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Understanding The Enterprise Risk Management Process

Casualty Actuarial SocietySpecial Interest SeminarSan Francisco, April 3, 2001

Through The Risk Manager’s Eyes

Presenters

Robert Wolf - Principal William M. Mercer Inc./MMC Enterprise Risk -

Chicago

Laurie Champion - Manager, Corporate Insurance Ford Motor Company - Treasurer’s Office -

Dearborn

Ken Zignorski - Managing Director MMC Enterprise Risk - New York

Agenda

Introduction ERM Trends - What’s

Going On? Integrated Risk

Management Programs - What Does this Mean?

Risk Manager Response - Industry Examples

Risk Manager Response - Ford Motor

Q&A

Actuarial Perspective

ERM Evolution Actuarial EvolutionTraditional Roles

Evaluating Hazard/Financial Risk in a silo Insurance Company

Determine what to charge in order to meet profits targets (Ratemaking)

What to set aside to meet future obligations of past events (Reserving)

Insurance CustomersWhat to budget in order to pay for self-insured obligations

and premiumsWhat to set aside to meet future obligations of retained risk


Continuing Evolution Actuarial EvolutionEvolving Demands for Risk Integration

Insurance CompanyHolistic Evaluation of Assets and Liabilities (Dynamic

Financial Analysis (DFA))• Optimum Capital Structure• Realization of Business Plan

Insurance CustomersOptimum Risk Financing

• What risks to retain/insure - captives, retros, large deductibles

..but still only Hazard and Financial Risk


ERM Evolution Actuarial Evolution All sectors of Corporate America Not merely Insurance Companies and their

Customers

Evolution of Risk Management

As the quantification/approach to measuring/handling risk evolves, so too does our job description.

Risk Manager From Insurance Buyer to

Integrated/Consolidated Risk Strategy

Actuary Traditional: Evaluate Hazard/Financial Risk Evolution: DFA (Insurance Companies)/ ERM

Why the Evolution of ERM

New/Larger Risk E-Commerce, Market/Book Values

New Risk Products Merger of Insurance and Financial Institutions

Realization that Silo-Based Approaches are Flawed Ignores inherent hedges and correlation

Increased Management Accountability New Regulations requiring corporate governance

Why the Evolution of ERM

In short, because Society Demands itComputer and Information Age

We couldn’t do what we are doing today if we needed to use slide-rules or abacus.

Focus Optimize Shareholder Value

24

12

76

4

21 1 1

11

7 76

32

10 0

0

5

10

15

20

25

Cost Overruns

Accounting irregularities

Manage-ment

ineffective-nessSupply Chain

Issues

Competitive Pressure

M&A Integration Problems

Mis-aligned

ProductsCustomer Pricing Pressure

Loss of Key

CustomerSupplier Problems

R&D Delays

Customer Demand Shortfall

% of top 100

Regulatory Problems

Strategic Operational Financial Hazard

Foreign Macro-

Economic Issues

Interest Rate Fluct-uation

High Input

Comm-odity Price

Law-suits

Natural Disasters

Primary Cause of Stock Drop (# of Companies)

Source: Compustat, Mercer Management Consulting analysis - Period Examined was June 1993 to May 1998Note: There were also 5 stock drops for which the primary cause could not reliably be determined. These 5 stock drops are not depicted.

Fortune 1000 Group Analysis10% of the Fortune 1000 companies suffered a loss of over 25% of shareholder value within one month

How Does Risk Manifest Itself?

Two Ways to Interpret Graph

Hazard and Financial Risk is Not ImportantHazard and Financial Risk has been and

continues to be managed well Testimonial for risk managers, actuaries, brokers,

and financial analysts. We need to continue the process

…The opportunity now is to work on the left side of the graph.

