integrated risk management aon global risk consulting (alex van den doel) van gansewinkel (doede de...
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Integrated Risk Management
Aon Global Risk Consulting (Alex van den Doel)
Van Gansewinkel (Doede de Waij)
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Risk Management and financial impact
Chemie-Pack (Moerdijk)
45 employees EUR 6,5m Revenu
Fire on January 5, 2011
Damage: EUR 71 million Bankruptcy on August 25, 2011
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Events can have huge impact!
Source: Aon / Oxford Metrica: Reputation Review 2012
More than 50% value impact possible!
Company Event Value Reaction
TEPCO Japan EQ -89.6% - $ 37bln
Dexia Greek debt -87.3% - $ 3.9 bln
Research in Motion Service Disruption -49.7% - $ 6 bln
BP Explosion / Oil spill -29% - $ 53 bln
Apple Iphone Antenna -2.4% - $ 6 bln
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Objectives Integrated Risk Management (IRM)
Protect: Shareholder’s value Financial objectives
Set priorities
Take more not less business risk!
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Agenda Integrated Risk Management – Film
Integrated Risk Management – Execution
1. Risk Rating and Maturity
2. Stress Test
3. Risk Bearing Capacity
Integrated Risk Management – In Practice– Case Study Van Gansewinkel – Doede de Waij
Wrap-up and Questions
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IRM Approach – Execution1A
Risk Rating & MaturityIdentify main risk areas from a financial perspective (QUICK
SCAN)
1B
Risk AssessmentIdentify and assess most significant risks: strategic,
operational, financial, compliance
2B
Scenario analysisAnalysis in detail of most
severe scenario's impacting financial objectives
2A
Stress testIdentify and quantify industry
specific stress scenario's
3A
Risk Bearing CapacityCalculate and substantiate how much a company can
retain
3B
Risk AppetiteConsultative Approach to determine how much a
company wants to retain
4 RegisterRecord and monitor risk developments online
6 ComplianceIndependently review risk management and financing measures
7 Risk FinancingOptimize the Risk Financing structure and programmes
Annual update
5 OutsourcingRisk management activities delivered by external resources
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IRM Approach – Execution1A
Risk Rating & MaturityIdentify main risk areas from a financial perspective (QUICK
SCAN)
1B
Risk AssessmentIdentify and assess most significant risks: strategic,
operational, financial, compliance
2B
Scenario analysisAnalysis in detail of most
severe scenario's impacting financial objectives
2A
Stress testIdentify and quantify industry
specific stress scenario's
3A
Risk Bearing CapacityCalculate and substantiate how much a company can
retain
3B
Risk AppetiteConsultative Approach to determine how much a
company wants to retain
4 RegisterRecord and monitor risk developments online
6 ComplianceIndependently review risk management and financing measures
7 Risk FinancingOptimize the Risk Financing structure and programmes
Annual update
5 OutsourcingRisk management activities delivered by external resources
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1A) Risk Rating Qualitative assessment of adequacy of:
– Risk identification process– Risk management measures– Risk financing measures
Scope:– Balance Sheet and P&L – Enterprise-wide
Results– Risk Rating dashboard– Starting point for further analysis – Basis for monitoring progress effectiveness
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1A) Risk Rating
Tangible Fixed Assets 7.425 Equity 3.843Key tangible fixed assets Equity componentsBuildings 4.533 Share capital 1.500Plant & Machinery 2.331 Retained earnings 2.333
Minority interests 10Other operating equipment 561
Non-current Liabilities 5.791Intangible Fixed Assets 2.569 Key non-current liabilititesKey intangible fixed assets Borrowings 3.834Goodwill 2.000 Pension obligations 1.440Licenses 561 Deferred tax credits 11
Provisions 253Other intangibles fixed assets 8
Other non-current liabilities 253Financial Fixed Assets 335Key financial fixed assets Current Liabilities 4.460Derivatives 239 Key current liabilititesDeferred tax assets 89 Current part of borrowings 2.554
Trade payables 1.895Other financial fixed assets 7 Payables to subsidiaries 10
Current Assets 3.765 Other current liabilities 1Key current assetsInventories 587 Contingent Liabilties (Added)Trade receivables 2.333 Product liabilitiesAssets held for sale 56 Employers liabilitiesCash & cash equivalents 781 General liabilities
Professional liabilitiesOther current assets 8 Environmental liabilities
Employment practices liabilitiesPatent infringement liabilities
Total Assets 14.094 Total Equity & Liabilities 14.094
Risk Financing Risk RatingRisk Rating Risk FinancingRisk
ManagementRisk
Identification
Balance Sheet(x1000) Risk
IdentificationRisk
Management
4 3 2 1 1 2 3 4
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1A) Risk Rating
Tangible Fixed Assets 7.425 Equity 3.843Key tangible fixed assets Equity componentsBuildings 4.533 Share capital 1.500Plant & Machinery 2.331 Retained earnings 2.333
Minority interests 10Other operating equipment 561
