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CBIZ & MHM Executive Education Series™ Risk Management & Risk Transfer - A Multi-Pronged
Approach for Management and Boards
Presented by Remonde Brangman and Anthony Consoli
March 12, 2015
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Before We Get Started…
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This webinar is eligible for CPE credit. To receive credit, you will need to answer periodic participation markers throughout the webinar.
External participants will receive their CPE certificate via email immediately following the webinar.
CPE Credit
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The information in this Executive Education Series course is a brief summary and may not include all
the details relevant to your situation.
Please contact your service provider to further discuss the impact on your business.
Disclaimer
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Today’s Presenters
Remonde Brangman, CPA, CRMA Director, CBIZ MHM, LLC 301.951.3636 | [email protected]
Remonde Brangman is the CBIZ National Vendor Risk Management Practice Leader and heads the Mid-Atlantic Risk Advisory Services practice. With over 30 years of experience, he has extensive knowledge of best practices in risk assessment, vendor risk management, compliance programs, operational reviews, corporate and nonprofit governance, and business improvement. Remonde has served a broad range of clients including fortune 100 companies, local and foreign governments, and the financial industry.
Anthony Consoli President, CBIZ Insurance Services, Mid-Atlantic Region 877.251.5345 | [email protected]
Tony Consoli is President of CBIZ’s Risk Management and Insurance Services division in the Mid Atlantic region. He also serves as the firm’s National Healthcare Practice Leader. Tony’s career includes over 25 years of executive leadership and portfolio account management in risk, insurance, business solutions and strategy, with extensive service to the health care, life sciences, real estate, manufacturing and financial industries.
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Today’s Agenda
1
2
Overview and Background
Risk Management Techniques
Enterprise Risk Management 3
4 Risk Assessment Process
5 Benefits of Risk Management
6 Questions
OVERVIEW AND BACKGROUND
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RISK – You KNOW it’s out there . . .
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. . . and you may not see it coming . . .
. . . but you can (must) still plan for it.
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Definitions – in Business Terms
A Risk Factor is something that can cause harm. It is a poor business condition or practice that can negatively impact a company.
Risk (traditional) is the likelihood of harm. The likelihood that profitability and shareholder value will be negatively impacted.
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Definitions – ISO 31000
Risk is the effect of uncertainty on objectives.
• Note 1 - An effect is a deviation from the expected — positive and/or negative.
• Note 2 - Objectives can have different aspects (such as financial, health and safety, and environmental goals) and can apply at different levels (such as strategic, organization-wide, project, product and process).
• Note 3 - Risk is often characterized by reference to potential events and consequences, or a combination of these.
• Note 4 - Risk is often expressed in terms of a combination of the consequences of an event (including changes in circumstances) and the associated likelihood of occurrence.
• Note 5 - Uncertainty is the state, even partial, of deficiency of information related to, understanding or knowledge of an event, its consequence, or likelihood.
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Categories of Risk
Strategic
Hazard Financial
Operational
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Categories of Risk
Specific risks within each category will vary according to entity type, industry, demographics and other factors. Two examples:
For Profit
Not-For Profit
RISK MANAGEMENT TECHNIQUES
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Risk Retention Risk Management Risk Transfer
o Contractual non-insurance o Insurance
Risk Avoidance Financial Tools
Risk Techniques
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Definition: A form of self-insurance employed by organizations which have determined that the cost of transferring a risk to an insurance company is greater over time than the cost of retaining the risk and paying for losses out of their own reserve fund.
Risk Retention
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Definition: Coordinated activities to direct and control an organization with regard to risk.
Risk Management
Risk Management Framework will include:
• Policy, objectives, mandate • Plans, relationships, accountabilities,
resources, processes • Framework embedded within overall
strategic and operational policies and practices.
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Definition: A risk management technique whereby risk of loss is transferred to another party through a contract (e.g., a hold harmless clause) or to a professional risk bearer (i.e., an insurance company).*
Risk Transfer
* International Risk Management Institute (IRMI)
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Risk Avoidance
Definition: A risk management technique that seeks to eliminate any possibility of risk through hazard prevention, or the discontinuation of activities determined to entail any level of risk.