Today’s Risk Manager Is Seeing Many Things

Emerging ERM Trends Enhanced Financial

Management & Sophisticated Analysis

Integrated Risk Management Thinking

Changing & Competing Risk Management Roles & Responsibilities

Evolving Risk Management Practices & Needs

Risk Managers and Senior Executives Are Hearing More and More About Risk Management

Selected views of ERM by Senior Management:

What is Enterprise Risk Management? - EIU Survey

“ERM assesses and manages all risks while looking for upsides in identifying risks.”

“The goal of Enterprise Risk Management is to understand all of the risks on a quantitative and intuitive level and to manage them through a central risk area - to take advantage of the synergies of managing risk in one area.”

“Enterprise Risk Management is about information and capital management.” “Good risk management is reflected in share price indirectly, but the market is

not giving a premium for ERM yet, it’s still too new.” “The ultimate goal of Enterprise Risk Management is preservation of shareholder

value.” “Managing risk enterprise wide means two things: bringing all the pieces of the

enterprise together to add the exposures, and using the whole enterprise to manage risk - making sure at the corporate level that all the different oversight departments are working together.”

“The job of Enterprise Risk Management is figuring out where the edge of the cliff is, and making sure the risk takers know where it is.”

Enterprise Risk Management

1. Risk management is a systematic, critical-risk focused activity

2. Risk is quantified to make informed business decisions

3. Risk management is an integral part of strategic planning and budgeting

4. Pricing, capital allocation, performance measures consider potential risk as well as returns

5. Risk is not automatically avoided, but weighed against opportunity to optimize risk versus return

6. Risk mitigation/financing focuses on events and volatilities that could compromise financial and strategic objectives

Enterprise Risk Management is a process for identifying and prioritizing critical risks facing an organization, quantifying their impact on financial and strategic objectives, and implementing financial and organizational solutions to address them.

Economist Intelligence Unit ERM Study

How confident are you that your company's primary systems and processes identify, evaluate and manage potentially

significant risks?% responding

0% 20% 40% 60% 80% 100%

NORTH AMERICA

EUROPE

ASIA /PACIFIC

PUBLIC

PRIVATE

STATE-OWNED

TOTAL

5 - HIGHLY CONFIDENT 4 3 2 1 - NOT CONFIDENT


Does your company identify risks on a formal ERM basis?

46%

24%

19%

11%YES

NO

NO, BUT PLAN TO WITHINONE YEAR

NO, BUT PLAN TO WITHINTWO TO FIVE YEARS

Plan To

Does your company manage risks on a formal ERM basis?

41%

27%

19%

13%YES

NO

NO, BUT PLAN TO WITHINONE YEAR

NO, BUT PLAN TO WITHINTWO TO FIVE YEARS

Plan To


If you manage--or plan to manage--risk with a formal ERM approach, how important were the following objectives in your decision?

% responding "very important" or "highly important"

