./documents/public_spending_reporting/governance_risk/psr_governance_risk_riskguidance.cfm http://archive.cabinetoffice.gov.uk/brc/

  8. Definitions / Terminology Definition (What?) Identification (To whom?) Estimation (How bad? Often?) Evaluation (So what?) Action (Implement, monitor) Risk Analysis Risk Assessment Risk Management

  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

  10. Defining ‘risk appetite’

  11. Examples of impact scales Scale Impact High (H) Partial line closure (or worse) Board of a battery manufacturer Scale Impact Medium High (MH) Station closure High (H) Threatens business survival Medium Low (ML) Journey delay> 2 mins Medium High (MH) Long term damage to business Low (L) Journey delay< 2 mins Medium Low (ML) Short term damage to business Operations managers on LUL Low (L) Trivial

  12. Examples of likelihood scales Scale Likelihood High (H) Greater than once per day Board of a battery manufacturer Scale Likelihood Medium High (MH) Greater than once per week High (H) Once a month Medium Low (ML) Greater than once per month Medium High (MH) Once a year Low (L) Greater than once per year Medium Low (ML) Once every five years Operations managers on LUL Once every twenty years Low (L)

  13. Risk assessment X1 X2 X3 X4 X6 X5 X7 X8 X10 X11 X9 X12

  14. Risk management Terminate Transfer Treat Treat X1 X2 X3 X4 X6 X5 X7 X8 X10 X11 X9 X12

  15. Tolerability of risk and ALARP Risk of death: Worker & public: 1 in 1,000,000 per year Risk of death: Worker: 1 in 1,000 per year Public: 1 in 10,000 per year Source: Risk: Improving government’s capability to respond to risk and uncertainty, Strategy Unit, Cabinet Office, November 2002

  16. Risk decision making framework Decision context • Nothing new or unusual • Risks well understood • Established practice • No major stakeholder implications Codes & standards A Good practice Engineering judgement • Lifecycle implications • Some risk trade-offs / risk transfer • Some uncertainty or deviation from established or best practice • Significant cost implications B Risk based analysis e.g. QRA, CBA Company values • Very novel or challenging • Strong stakeholder views and perceptions • Significant risk trade-offs / transfer • Large uncertainties • Perceived lowering of safety standards Societal values C Input to decision making process Adapted from : A Framework for Risk Related Decision Support, UKOOA, 1999

  17. Evolution of risk management Source: Risk: Improving government’s capability to respond to risk and uncertainty, Strategy Unit, Cabinet Office, November 2002

  18. Risk management = good management? Firm infrastructure Human resource management Margin Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service Margin • 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? Source: M E Porter, Competitive Advantage, 1985

  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: • minimise risk to your business • maximise chance of realising opportunity • recognise and understand how uncertainty can affect your decisions • do all this in a transparent and auditable way • …….which is what good managers do anyway!

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