GOVERNANCE OF RISK: THE BOARD - RISK LEADER OR FOLLOWER?

1. GOVERNANCE OF RISK: THE BOARD - RISK LEADER OR FOLLOWER? Deon van der Westhuizen

2. Key points of presentation • Providing leadership in risk management • The nature and extent of the strategic risks • The role of combined assurance and how it assists the Board • Setting and achieving its strategic objectives • Risks discussed at board level are not aligned to strategic objectives • How can boards take a proactive and leadership role in risk governance? • Ongoing monitoring of residual risk against the risk appetite • Risk management and accountability

3. From Risk Management to Risk Leadership • What I like is the recommended shift from traditional risk management thinking — what might go wrong — to a focus on whether the right levels of the right risks are being taken — the result of informed and intelligent decision-making. David Renz • "Are you helping your executives, board, and management across the extended enterprise make informed and intelligent decisions that drive the organization to success —​ the achievement of its objectives by intelligent risk-taking?" • Making executives or the board risk-averse is paving the path to failure, not to success.

5. Auditor-general report Operational losses Legal complications Consequence management

6. Working capital management Current ratio = 0.44:1

7. Rating agency No ability to raise finance

8. Financial measurement Staff - 40% vacant No repairs and maintenance

9. Performance Water losses = 36%

10. Operational loss R478m / 12 = R40m per month

11. Value creation vs preservation COSO 4 fraud risk Planning and dashboard M and A’s Sources of cash 2nd line of defense Legal compliance Cash flow management Emerging risks Demand management Skills audit Preventative maintenance

12. Evolution of Enterprise Risk and Resilience Management (ERM)

13. Risk Universe

14. The value killers – drop in share prices

15. Key risks market capitalization losses

16. Value killers 2005 to 2014 Source: Deloitte –The Value Killers Revisited, 2014

17. Time for share price to recover Source: Deloitte –The Value Killers Revisited, 2014.

18. Nature and extent of strategic risks

19. Extreme weather • Natural disasters • Cyberattacks • Water • Large scale migration • Ecosystem collapse

20. Interconnectivity

21. Deloitte – focus on strategic risks 2019

22. Compliance and regulatory push

23. Combined assurance - 3 LOD or 5 LOA

24. Residual risk versus risk appetite

25. Broad responsibilities of the Board • The board provides direction to senior management by setting risk appetite. • It also seeks to identify the principal (key) risks. • Board assures itself on an ongoing basis that senior management is responding appropriately to these risks (oversight) • Board delegates to the CEO and senior management primary ownership and responsibility for operating risk management and control. • Management provides leadership and direction re risk management, and to control overall risk-taking activities in relation to the agreed level of risk appetite. • To ensure the effectiveness of risk management, the board and senior management rely on adequate line functions – including monitoring and assurance functions

26. First line of defense

27. Second line of defense

28. Focus on the second line of defense

29. KPI’s and KRI’s

30. Minimum tools in the toolbox

31. Goal – Reduce waste and increase process speed Focus – Implementing Waste reduction tools Method – Improvement events Value Stream Mapping Goal – Improve performance on items Critical to Customer Quality (CTQs) Focus – Use DMAIC with (TQM) tools to eliminate variation Method – Management engagement, dedicated team effort Lean Speed Enables Six Sigma Quality (Faster Cycles of Experimentation/learning) Six Sigma Quality Enables Lean Speed (Fewer Defects Means Less Time Spent on Rework) Lean Six Sigma - Integration of Two Powerful Business Improvement Approaches... LeanSpeed + Waste Elimination Six Sigma Quality, Cost Efficiency Effectiveness

32. Pareto Analysis

33. Machine Material Methods Mother Nature Measurements Manpower Fishbone Diagram Discovery of different discount rates occurs too late in process Computer screens Billing process not accurate Too many “jumps” Updates Product Shortages Master customer discount table not up-to-date Effect: Too many price adjustments at check-out Incomplete Training on common complaints Power Failures Management Policies Not enough staffing during peak times Marketing metrics counterproductive Unfamiliarity with procedures Notification of absence For vacation notification Root Cause Analysis

34. Third line of defense - auditing

35. Any Questions? • Deon van der Westhuizen • https://www.linkedin.com/in/muniratings/