0% 10% 20% 30% 40% 50% 60% 70%

OTHER

ABILITY TO COMP ENSATE MANAGEMENT BASED ONRISK-ADJ USTED RETURNS

COST SAVINGS THROUGH REDUCTIONS IN HEDGING ANDINSURANCE COSTS

IMP ROVEMENT IN COMP ANY'S P /E RATIO

BETTER REGULATORY COMP LIANCE

ABILITY TO IDENTIFY AGGREGATING AND/OR OFFSETTINGRISK P ATTERNS

ABILITY TO AVOID LOW-P ROBABILITY CRITICAL/CATASTROP HIC RISKS

MORE EFFICIENT CAP ITAL ALLOCATION

COST SAVINGS THROUGH BETTER MANAGEMENT OFINTERNAL RESOURCES

ABILITY TO RESP OND EFFECTIVELY TO LOW-P ROBABILITYCRITICAL/ CATASTROP HIC RISKS

SAFEGUARDS AGAINST EARNINGS-RELATED SURP RISES

BETTER UNDERSTANDING OF RISK FOR COMP ETITIVEADVANTAGE

COMMON UNDERSTANDING OF RISK ACROSS FUNCTIONSAND BUSINESS UNITS


Most significant risks and respondents' ability to manage them % responding

0% 10%

20%

30%

40%

50%

60%

70%

VOLATILITY IN COMMODITY P RICES

P OTENTIAL LAWSUITS

P OLITICAL EVENTS

EMP LOYEE TURNOVER

REGULATORY

ATTRACTION/ RETENTION OF QUALITYP EOP LE

MACROECONOMIC

MARKET SHIFTS

OP ERATIONAL FAILURE/INTERRUP TION

COMP ETITIVE THREATS

CUSTOMER LOYALTY/ SATISFACTION

% ranking among top 5 risks

% w ho manage "w ell" or "very w ell"


Use of financial metrics% of respondents

0% 10% 20% 30% 40% 50% 60% 70%

Cashflow volatility

Internal performance benchmarks

Expected claims exposure/costs

Industry benchmarks

Notional exposure amounts

Value at risk

Earnings at risk

EVA

RAROC

Companies using ERM Companies not using ERM

Do you believe that implementing ERM has the potential to improve your company's P/E ratio or

decrease your cost of capital?% responding, public companies

YES88%

NO12%


Do you measure the integrated effects of risk in the following areas? % responding

0%

10%

20%

30%

40%

50%

60%

FINANCIAL HAZARDS OPERATIONAL STRATEGIC ACROSS ALLCATEGORIES

ACROSSFINANCIAL ANDHAZARD RISKS

Yes

No

No, but plan tow ithin 3 years

• Simple model for capturing uncertainty.

• “Best guess” for price tomorrow is price today (plus any drift).

• Logarithmic form prevents negative prices (or rates); probabilitydistribution is lognormal.

• Widely used for financial time series.

• Underlying “stochastic process” for derivatives valuation, such as Black-Scholes and related methods.

Arithmetic Random Walk

St = a0 + St-1 + et

Geometric Random Walk

lnSt = a0 + lnSt-1 + et

“Drift” may be zero,positive or negative

Coefficient of St-

1 is 1

Et-1 (St) = a0+ St-1

ln= naturallogarithm • The First Order Autoregressive or AR(1) process can be written as

Arithmetic AR(1) Geometric AR(1)

St = a0 + a1 St-1 + et lnSt = a0 +a1 lnSt-1 + et

• The price in this model is “mean-reverting”.

Geometric AR(1) can be re-written as

lnSt = (1-a1) [a0/(1-a1) - lnSt-1] + et or lnSt = [ lnM - lnSt-1] + et

• When St-1 is below (above) the long-run mean M, the expected price change is positive(negative).

• Mean reversion is fairly common for commodities and almost always used for interestrates.

a1 < 1

Some Candidate Models - Random Walk & Mean Reverting

Comparison of Sample Price PathsRandom Walk vs. Mean Reverting Process

0

50

100

150

200

250

1 3 5 7 9 11

13

15

17

19

21

23

25

27

29

31

33

35

37

39

41

43

45

47

49

51

Week

Pri

ce

Random Walk Mean Reverting Process

RW: lnSt - lnSt-1 = et

MR: lnSt - lnSt-1 = .10 [ln100 - lnSt-1] + et

Comparison of Price PathsRandom Walk vs. Mean Reverting Process

• Diversification / covariance effect captured through integration of financial risks• Reduces capital required to manage volatility

All Risks

Currency

$(43)M

Currency

$700m

-$500m

$100m

DEVIATION

FROM

MEAN

Mean$10m

$500m

- $10m

- $100m

-$700m

CombinedTotal

Effect of Integrating

$764M

CombinedRisks (1 to8)

Integrated Risks (1 to 8)

Risk 4Risk 3 Risk 5Risk 2 Risk 6 Risk 7

99%

10%

90%

1%

$132M $115M

$332M$1M $173M

Risk 1 Risk 8

Mean

values

Individual Risks

$2.4B

SummedTotal

$1.6B

Separate Treatment

$4B$433M

$434M $4B $4B

Volatility Around Annual Expected Cost


Do you quantify the value of the following intangible assets? % responding "yes"

