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Enterprise Risk Management. Framework for establishing industry requirements and priorities. Andreas Vogel September 13 th , 2006. Framework for Discussion. This is a strawman proposal which summarizes some thinking and brainstorming Next steps Team discussion and refinement

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enterprise risk management

Enterprise Risk Management

Framework for establishing industry requirements and priorities

Andreas Vogel

September 13th, 2006

framework for discussion
Framework for Discussion
  • This is a strawman proposal which summarizes some thinking and brainstorming
  • Next steps
      • Team discussion and refinement
      • Framework for discussion with ISMs and IBUs
      • Framework for discussion with partners, analysts, customers

The goal is to create a product strategy which optimizes between market requirements and SAP development capabilities.

train of thought for non audio consumption
Train of Thought (for non-audio consumption)
  • Risk Management Processes
    • Identifying the key processes and process steps within
    • Classify steps by generic vs. specific to a risk class
    • Modeling and monitoring are risk class specific
  • Risk Monitoring
    • Identify a list of risk classes, the corresponding key risk identifiers, and the industries where they apply (some are generic)
  • Risk Modeling
    • Understand pre-requisites for quantitative modeling
    • Identify techniques
    • Identify industries which satisfy pre-requisites
    • Understand approach to solution for qualitative modeling and analysis
  • Value drivers in key industries
    • ERM value pyramid
    • Used banking as an example to identify key value drivers within the ERM process
    • Provide similar analysis for other key industries
managing enterprise risk processes view

Response Strategy

To hazards

Actions to change

Frequency

Impact

Periodically

Periodically

Continuously

Managing Enterprise Risk – Processes View

Strategic Planning

Setting Risk Appetite

Risk Identification and Assessment

Risk Identification

Surveys

Workshops

Review

Risk Registration

Risk database

Description

Owners, etc.

Risk Assessment

Qualitative

Quantitative

Models/Simulation

VaR, Monte Carlo, etc.

Risk Monitoring

Monitoring

Risk indicators

Specific

Generic

train of thought for non audio consumption5
Train of Thought (for non-audio consumption)
  • Risk Management Processes
    • Identifying the key processes and process steps within
    • Classify steps by generic vs. specific to a risk class
    • Modeling and monitoring are risk class specific
  • Risk Monitoring
    • Identify a list of risk classes, the corresponding key risk identifiers, and the industries where they apply (some are generic)
  • Risk Modeling
    • Understand pre-requisites for quantitative modeling
    • Identify techniques
    • Identify industries which satisfy pre-requisites
    • Understand approach to solution for qualitative modeling and analysis
  • Value drivers in key industries
    • ERM value pyramid
    • Used banking as an example to identify key value drivers within the ERM process
    • Provide similar analysis for other key industries
train of thought for non audio consumption8
Train of Thought (for non-audio consumption)
  • Risk Management Processes
    • Identifying the key processes and process steps within
    • Classify steps by generic vs. specific to a risk class
    • Modeling and monitoring are risk class specific
  • Risk Monitoring
    • Identify a list of risk classes, the corresponding key risk identifiers, and the industries where they apply (some are generic)
  • Risk Modeling
    • Understand pre-requisites for quantitative modeling
    • Identify techniques
    • Identify industries which satisfy pre-requisites
    • Understand approach to solution for qualitative modeling and analysis
  • Value drivers in key industries
    • ERM value pyramid
    • Used banking as an example to identify key value drivers within the ERM process
    • Provide similar analysis for other key industries
risk modeling and simulation

What could be done outside the financials services industry?

