Enterprise Risk Management Focusing on the Right Risks

Transcription

1 Enterprise Risk Management Fcusing n the Right Risks Assciatin Cnference September 17, 2014 P L n L e A l n s a r n L t f i l C cliftnlarsnallen.cm

2 Discussin Objectives 1.Discuss factrs driving the need fr Enterprise Risk Management 2.Learn a prcess fr identifying, assessing and priritizing risks 3.Share infrmatin abut key items t cnsider fr enhancing risk management in rganizatins 2

3 Factrs Driving Organizatins t Implement Enterprise Risk Management: Why D Yu D It? 3

4 Increasing Demand fr Enhanced Gvernance and Risk Oversight 2012 Ddd-Frank Act Rules cmpensatin cmmittee independence disclsure f pay-fr-perfrmance, pay ratis, and hedging by emplyees and directrs recvery f executive cmpensatin reprting ver cnflict minerals essential fr business disclsure f gvernment payments t resurce extractin issuers, cmpanies engaging in cmmercial develpment f il, natural gas, and minerals 2010 SEC Rules t Enhance Crprate Gvernance Disclsures Rating Agencies directr and nminee qualificatins and legal prceedings diversity and directr nminatins bard leadership structure and rle in risk versight accelerated disclsure f sharehlder vting results S&P, Mdy s indicate an analysis f ERM capability will be a factr in determining a cmpany s verall credit rating IT Security and Cmpliance Regulatry requirements, standards, and risks related t identity theft, fraud, disclsures, privacy, etc.

5 Bard Respnsibilities are Increasingly Fcused n Risk Oversight Bard fiduciary respnsibilities extend beynd the traditinal hard risk areas t include all types f risk t the rganizatin including strategy and reputatin Bard members have a duty f care respnsibility which includes assuring that risks are cnsidered in decisin-making and all knwn key risks are effectively managed 5

6 Is ERM relevant fr nn-prfit rganizatins? ERM is just as valuable t nn-prfits as it is t cmmercial/public cmpanies Leading practices in risk management develped in crpratins can be leveraged by nn-prfits and assciatins Every rganizatin, regardless f type, has a need t understand risks that might impact it s ability t fulfill it s missin n ne is immune t risk. 6

7 Questins Many Organizatins Are Asking What is ur appetite fr risk and what is ur tlerance fr deviating frm expected results? What risks shuld we be fcusing n? D we knw what ur true tp risks are? Once we knw what the risks are, hw prepared are we t address them? Hw well are we ding with the risks we are fcusing n? D we have a sustainable prcess t make risk management mre than a ne time event? Hw d we capture future risks and integrate them int the prcess? Hw aligned are we as an rganizatin t make this happen? 7

8 What is ERM? Enterprise risk management is a prcess, effected by the entity s bard f directrs, management, and ther persnnel, applied in strategy-setting and acrss the enterprise, designed t identify ptential events that may affect the entity, and manage risk t be within the risk appetite, t prvide reasnable assurance regarding the achievement f bjectives. - COSO Enterprise Risk Management Integrated Framewrk 2004 Organizatinal definitins f Enterprise Risk Management (ERM) can vary widely. At its basic cre, it invlves having a better understanding f the risks yur rganizatin faces, and have a sustainable and repeatable prcess t successfully mitigate them. 8

9 Benefits f ERM Create a mre risk aware culture Align risk appetite and strategy Enhance risk respnse decisins Minimize peratinal surprises and lsses Identify and manage crss-enterprise risks Prvide integrated respnses t multiple risks Seize pprtunities Supprt cst management effrts Imprve peratinal perfrmance Prvide better basis fr allcating resurces 9

10 What types f risks are Nn-prfit rganizatins fcusing n? Many rganizatins are realizing that they need t fcus n the full spectrum f risk categries t ensure that they have identified their true tp risks, and fcusing n the right things. Risks are specific t the particular rganizatin but in additin t traditinal risk categries such as finance, rganizatins may identify risks in areas such as: Legislative and Regulatry change Ecnmic Envirnment Vendr Management Human Capital Management Affiliated Organizatins Business Cntinuity Medical Cst Management Benefit Cst Management Fraud Cyber Infrastructure Scial Media Federal Regulatry Cmpliance State Regulatry Cmpliance Safety and Security Reputatin management Cllabratin f Care 1 0

11 Identifying, Assessing, and Priritizing Risk n an Enterprise- Wide Basis : Hw D Yu D It? 10

12 The Tw Sides f the Risk Cin RISK TYPES Unrewarded Risk: Risks that must be taken Regulatry Cmpliance is a gd example Rewarded Risk: Risks where yu have an ptin t take Strategy and business decisins, where value can be created Fail t manage the Unrewarded Risks and bad things happen Fail t take the right amunt f Rewarded Risks and yu dn t fully reap the reward 12

13 Tw Ppular Risk Framewrks COSO integrated framewrk AS/NZ - ISO 31000:2009 Establish the Cntext Cmmunicate & Cnsult Identify Risks Analyze Risks Evaluate Risks Assess Risk Treat Risks Mnitr & Review 13