0%

20%

40%

60%

BRAND COPYRIGHTS/PATENTS/

TRADEMARKS

GOODWILL HUMAN CAPITAL REGULATORYFRANCHISE

Yes

No

No, but w ill w /in 3 years

No, but w ould like to

Many New Analytical Models

Value at RiskDynamic Financial AnalysisMonte Carlo SimulationTime Series AnalysisData Segregation and AnalysisGARCH Analysis

• Over insurance/hedging of non-correlated and negatively correlated risks• Under insurance/hedging of positively correlated risks• Higher than understood exposure to event risk• Missed opportunities to place risks in different markets

Often leads to a sub-optimal enterprise result:

Risk NRisk 3Risk 2Risk 1 . . .

DECISION

RETAIN

PREMIUM

+

EnterpriseTotal Risk

Retained Risk“unknown”

Premium“unknown”

Financing Risks Via Silo Management

Risk NRisk 3Risk 2Risk 1 . . .EnterpriseTotal Risk

DECISION

RETAIN

PREMIUM

+

Retained Risk“known”

Premium“known”

Some risks should stay in silosSome risks should be split out from silos in which they currently resideSome risks should be combined in larger portfoliosAnd,“Overlay” decisions may be necessary to produce the desired result.

Silo Risk Management as a Portfolio of Interrelated Decisions

Risk NRisk 3Risk 2Risk 1 . . .EnterpriseTotal Risk

DECISION

RETAIN

PREMIUM

+

Retained Risk“known”

Premium“known”

Managing Risk Financing Strategies on a Portfolio of Risk Basis

DecisionsDecisions&&

ResponsesResponses

Strategic/TacticalStrategic/Tactical

OperatingOperating

FinancialFinancial

ResultsResults

• Take Risk• Shed Risk• Avoid Risk

• Prevention• Mitigation• Recovery

• Capital Structure• Capital Budgeting• Pricing• Ins./Hedge/Retain

What information and performance measures are

used to make decisions?

Understanding Current Risk Management Systems

How are decisions made?

Who manages what risk and how do they relate?


When the following events occur, how would your company's risk management change, if at all? (financial interventions)

% responding

0%10%20%30%40%50%60%70%

Financial w indfall Adverse shock Investment plansmore aggressive

WE WOULD BE LESS LIKELYTO HEDGE/ INSURE

NO CHANGE

MORE LIKELY TO HEDGE/INSURE

When the following events occur, how would your company's risk management change, if at all? (organisational interv.)

% responding

0%

20%

40%

60%

80%

Financial w indfall Adverse shock Investment plansmore aggressive

LESS LIKELY TO ADJUSTBUSINESS PROCESSES/ORGANISATIONALSTRUCTURES

NO CHANGE

MORE LIKELY TO ADJUSTBUSINESS PROCESSES/ORGANISATIONALSTRUCTURES


In which of the following activities do you incorporate a formal ERM approach?

% responding

0% 20% 40% 60% 80% 100%

COMPENSATION STRUCTURES

HUMAN CAPITAL STRATEGY

PRODUCT/ SERVICE DESIGN

M&A

PRODUCT/ SERVICE PRICING

OPERATING BUDGET PREPARATION

INDIVIDUAL OPERATING UNITSTRATEGIES

CORPORATE STRATEGIC PLANNING

CAPITAL ALLOCATION/EXPENDITURES

TODAY

IN THREEYEARS


How centrally coordinated are the following organisational business practices across your entire company? % responding "nearly unified" or "completely unified"

0% 10% 20% 30% 40% 50% 60% 70% 80%

HR PLANNING

LEGAL

RISK MANAGEMENT

REGULATORY COMPLIANCE

REVENUE FORECASTING

STRATEGIC PLANNING

CAPITAL BUDGETING

AUDITING

ACCOUNTING


How significant are the following obstacles to managing risk with a formal ERM approach?