Non-current Liabilities 5.791Intangible Fixed Assets 2.569 Key non-current liabilititesKey intangible fixed assets Borrowings 3.834Goodwill 2.000 Pension obligations 1.440Licenses 561 Deferred tax credits 11
Provisions 253Other intangibles fixed assets 8
Other non-current liabilities 253Financial Fixed Assets 335Key financial fixed assets Current Liabilities 4.460Derivatives 239 Key current liabilititesDeferred tax assets 89 Current part of borrowings 2.554
Trade payables 1.895Other financial fixed assets 7 Payables to subsidiaries 10
Current Assets 3.765 Other current liabilities 1Key current assetsInventories 587 Contingent Liabilties (Added)Trade receivables 2.333 Product liabilitiesAssets held for sale 56 Employers liabilitiesCash & cash equivalents 781 General liabilities
Professional liabilitiesOther current assets 8 Environmental liabilities
Employment practices liabilitiesPatent infringement liabilities
Total Assets 14.094 Total Equity & Liabilities 14.094
Risk Financing Risk RatingRisk Rating Risk FinancingRisk
ManagementRisk
Identification
Balance Sheet(x1000) Risk
IdentificationRisk
Management
4 3 2 1 1 2 3 4
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1A) Risk Rating
Tangible Fixed Assets 7.425 Equity 3.843Key tangible fixed assets Equity componentsBuildings 4.533 Share capital 1.500Plant & Machinery 2.331 Retained earnings 2.333
Minority interests 10Other operating equipment 561
Non-current Liabilities 5.791Intangible Fixed Assets 2.569 Key non-current liabilititesKey intangible fixed assets Borrowings 3.834Goodwill 2.000 Pension obligations 1.440Licenses 561 Deferred tax credits 11
Provisions 253Other intangibles fixed assets 8
Other non-current liabilities 253Financial Fixed Assets 335Key financial fixed assets Current Liabilities 4.460Derivatives 239 Key current liabilititesDeferred tax assets 89 Current part of borrowings 2.554
Trade payables 1.895Other financial fixed assets 7 Payables to subsidiaries 10
Current Assets 3.765 Other current liabilities 1Key current assetsInventories 587 Contingent Liabilties (Added)Trade receivables 2.333 Product liabilitiesAssets held for sale 56 Employers liabilitiesCash & cash equivalents 781 General liabilities
Professional liabilitiesOther current assets 8 Environmental liabilities
Employment practices liabilitiesPatent infringement liabilities
Total Assets 14.094 Total Equity & Liabilities 14.094
Risk Financing Risk RatingRisk Rating Risk FinancingRisk
ManagementRisk
Identification
Balance Sheet(x1000) Risk
IdentificationRisk
Management
4 3 2 1 1 2 3 4
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1A) Risk Maturity
Above average
Below average
Risk Maturity Rating
Comments for
Improving Rating
Insight Into Risk Maturity Ratings Globally
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2A) Stress Testing Identify scenarios that can impact
the financial objectives
Scenarios:– Industry specific (Aon Database)– Company specific (desk study)– Out-of-the-box scenarios
(workshop)
Cyberrisk scenario
Supply chain risk scenario
Fraud scenario
Credit risk scenario
Product liability scenario
RBC = 50M
0 10 20 30 40 60 70 80 90
Sce
nario
s
Equity
Assets
Liabilities
Balance Sheet 31/12
Retained Earnings
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Module 2B – Scenario analysis
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In-debt analysis of most critical scenarios Approach
– Determine most critical activities for strategy, value chain, sales, costs or liability risks– Workshops with internal and external experts– Event trees to determine financial consequences in detail
Very detailed insight in the impact of a critical scenario on the financial objectives Insight and focus for improvement in risk management
Retention
Limit (XoL)
Risk appetite
Risk bearing capacity
0
500
1000
1500
2000
2500
Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5
Costs per loss category
Punitive damages
Defence costs
Tort/Litigation
Other contractual liability
Recall and replacement
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Module 3A – Risk Bearing Capacity Quantify of the absolute maximum amount of risk the company
is able to retain (Risk Bearing Capacity) Approach
– Analyse the company's financial strategy and policies (i.e. future CAPEX, dividend increase) > discussion Treasury / CFO
– Select the most "constraining financial ratio's (from bank covenants, credit rating)
– Develop a model for calculating risk bearing capacity– Calculate risk bearing capacity
Result– Definition and understanding of the company's risk bearing
capacity and risk appetite
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Integrated Risk Management - In practice
Van Gansewinkel Groep
Doede de Waij - Risk- & Insurance manager
[email protected]: +31 40 751 44 45
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• Waste services, raw materials and energy supplier
• Active across the entire waste chain
• Annual revenues €1.1 billion
• Nine countries
• Market leader in the Benelux
• Top 5 player in Europe
• Approximately 5,800 employees
• 150,000 customers
• 1 million households
About Van Gansewinkel Groep
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Our customer driven supply chain
Collection (c. 7 Mt)
Collection of household -, commercial -, & hazardous waste
• 2,000 vehicles
Recycling (c. 5 Mt)
• Coolrec (plastics / metals)
• Maltha (glass)
• VG Minerals (building mat.)