Risk Modeling and Simulation

Prerequisites for Quantitative Modeling

  • Statistically relevant historical data samples, e.g.
    • Stock market data
    • Accident static of thousands of employees over years
    • Historical demand data
  • Applicable modeling and simulation technique, e.g.
    • Value at Risk
    • Monte Carlo Simulation
  • Apply quantitative modeling and simulation techniques
    • Banking
    • Insurance

available

Are there other industries

Where quantitative modeling

can be applied?

not available

  • Apply qualitative techniques
    • What-if scenario analysis

How would tools for

scenario analysis look like?

train of thought for non audio consumption10
Train of Thought (for non-audio consumption)
  • Risk Management Processes
    • Identifying the key processes and process steps within
    • Classify steps by generic vs. specific to a risk class
    • Modeling and monitoring are risk class specific
  • Risk Monitoring
    • Identify a list of risk classes, the corresponding key risk identifiers, and the industries where they apply (some are generic)
  • Risk Modeling
    • Understand pre-requisites for quantitative modeling
    • Identify techniques
    • Identify industries which satisfy pre-requisites
    • Understand approach to solution for qualitative modeling and analysis
  • Value drivers in key industries
    • ERM value pyramid
    • Used banking as an example to identify key value drivers within the ERM process
    • Provide similar analysis for other key industries
erm value pyramid

Failure to address certain classes of risk can put companies out of business

Often regulated industries

Budget available

Some processes and org structures in place

Failure to address certain classes could have major impact on business

Processes and org structures rudimentary

Mining

Oil & Gas

Pharma / Biotech

Aerospace and Defense

Utilities

Remaining industries

Have agreement on what the sweet spot is and why?

Need to review selected industry in this bucket with IBUs

ERM Value Pyramid

Requirements too sophisticated for current SAP offering

ERM is core value driver

Companies have sophisticated tools, processes and org structures in place

Budget available

Banking

Insurance

ERM iscore business

Sweet spot forSAP ERM

ERM iskey to business

No $$$

ERM isimportant to business

erm value pyramid based on deloitte input

Failure to address certain classes of risk can put companies out of business

Often regulated industries

Budget available

Some processes and org structures in place

Failure to address certain classes could have major impact on business

Processes and org structures rudimentary

May have very specific risks requiring special solutions

Pharma

Utilities / Energy

Oil & Gas / Mining

Selected manufacturing (large and complex)

Public sector

Healthcare

Telco

Retail

ERM Value Pyramid based on Deloitte Input

ERM is core value driver

Companies have sophisticated tools, processes and org structures in place

Budget available

Banking

Insurance

ERM iscore business

ERM iskey to business

ERM isimportant to business

value drivers in financial services

Continuously

Periodically

Periodically

Can we make similar assessment for other industries?

Value Drivers in Financial Services

Strategic Planning

Setting Risk Appetite

Risk Identification and Assessment

Response Strategy

To hazards

Risk Identification

Surveys

Workshops

Review

Risk Registration

Risk database

Description

Owners, etc.

Risk Assessment

Qualitative

Quantitative

Actions to change

Frequency

Impact

Investment decisions

Models/Simulation

VaR, Monte Carlo, etc.

Risk Monitoring

Monitoring

Risk indicators

case studies and customer interviews i
Case Studies and Customer Interviews I

1 Excerpt from Barton et al, “Making Enterprise Risk Management Pay Off”, fei Research Foundation, 2002

case studies and customer interviews ii
Case Studies and Customer Interviews II

1 Excerpt from Barton et al, “Making Enterprise Risk Management Pay Off”, fei Research Foundation, 2002

case studies and customer interviews iii
Case Studies and Customer Interviews III

2 Excerpt from Paul et al, “Enterprise Risk Management: Pulling it all together”, The Institute of Auditors Research Foundation, 2002

case studies and customer interviews iv
Case Studies and Customer Interviews IV

2 Excerpt from Paul et al, “Enterprise Risk Management: Pulling it all together”, The Institute of Auditors Research Foundation, 2002

southern company 3
Southern Company3

3 Phone interview by Andreas in 2005/2006

bombardier 3
Bombardier3

3 Phone interview by Andreas in 2005/2006

hydro one 3
Hydro One3

3 Phone interview by Andreas in 2005/2006