% responding "very significant" or "highly significant"

0% 10% 20% 30% 40% 50% 60%

OTHER

LOW RECOGNITION OF BENEFITS WITHIN INVESTORCOMMUNITY

LACK OF EXTERNAL P ROVIDERS CAP ABLE OFP ROVIDING A FULL RANGE OF RISK SERVICES

LACK OF MARKET TO TRANSFER OP ERATIONAL ANDSTRATEGIC RISKS

LOW RECOGNITION OF BENEFITS WITHIN COMP ANY

CULTURAL OP P OSITION

LACK OF CLEARLY DEFINED ROLES, ACCOUNTABILITYAND INFORMATION FLOWS

INSUFFICIENT IT SYSTEMS TO ANALYSE, MONITOR ANDCONTROL RISK

LACK OF ALIGNMENT BETWEEN RISK MANAGEMENTAND CURRENT P LANNING P ROCESSES

DIFFICULTY OF MEASURING INTANGIBLE RISKS

So What is The Result?

Evolving Risk Management Positions Chief Risk Officer, ERM Councils, Global Director

of Risk Management

Rise of, and Partnership with, Internal Audit Corporate governance issues and perspectives

Rise of, and Partnership with, Treasury Financial Management perspectives and insights

Rise of Board Audit CommitteesEvolving Skill Base for Risk Managers

Vienot CommitteeMarini ReportLevy-Long Committee

Corporate Governance Forum of Japan

Code of Best PracticeKing ReportStakeholder CommunicationReport on Effective Systems of InternalControl

Draghi Commission

Toronto Stock Exchange CommitteeCanadian Securities CommitteeAllen Committee ReportCanadian Institute of CharteredAccountantsKPMG Peat Marwick Survey

Gesetz zur Kontrolle undTransparenz imUnternehmensbereich- Bill on TheControl And Transparency ofCompanies KonTraG BillCadburyRuttermanGreenburyHampelTurnbull

Blue BookCompany Law ReviewBest Practice Statement ofmanagement discussion and analysisStock Exchange ListingNew Accounting Standards

Commission on Corporate GovernanceThe Stichting Corporate Governance

Business Round TableStock Exchange CommissionBlue Ribbon CommissionCalpersCorporateGovernanceProgramme

Corporate Governance

“Never in all history have we harnessedsuch formidable technology. Everyscientific advancement known to manhas been incorporated into its design.The operational controls are sound andfoolproof.”

Crisis Management

Hazard

+

Finance

=

Risk Fusion®

Integrating Hazard and Financial Risks into a Single Contract

Chief Risk Officer

Oil TradingRisk

ManagementNatural Gas

TradingElectricityTrading

Establishing a Chief Risk Officer

E.J. SmithCaptain, H.M.S. Titanic

Enterprise Risk Management Can Mean All These Things

Financial Services Institution

Company / Title ERM Perspectives, Roles & Responsibilities Reporting Structure

Mutual Fund Company

Chief Risk Officer

Source: EIU Study , 2000

CRO only responsible for financial and operational risks.

CRO functions as advisor regarding business risks, with decisionresponsibility falling solely on business units.

Market and credit risks are isolated in specific areas of the business,whereas operational risks are inherent in all business processes.

Ensures that Company’s financial risks are well integrated.

Metrics used include VaR, cash flow volatility, claims exposuresand notional exposure amounts; earnings-at-risk is not used due tohigh day-to-day volatility of amounts of exposure and earnings.

CRO views risks broadly but is weary of trying to reduce them totoo few metrics because “you lose track of the numbers.”

CRO reports to CFO.

Risk Group, consisting of risk, audit, compliance, &security, meets regularly.

All categories of risk are managed by senior lineexecutives, supported by control specialists. Marketand credit risk specialists are traditional risk managerswith analytical expertise and industry expertise.Operational control team includes auditors,contingency planners, security specialists, complianceexperts and traditional risk managers.

