2010 –bp….deepwater horizon - rims how well... · emerging risk management % of caes/dirs. ......

2010 – BP….DEEPWATER HORIZON

2010 – BP….DEEPWATER HORIZON

THEY MISSED…..

2011 – FUKUSHIMA NUCLEAR REACTOR

2011 – FUKUSHIMA NUCLEAR REACTOR

THEY MISSED…..

INCLUDING A TSUNAMI IN

THEIR DISASTER SCENARIO

…..BECAUSE THE LAST

TSUNAMI WAS 1000 YEARS

AGO!

2013 – NOKIA….“SCRAPPED”?

2013 – NOKIA….“SCRAPPED”?

THEY DIDN’T SEE THIS COMING…..

2016 – YAHOO!.....MISSED THE BUS2008

MICROSOFT

OFFERED

$40BN FOR

WEB

BUSINESS

2016 – YAHOO!.....MISSED THE BUS

THEY DIDN’T SEE THIS COMING…..

MOBILE-FRIENDLY INTERNET

SOCIAL NETWORKING

MESSAGING

2016 SURVEY

0 20 40 60

COPING WELL

BIGGESTCHALLENGE

EMERGING RISK MANAGEMENT

% OF CAEs/DIRs

WHAT ARE WE GOING TO TALK ABOUT

1. The concept of Emerging Risk

Is it any different from a Conventional or Familiar

or Current Risk ?

2. How do risks emerge ? What are the Contributing

Factors ?

3. Identify Emerging Risks on your horizon

WHAT ARE WE GOING TO TALK ABOUT

4. High Level Components of the Emerging Risk

Governance Framework [ERGF]

5. Risk Analysis in Conventional Risk Mgmt vs.

Emerging Risk Mgmt

6. Emerging Risks Identification & Mgmt System

[ERIMS]

Decision Science

DEFINITION OF RISK

RISK (AND OPPORTUNITY) IS THE POSSIBILITY THAT AN

INCIDENT, ARISING FROM INTERNAL OR EXTERNAL

SOURCES, WILL OCCUR AND ADVERSELY (FAVORABLY)

AFFECT THE ACHIEVEMENT OF THE ENTITY’S

OBJECTIVES.

- COSO 2013

DEFINITION OF RISK

RISK = POSSIBILITY OF AN OBJECTIVE-DISRUPTING

EVENT OCCURRING (EVENT HAS NOT YET OCCURRED)

JUST AS “I AM BECAUSE I THINK”

SO ALSO: RISKS COME ALIVE ONLY BECAUSE OF

OBJECTIVES

NO OBJECTIVES, NO RISKS TO WORRY ABOUT !!

JUST AS: RISKS COME ALIVE BECAUSE OF

OBJECTIVES

SO ALSO: EMERGING RISKS COME ALIVE ONLY

BECAUSE OF OBJECTIVES

NO OBJECTIVES, NO EMERGING RISKS TO WORRY

ABOUT!!

DEFINITIONS OF EMERGING RISK

EMERGING RISK IS A NEWLY DEVELOPING OR

CHANGING RISK, THAT IS DIFFICULT TO QUANTIFY,

BUT COULD HAVE A MAJOR IMPACT ON SOCIETY /

INDUSTRY.

- SWISS RE

SO IN WHAT WAY ARE EMERGING RISKS

DIFFERENT FROM CURRENT /

CONVENTIONAL RISKS ?

CURRENT RISKS EMERGING RISKS

1. UNCERTAIN LIKELIHOOD ----------DITTO---------- X 100

2. UNCERTAIN FREQUENCY ----------DITTO---------- X 100

3. UNCERTAIN TIMING ----------DITTO----------- X 100

4. UNCERTAIN IMPACT ----------DITTO---------- X 100

5. UNCERTAIN DURATION (OF IMPACT) ----------DITTO---------- X 100

6. UNCERTAIN VELOCITY ----------DITTO---------- X 100

7. UNCERTAIN VULNERABILITY ----------DITTO---------- X 100

NEVER THINK EMERGING

RISKS ARE ALWAYS AS

SLOW AS THIS

SOMETIMES THEY COULD

BE AT YOUR DOORSTEP

AS FAST AS THIS !!

WHAT FACTORS

“FERTILISE THE

SOIL” FROM

WHICH EMERGING

RISKS SPROUT?

