Aligning Enterprise Risk Management with Strategy Through the BSC:

The Bank of Tokyo-Mitsubishi Approach

Group A2T A Pai Management Institute, Manipal

The Risk

If you Google’d “Enterprise Risk Management,” how many hits would you get? About 79,200,000 (24 March, 2013)

Risk & Strategy

“You can resist an invading army: you cannot resist an idea whose time has come.” - Victor Hugo

“Less than 10% of strategies effectively formulated are effectively executed.” – Fortune Magazine

Why? We can’t DESCRIBE a strategy We don’t MANAGE strategy

“Strategy that lacks alignment to risk management is not only insufficient but downright dangerous… Risk management is pointless unless it is closely tied to the company’s strategic objectives.”

- T. Nagumo, Bank of Tokyo-Mitsubishi

Risk & Strategy

COSO-ERM and BSC Linkage

ERM & BSC

• ERM can be incorporated into performance management systems that translate strategy into actionable terms such as the balanced scorecard (BSC)

• The BSC communicates strategy and strategic objectives through performance metrics that are segmented into four major stakeholder perspectives

ERM & BSC

• Customer: How do customers view the organization?

• Internal process: Where must the organization excel?

• Learning/growth: How can the organization continuously improve and create value?

• Financial: How do shareholders view the organization?

ERM & BSC

ERM & BSC

ERM & BSC

Strategy Risk Management Double Loop

In Bank of Tokyo-Mitusbishi

Conclusion

• ERM requires one to take a broad view of their organization to understand the risks that affect all business units. Similar to ERM, the BSC requires one to adopt a comprehensive viewpoint of the organization through its four perspectives

• The BSC enables ERM efforts to be aligned to corporate strategy and drive individuals to understand their roles in managing risk

Thank you!