Strategy is to make ERM even more nimble –company has formed a horizontal, cross functional,rapid-response team to quickly evaluate risks of e-business initiatives across the units.

CRO does not believe that risks should be “run highup in the company.” Also, past experience with oneCFO resulted in too much focus on controller typerisks.

CRO has spent a lot of energy trying to defuse issuesof clout, turf, etc. while trying to make riskmanagement an automatic, not too complicated part ofongoing business practices.

Power & Energy Industry


Large company that markets energy services and products throughout North America. Business also includes a Gas and Electric Company that delivers natural gas and electricity service to one in every 20 Americans.

Chief Financial Officer

Risk Manager

Source: EIU Study, 2000

CFO has enterprise risk management responsibility, and the Risk Manager reports to him.

The firm takes a portfolio approach via “profit at risk” and they do analyze correlations across commodities, but they haven’t found correlations in other areas such as cash-flow volatility vs. other kinds of risks.

They do much to offset or manage risks across business units (e.g., determining how to handle being long power and short gas without artificially limiting what the power and gas sides can do).

The risks they manage include commodity, foreign exchange, interest rate and credit risk, and they believe that most of their risks are quantifiable

They are also focused on bringing top management to a fundamental agreement on “profit at risk.” Then they will consider plans to take positions at holding company level to balance the risks in the business units.

Risk Manager faces cultural hurdles, spending lots of time teaching managers who grew up in a regulated environment about risk.

CFO is creating a broad conceptual framework to help traders think about risk, to evolve the company away from micro-management.

CFO is ERM champion with support from Risk Manager, who reports directly.

Chemical/Agricultural Industry


Company’s ERM goal is to maximize shareholder value while minimizing capital outlays.

ERM Manager thinks good risk management is indirectly reflected in share price, butthinks it’s too early for the market to give premiums for ERM.

To determine company risks, ERM group meets – twice a year for major units and once ayear for smaller units -- with the line manager of each unit, along with direct reports, andidentifies the processes having a major effect on shareholder value (major is defined asaccounting for 10% or more of capital earnings for the unit). Then they examine howsound the decision-making tools are behind each process.

They do scenario-based planning: identify four events that could affect each unit’s value;quantify the likely impact on cash flows; and, develop action plans to manage the risk(s).Senior managers are evaluated on action plan implementation.

They’re not at the point of measuring correlations, domino effects etc.

They would like to begin compensating senior management on risk-adjusted returns. Theytie compensation to EVA for now.

They hope ERM will help reduce volatility in earnings. Other metrics include cash flowvolatility, VAR with their debt profiles due, and interest rate volatility.

ERM group considers whether various risks need to be managed in coordination amongvarious units or among different levels of the corporation.

They have an intranet application that lets everyone see the various risks throughout thecompany and explains how they’re being managed.

One major challenge in implementing ERM is the lack of other companies that are doingit well – few examples for comparison.

Large global producer &marketer of agriculturalproducts, operating innearly 70 countriesworldwide

ERM Manager

Source: EIU Study, 2000

ERM Manager reports to the CEOand is viewed as the equivalent of a

CRO.

Information Technology IndustryCompany / Title ERM Perspectives, Roles & Responsibilities Reporting Structure

RM claims not to believe in enterprise risk management or in CRO roles. RM’sopinion is that company is happy managing risks in boxes—they have 12 different

groups having something to do with risk management.

But, in practice company is working to integrate too. RM has, for instance, startedsomething called Riskweb, where every department having anything to do with risk canpost information, contacts, etc; they are even putting some outside consultants on thesite.

RM emphasizes that company’s Board, with delegated responsibility to the CFO, hasalways looked at risk across its activities.

A key challenge in risk management is getting accurate data.

RM states that under the new CEO company is getting much less conservative andmuch more interested in taking more risk.

Part of this shift involves stopping attempts to mitigate risk down to a zero tolerance.Company plans to micro-manage less, particularly as they move more to third partysuppliers (micro-managing them loses the savings of moving to them in the first place).