Often used in extreme situations where the risk exposure creates an extraordinary liability potential.
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Financial Tools
Insurance Risk
Transfer Loss
Sensitive Programs
Self-Insurance
Captives
ENTERPRISE RISK MANAGEMENT
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Risk Management Continuum
Risk Profile Risk Aware
RiskAware
RiskAttentive
RiskAttentive
RiskEnabled
RiskEnabled
DescriptionManagement is aware of thebenefits of implementing riskmanagement principlesorganization wide
Management is ready toembrace risk management ineveryday processes andpractices. It is attentive tosome, if not all, of its risks.
Management recognizes riskmanagement as a corecompetence and is successfullyusing it as a competitiveadvantage in chosen markets.
§ Risks managed in silos§ Management holds decision
power§ Financial risk focus only§ No risk management training
Risks managed in silosManagement holds decision
power Financial risk focus only No risk management training
§ Risk management committees § Decision power devolved§ Operational risk focus§ Balanced scorecard in place
Risk management committees
Decision power devolved
Operational risk focus
Balanced scorecard in place
§ Self sufficient committees in place§ All involved in decision making§ Business risk focus§ Risk management is core
competence
Self suf f icient committees in place
All involved in decision making
Business risk focus
Risk management is core competence
Characteristics
Reactive Financial focusCareer internal auditors Low profile
Role of Internal Audit
ProactiveOperational focusRole rotation
Higher profile
Change agents
Business focus
Integrated risk managementRisk & control educators
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Industries that have adopted ERM
65% of Public Firms
Financial Services
Energy Sector
Health Care
Transportation
Education
Newcomers: Construction
& Mining
Source: Excellence in Risk Management VI, Marsh | RIMS
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ERM: Both Negative and Positive Mindsets
Controlled Risk Maximum Performance
vs.
Uncontrolled Risk Under Performance
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Risk Management Heat Map
321
3
2
1 O - 8
12
R - 3
3
3
2
1
Opportunities RisksLikelihood Likelihood
Impa
ct o
n O
bjec
tives
Impa
ct o
n O
bjec
tives
Management addresses these key risks andopportunities in its plans and prioritiesNote: Some adjustment to current priorities may be required
O - 14 R - 34
R - 72
O - 21 R - 11
Developed byJay Mattingly
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Characteristics of Risk Factors
Factors vary by industry and importance.
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ERM Implementation Drivers
Transparency
Technology Competition
Compliance
Public Companies
Public and Private Companies
RISK ASSESSMENT PROCESS
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Q: How do leaders determine which techniques or approaches to risk management are the most appropriate for their organization?
A: Risk Assessment Process
Key Question
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The ERM Process
Risk Analysis Analyze presence of risk - Assess the level of risk - Quantify the results - Report the findings - Recommend action
Risk Response Develop an action plan; determine what risks to control and assign responsible individuals
Risk Control Implement a solution to reduce or transfer the risk
Risk Monitoring Observe the completed implementation and report the results
Risk Factor Identification Identify all potential risk exposures
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Top-Down Bottom-Up Risk Based Approach
High Risk Processes
Moderate Risk Processes
Low Risk Processes
RiskGovernance
RiskOversight
Risk Management
Board of Directors
Executive Management
Process Owner
Executive Management
Management
Process Owner
Design
Implementation
Top-
Dow
nB
otto
m-U
p
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Risk Management Evolution
Modern Risk Management
ISO 31000 Methodology
Principles
Framework
Process
Compliance oriented Financial focus Negative risk events Driven from credit and market risk modeling
Top down approach Complex methodologies Lacking front line involvement and buy-in
Not seen as a model for small businesses
Management oriented
Broad organizational focused
Positive and negative risk events
Driven from strategic and organizational objectives
Both top down and bottom up
Simplified methodologies
Organizational buy-in
Excepted model for all businesses
Traditional Risk Management
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Risk Management Techniques
Knowledge, understanding and development of a plan for continuous improvement.