14 Gals f an Enterprise Wide Risk Assessment An enterprise risk assessment gives rganizatins insight int risks in multiple categries. Organizatins are finding that the prcess helps them: Understand bth financial and nn-financial risks Develp a sustainable risk assessment prcess yu can use in future years Utilize a cmmn risk rating criteria fr multiple risk types Generate a priritized risk register Develp risk mitigatin strategies fr the key risks vs. attempting t cver all Implement leading practices Manage risk mre effectively and efficiently Develp data fr bard and executive risk reprting 14

15 Illustrative Basic risk dashbard Using a Risk Heat Map The risk assessment prcess facilitates the identificatin f risks by rating the Impact, Vulnerability and Speed f Onset. The verall impact f the risk can be based n multiple types f impact including: Financial Reputatin Legal/Regulatry Custmers Emplyees Operatins The verall vulnerability f the risk can be based n factrs such as : Existing cntrls and mitigatin effrts Risk management capability Prir risk experience Speed f Onset is based n hw quickly the risk culd ccur 15

16 Illustrative Basic risk dashbard Example f a Basic Risk Reprt Risk Descriptin Risk Directin Risk Respnse Status Risk Owner Status f Additinal Risk Management Activities Initiated Failure t cmply with Federal regulatry standards Inaccurate billing fr services Insufficient business cntinuity planning Mr. Avid Ms. Accept Mr. Reduce Perfrming review f last 12 mnths f adverse cmpliance Develping actin plans fr key trend areas identified frm the review Assess custmer cncerns Measure custmer satisfactin A prject has been initiated t develp apprpriate business cntinuity plans fr all majr peratins and facilities. Inadequate IT backup and disaster recvery prcesses Ms. Transfer Key steps have been cmpleted t imprve IT BCM: cnslidated and imprved the data center, dcumented prcesses, and retrained persnnel. 16

17 Planning the ERM Jurney: Key items t cnsider 17

18 Evaluating Risk Management Capability 2 Key Questins n Risk Management Capabilities Where is yur rganizatin in terms f risk management capabilities? Where d yu need (r want) t be? Many rganizatins are assessing their current risk management state and setting gals fr their next ERM milestne. 18

19 Key Challenges and Obstacles ERM is usually fcused n crprate bjectives and crprate strategies. Des yur rganizatin define these? Many rganizatins r assciatins ften have specific missins, as well as electin r appintment cycles related t bard members which may require a different perspective n assessing risks against lng term bjectives/strategies. Are there ther methds r mdels t apply? What levels f the rganizatin are targeted? Fr yur rganizatin, can enterprise wide be realized? If deplyed at the department r business unit level, is there a risk f incnsistent mdels r assessments f risk? What implicatins des this have n risk, investment, and budget/resurce decisins? Hw is the framewrk and prgram deplyed? Crpratins ften assign an verall Chief Risk Officer, Cmpliance Officer, and/r ERM Directr. D nn-prfits have an entity wide equivalent? Wh wuld wn ERM in the rganizatin? What abut assessments r integratin with ther key stakehlders, departments, etc.? 19

20 The ERM Jurney Ad-hc Highly dependent n individual knwledge and actins Reactinary respnse t risk events Sme risk categries with defined rles Mstly fcused n un-rewarded risks Leadership drives prcess Defined plicies and prcedures fr risk assessments Enterprise wide risk register Management aware f and addresses the key risks Risk events managed n an integrated basis Fully integrated risk management prgram Risk escalatin prcesses in place Organizatin begins t leverage the rewarded risks Risk Management fully integrated int culture Strategic use f risk infrmatin n a regular basis Sustainable and nging prgram Organizatin fully addresses all risk types Un-rewarded Risk Rewarded Risk 20

21 Illustrative Rles and Respnsibilities Grup Respnsibility Bard / Audit Cmmittee Establish risk appetite Review enterprise risks Set the Tne at the Tp Executive Management (Can be supprted by ERM executive cmmittee r similar grup) Set risk plicies Ensure plicies and prcedures are fllwed Ensure prper resurces are assigned Serve as primary pint fr crdinatin f all enterprise risk data ERM Functin Prvide ERM supprt t Executive Management and the Bard Perfrm verall ERM prgram management Implement and Crdinate ERM prcesses and prcedures Business Units Identify and assess risks Develp risk mitigatin strategies Mnitr risks and escalate when required Internal Audit Functin Wrk with ERM functin t crdinate and facilitate ERM prgram Review f effectiveness f risk mitigatin effrts Prvide assurance t management and bard n risk expsure 21

22 Summary What is ERM? Hw des ERM apply t yur rganizatin, and what benefits can be derived? What framewrks, tls, and methdlgies are mst applicable? Challenges exist hw will yur rganizatin apprach these challenges? What skills and capabilities current exist fr risk management within yur rganizatin? Where t begin? Seek executive buy-in Leverage existing practices Start Small pilt pprtunities, fcus n a narrw universe f key risks, stages, etc. Establish metrics and mnitring structures fr accuntability and sustainability 22

23 Jim Kreiser, CISA, CRMA, CFSA Principal, IT and Risk Management Services cliftnlarsnallen.cm twitter.cm/ CLA_CPAs facebk.cm/ cliftnlarsnallen linkedin.cm/cmpany/ cliftnlarsnallen 30