1. COMPLEX

SYSTEMS

GREENHOUSE

GAS EMISSIONS:

AMPLIFICATION

GGEGLOBAL

WARMING

PERMA

FROSTTROPICAL

FOREST

POLAR

ICE

CAPS

GLOBAL WARMING X 2

CLIMATIC NATURAL

DISASTERS (ER)

3. CLOSELY

INTERCONNECTED

COMPONENTS

- MEGACITIES

CRASHING

INFRASTRUCTURE (ER)

7. UNTESTED

TECHNOLOGY

- HYDRAULIC

FRACKING

LARGE SCALE

GROUND WATER

CONTAMINATION(ER)

10. PERVERSE

INCENTIVES

- PERFORMANCE

BONUSES

FINANCIAL CRIME,

FINANCIAL SYSTEM

INSTABILITY(ER)

EMERGING RISK

GOVERNANCE

FRAMEWORK (ERGF)

1. Risk Governance

2. Risk Culture

3. Training

The ER Co-ordinator’sRole in the ERGF

WHAT HAVE WE TALKED ABOUT TILL NOW

1. The concept of Emerging Risk

Is it any different from a Conventional or Familiar

or Current Risk ?

2. How do risks emerge ? What are the Contributing

Factors ?

3. Identify Emerging Risks on your horizon

WHAT HAVE WE TALKED ABOUT TILL NOW

4. High Level Components of the Emerging Risk

Governance Framework [ERGF]

5. Risk Analysis in Conventional Risk Mgmt vs.

Emerging Risk Mgmt

6. Emerging Risks Identification & Mgmt System

[ERIMS]

Decision Science

EMERGING RISK

IDENTIFICATION

&

MANAGEMENT

SYSTEM

(ERIMS)

1. Detect & Explore Early Warnings

2. Develop Scenarios

3. Brainstorm Scenarios & RM

choices, and Decide which to pursue

4. Implement choices decided in

Step 3

5. Monitor Implementation in

Step 4, Review Decisions taken in

Step 3

1. EARLY WARNINGS

SCAN THE HORIZON

DETECT WEAK SIGNALS

EXPLORE POSSIBLE

FUTURE DANGERS

CREATE RISK PROFILE

PRELIMINARY LIST OF

EMERGING RISKS &

OPPORTUNITIES FOR

SCENARIO BUILDING

2. SCENARIO BUILDINGER1 = Emerging Risk #1,

arises in 4 scenarios SC1 to

SC4

SC1 = Scenario #1, which

comprises a sequence of

events E1, E2, E3 and E4…….

SC4 = Scenario #4, which

comprises a sequence of

events E1, E5 and E12SC4 is a Black Swan scenario (CATASTROPHIC

Impact, almost 0 likelihood, no previous occurrence)

3. DECISIONS – SCENARIOS TO PURSUE

Risk Mgmt Team has decidedto pursue Scenarios 1 and 4 as

they are considered critical for

managing the Emerging Risk #1

3. DECISIONS – RISK MGMT OPTIONS

ACT ON CONTRIBUTING

FACTORS

AVOID THE RISK TOTALLY

REDUCE EXPOSURE &/OR

VULNERABILITY

RAISE RISK TOLERANCE

LIMITS

DO NOTHING

CONVENTIONAL RISK MGMT RESPONSES

(A,R,S,A)

FOR HANDLING SCENARIO 1,

DECIDE ON ONE OR MORE

OF THE OPTIONS TO YOUR LEFT USING THE BELOW FILTERS IF RELEVANT TO YOUR ORGANISATION:

MONETARY COST

SUSTAINABILITY

SOCIO-POLITICAL ACCEPTABILITY

ETHICS

3. DECISIONS

• BOTH THE DECISIONS IN THE TWO PREVIOUS

SLIDES ARE MADE UNDER CONDITIONS OF

SIGNIFICANT UNCERTAINTY (WHICH IS THE

HALLMARK OF AN EMERGING RISK AS COMPARED

TO A CONVENTIONAL RISK)• DECIDING WHICH SCENARIOS TO PURSUE FOR MANAGING THE

EMERGING RISK, AND

• WITHIN THE SELECTED SCENARIOS, DECIDING WHICH IS THE

BEST RISK MGMT OPTION/S TO MANAGE THE RISK

3. DECISIONS

• DECISIONS UNDER UNCERTAINTY ARE MADE

USING THE CONCEPT OF ROBUST DECISION

MAKING AS OPPOSED TO OPTIMAL DECISION

MAKING (Likelihood x Impact) UNDER

CONVENTIONAL RISK MGMT

3. DECISIONS - ROBUST DECISION MAKING

• Consistency and rationality in the decision-making process

• All available information is considered

• Decision maintains enough flexibility for adaptation in the future, or

offers good performances for more than one future scenarios

• Decision is accepted by all parties involved, which requires

discussions between the parties

• Judgment is made by the decision-maker about the extent to which a

possible incorrect decision is likely to undermine the organization’s

economic performance, its reputation and overall benefit from the

decision