Safety programs Security systems Fire suppression Construction Materials Driver Training Pre-employment screening
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Insurance
Insurance Policy
SafetyLoss
Control
Claims ManagementFinancia
l Analys
is
Insurance Policy
SafetyLoss
Control
Claims ManagementFinancia
l Analys
is
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Continuum of Insurance Arrangements
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Consultative Risk Management Process
SOLUTIONS
Risk Identification− Property &
Liability− Workplace
Safety− Executive &
Professional− Contractual
Cost Containment Efforts− Safety Program− Claims Mgt.− Risk Transfer
Current Coverage Review & Gap Analysis
Loss Analysis & Trending
Total Cost of Risk Calculation
Cost Allocation
Coverage Recsand Brokerage Strategy
Risk Transfer Options− Fully Insured− Large
Deductible− Self Insurance− Captive
Placements
Client Organization− Executive Team
(CEO, CFO, RM, HR)
− Managers− Employees
CBIZ− Risk
Management Services
− Brokerage Services
− Actuarial Services
Identify Quantify Fund Manage
BENEFITS OF RISK MANAGEMENT
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Benefits of Controlling Strategic Risk
!?
Ensures sound decision making by adjusting managerial business approach and policies
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Risk Management Evolution
Improves operational efficiencies by installing more cost-effective and accurate internal systems
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Benefits of Controlling Financial Risks
Maintains availability of credit and manages costs of funds by improving outside relationships and considering all “what if” scenarios
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Benefits of Controlling Hazard Risks
Reduces the consequences of uncontrollable losses by increasing safety and obtaining adequate coverage for potential losses
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ERM Maximizes Profitability . . .
By removing business conditions that can have a negative financial impact
By installing business practices that can have a positive financial impact
. . . and Shareholder Value
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Improve mandatory and voluntary reporting
Improve governance
Improve stakeholder confidence and trust
Establish a reliable basis for decision making and planning
Improve controls
Effectively allocate and use resources for risk treatment
Why Implement Risk Management?
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Improve operational effectiveness and efficiency Enhance health and safety performance, as well as
environmental protection Improve loss prevention and incident management Minimize losses Improve organizational learning Improve organizational resilience
Why Implement Risk Management?
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Risk Management Case #1 – Lesson Learned
Organization A was a Nonprofit organization with a large source of Government Grant funding. The organization believed that it had a good handle on risk and had recently updated its Governance structures.
During a review of the organization we noted that the governance structure did not include a structure for risk management.
After performing a one day review of risk exposures it was noted that the organization’s compliance program did not cover all relevant compliance requirements.
Further tests revealed that it was not in compliance with a Government regulation and had utilized the Grant inappropriately.
The amount of the misappropriation was significant to the survival of the organization. A simple Risk Management infrastructure would have prevented this loss from occurring.
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Risk Management Case 2 – Performance Improved
Company B had a database with over 2500 outside contractors for various levels of technical support. They realized that they were vulnerable to significant operational risk if their contractors did not adequately fulfill their contracts but were struggling to manage such a vast contractor base.
A risk based framework was developed to determine which contractors presented the greatest risk to the organization and procedures were developed to monitor the specific risks identified.
Of the 2500 contractors, only 15 were critical to Company B requiring extensive oversight, an additional 35 vendors were moderate risks and required a minimum level of oversight and 300 low risk contractors. The remainder represented inactive vendors.
Company B was able to develop a more efficient oversight program utilizing fewer resources with increased risk coverage than provided by their previous business model.
The organization also ended up with a risk profile that allowed them to reduce the number of supporting contractors without impacting the level of service being provided.
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Questions?
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Join us for these courses: o March 24 & April 2: First Quarter Accounting and Financial Reporting
Issues Update o April 29 & May 7: Not-for-Profit Update – Internal Controls, Accounting
Standards and Federal Grant Reform
Read these related publications: o Implementing the Uniform Grant Reform Guidance o Competing for Talent as a Not-for-Profit Organization
Sign up for our Not-for-Profit Viewpoint newsletter
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