• VG Paper (office paper)
Energy from Waste
2 EfW plants – Rozenbrug & Duiven
•Steam
•Electricity
•City heating
c. 2 Mt fuels
~70%
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Risk management process
Operational Risks Risk Management Risk Financing Risk Rating
Fire / Natural hazards Fire protection systemSHEQReal estateSite surveys by insurers
All risk policy(Property / machinery breakdown / business interruption)
Road incidents Driver training / Driver coaching / Toolbox meetings Motor fleet insurance Land based equipment insurance
Reputation risk Crisis management exercising and planningEmergency response teams
Credit risk Prompt follow up by credit receivable departmentTerms & conditionsVendor screening
Credit insurance for the paper division
Financial fraud AO/IC procedures Fraud insurance
Liability risk ( occupational incidents, product -, service delivery, etc)
SHEQ proceduresEmployee trainingTerms and conditionsQuality systemsMaintenance systems
Workers compensation insuranceGeneral liability insuranceEmployers liability insuranceProduct liability insuranceLegal environmental insuranceDirector & Officer insurance
Business Risks Risk Management Risk Financing Risk Rating
Price erosion Business process reengineering
Market developments Innovation around “ waste no more”
Price volatility raw materials Risk committee Hedging
Shortage waste volume Terms & conditions Import of waste P&I insurance
Assessment of the risks which:
Can decrease the total assets
Can reduce the equity and/or increase the liabilities
Can decrease our revenues and/or increase costs
Can impact our cash flow
Risk assessments Stress Test
Review Maximum Possible loss (MPL scenario)
Liability Risk Quantification
Business Impact Analysis
Reputation assessment
What will be the impact of the various stress tests looking at:
Our balance sheetProperty, plant, equipment, inventoriesIntangible assetsContingent LiabilitiesEtc.
Our Profit & Loss StatementRevenueRaw material, supplies & energy
Financial analyses
Define worst case scenario’s
Define risk tolerance
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Insurance solutions & Risk rating
Operational Risks Risk Management programmes to mitigate the risk Risk Financing programmes Risk Rating
Fire hazards
Fire protection systemSHEQReal estateSite surveys by insurers
All risk insurance (Property / machinery breakdown / business interruption)Construction All Risk insurance
Road incidents Driver training / Driver coaching / Toolbox meetings Motor fleet insurance Land based equipment insurance
Reputation risk Crisis management exercising and planningEmergency response teams
Credit riskPrompt follow up by credit receivable departmentTerms & conditionsVendor screening
Credit insurance
Liability risk ( occupational incidents, product -, service delivery default, etc)
SHEQ proceduresEmployee trainingTerms and conditionsQuality systemsMaintenance systems
Workers compensation insuranceGeneral liability insuranceEmployers liability insuranceProduct liability insuranceLegal environmental insuranceDirector & Officer insurance
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Wrap-up Application
– Pragmatic RM framework– (Re) start risk management– Tool for analysis and presentation– Assess Risk Management maturity – Apply the stress test– Linking risks to financials– Quickly identify areas for improvement– The basis for comprehensive risk management
Apply the stress test, it will make a big difference!
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Question
What is a Stress Test?
It is a test to determine how much pressure or tension a company can withstand.
Do you know how much pressure your organisation can withstand?
Can anyone tell me?
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Question
“Most of us spend too much time on what is urgent and not enough time on what is important.”
- Stephen R. Covey -
“What the wise do in the beginning, fools do in the end.” - Warren Buffett -
Is risk management a proactive, value adding process in your organisation?
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Question
“Read books are far less valuable than unread ones"
- Nassim Nicholas Taleb -
Who has had a brainstorm session during the last 6 months about what you never expected to happen?