Company is very concerned about e-commerce risks. Two main facets:They are concerned about security risks as they use e-commerce increasingly in their

supply chain.They are setting up and investing in new dotcoms.

Large ComputerManufacturer

Risk Manager

Board responsible for looking atrisks across activities, with CFOultimately responsible for risk

management.

Risk Management function reports to CFO

Consumer Brands CompanyCompany / Title ERM Perspectives, Roles & Responsibilities Reporting Structure

Risk management is implicit in firm’s strategic planning process, financial planningand budgeting process, and pre- and post-investment appraisal process.

Company believes that explicitly identifying risk is Enterprise Risk Management.

Firm has a major risk identification process that is similar to ERM.They bring together senior management from each branch of the business with the senior risk manager identifying risk.Company officers are interviewed and asked what other areas they can identify as being vulnerable to risk.The expense of a given risk is ranked on a scale of one to five and multiplied by a similar measure of probability, also ranked on a scale of one through five.Risk is then examined on a gross basis and on a net basis (current exposure).Twice a year, a summary of significant risks is presented to the audit committee.This is extended into an action plan, the progress of which is monitored throughout the year.

Crisis management skills, continuity planning and business continuity skills are allmanaged centrally by the risk management group.

The primary variable monitored is impact on earnings.

Future risk management, within firm, must evolve towards providing managementwith greater analysis of how to treat risk on an integrated basis.

Director of risk management is anxious to see risk insurance policies that cover a broadrange of possibilities.

He believes that risk management will “manage down” impact and probabilityoperationally.

UK based internationalhospitality and leisuregroup focusing onhotels, leisure retail andbranded drinks.

Director of RiskManagement

The Director of Risk Managementreports to the Corporate Secretary,who is a member of the executive

Board.

Twice a year, a summary ofsignificant risks is presented to the

audit committee.

Ford Motor Company

Risk Management At FordExternal Service ProvidersWhat Risk Management Services is Ford

Expecting in the Future

Risk Management at Ford

Ford’s approach to risk management in general Ford’s Approach to Hazard Risk Management Ford’s use of external service providers

What external service providers does Ford see now? What does Ford value?

Ford’s requirements for the future Skill sets Infrastructure

Ford Risk Management - Purpose, Statement and Vision

To improve the business’ ability to understand manage and mitigate global corporate risk in real time,

In such a way that we make better risk/return decisions and manage capital more efficiently,

So that shareholder value materializes and unforeseen risks do not.

Hazard Risk Management at Ford

Centralized, global, “consistent”Treasury functionMatrix approach (Legal, Safety, Facilities,

HR, Business Ops, Finance)Risk retention vs. transferRisk management practices

Culture

External Service Providers

What external service providers does Ford see now? Actuarial Firms Insurance and Reinsurance Companies Risk Management Consulting Firms Big 5 Accountants Brokers

Integrated Risk Management

External Service Providers

What does Ford value? Execution – Speed and Quality of analysis,

solution development and delivery Business Orientation Creativity Focus - Relevance Value – solutions and information Value - Measurement Technical capability

Future Requirements at Ford

Technical capability Skill Sets

Diagnostics• Profiling – business focused, timely and relevant• Modeling• Benchmarking / databases

Solutions – design and execution Infrastructure

ToolsDatabasesAnalytics - span risk factors and functionsHorsepower

Ford’s Future Requirements

Risk profilingSystems integrationManagement risk informationCreative use of Insurance ProductsBroader view of integrated risk

management

Understanding The Enterprise Risk Management Process

Casualty Actuarial SocietySpecial Interest SeminarSan Francisco, April 3, 2001

Through The Risk Manager’s Eyes

Questions & Answers

download handout

Economy & Finance

risk enterprise

evolution of risk management

measuringhandling risk

risk takers

risk manifest

risk management practices

good risk management

hazardfinancial risk