enterprise risk management (erm) in the epc industryecrisponsor.org/presentations/w1-4 fluor...

Enterprise Risk Management (ERM) in the EPC Industry

ECRI Conference

December, 2017

2

One column textJacobs to Acquire CH2M

to Create Premier $15

Billion Global Solutions

Provider Business Wire August 02, 2017

Huge nuclear cost overruns push Toshiba’s Westinghouse into bankruptcy

Reuters March 29, 2017

Is CB&I Hiding A Debt Problem?

Train technology updates delayed by cost, complexity

Positive train control (PTC)

3

With you today

Mike Wilson

Principal, US National Lead for ERM

KPMG

Paul Rajmaira

Commercial Strategies and Risk

Fluor

44

Enterprise Risk Management

What is ERM?

— History and overview1

Why is it a “hot topic”?2

ERM maturity in the EPC industry3

ERM at Fluor4

Adapting an ERM Framework5

Key Learnings6

55


What is ERM?




ERM at Fluor4


Key Learnings6

6

Enterprise Risk Management – Content and Process

What is ERM?

ERM is a system of processes for the identification, analysis, evaluation and economic control of

existing and potential risks (both threats and opportunities) intended to enhance quality/ safety, protect

reputation and increase the likelihood of achieving corporate / performance objectives.

In practice ERM is about two things - Content and Process...

Identifying, evaluating and

prioritizing enterprise risks

Risk Strategy

and Appetite

Risk

Governance

Risk

Culture

Risk

Assessment &

Measurement

Risk

Management

& Monitoring

Risk

Reporting &

Insights

Data &

Technology

Building and maintaining a dynamic

and sustainable Enterprise Risk

Management program

Creating Content

Creating Process

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG

International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

7

Components of an effective ERM programWhat is ERM?

Risk Strategy and Appetite Risk Governance Risk Culture

Risk Assessment and

Measurement

Risk Management and

Monitoring

Risk Reporting

and InsightsData and

Technology

Linkage to corporate strategy

Board Oversight and Committee

Knowledge and Understanding

Risk Definition and taxonomy

Risk Mitigation, Response and Action Plans

Risk ReportingData Quality

and Governance

Risk StrategyCompany Risk

Operating Structure

Belief and Commitment Risk Identification

Testing, Validation and Management’s

Assurance

Business/Operational

RequirementsRisk Analytics

Risk Appetite and Tolerance

Risk Guidance

Competencies and Context

Assessment and Prioritization

MonitoringBoard and Senior

Management Requirements

Technology Enablement

Roles and Responsibilities

Action and Determination

Quantitative Methods and

Modeling

Risk in Projects/Initiatives

External Requirements

DecisionSupport

Risk Aggregation,Correlation and Concentration

Scenario Analysis and Stress

Testing

Capital and Performance Management



8

Actual risk profile

What does the company’s risk profile look like

given the current state of risk strategies and plans?

Risk appetite and risk capacity

Risk appetite

How much risk is the company willing to accept in

pursuit of value and growth?

Risk-taking capacity

What is the maximum risk that the company can possibly take, given appetite,

linked to available capital or equity, liquid assets, borrowing capacity, resources?

Target risk profile

Given the risk appetite and capacity, what should the company’s risk

profile look like, considering business objectives and external perceptions?

What is ERM?



99


What is ERM?




ERM at Fluor4


Key Learnings6

10

Enterprise Risk Management – Why do it?

By evaluating the threats and opportunities to strategy and objectives, ERM closely links risk,

strategy, and performance, enabling management to make more informed decisions.

Governance

Governance

— Adhere to better practice principles of corporate governance (COSO ERM

Framework, NACD ”core principles” etc.)

— Meet rating agency expectations

— Federal sentencing guidelines principles - foundation for effective corporate

compliance

StrategyStrategy

— Provide a competitive advantage versus industry peers

— Link strategic planning objectives to enterprise risks to align key priorities with

senior management

Operational

Performance

Operational Performance

— Provide greater transparency on events that impact desired performance

— Enhance ability to meet goals through targeted action and clear accountability

— Supports an organization-wide “Risk-Aware” culture

— Better leverage of supporting systems and tools to optimize operational

effectiveness

Why is it a “hot topic”?



1111© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International

Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

KPMG global survey: “Calibrating strategy and risk”


If you aren’t constantly assessing

strategy and risk, and adjusting as

you go, there’s no way you’re keeping

pace as a business or a board.

12

ERM capabilities & trends

IDENTIFYING, FOCUSING AND RESPONDING TO THE RIGHT RISKS

— Linking risk to the strategy process

— Understanding risk interconnectivity

— Applying scenario analysis

CONSIDERING BOTH UPSIDE VERSUS DOWNSIDE RISK

— Articulating risk appetite and capacity

— Identifying signals of change

— Moving beyond only protecting downside

RISK MANAGEMENT STRUCTURE AND GOVERNANCE

— Articulating ‘plain English’ risk program strategy

— Clarifying roles and responsibilities to operationalize the risk program

RISK CULTURE

— Understanding risk culture and its impact

— Targeted risk communication, awareness and training

— Performance management

VALUE ADDED RISK AND COMPLIANCE PROCESSES

— Performance versus process effectiveness

— Risk program ‘report card’

— Considering the convergence of governance, risk and compliance




13

Dynamic risk assessment vs. traditional risk assessment




14

Risks or opportunities?

Megatrends and

disruptive innovations

have emerged that

may pose new risks –

or new opportunities

“Disruptive business

models can change

stable industries in a

heartbeat”

Additive 3D printing

used in supply

chains

Sharing economy –

app-based business

models

Smart materials

reshaping industry

and our lives

Analysis of big data to

predict changes in

consumer preferences

App-based process

re-engineering and

activation

Aerial devices for

deliveries, security,

medical response, etc.


15

Risk Culture – What is below the surface?Why is it a “hot topic”?



16

Convergence of governance, risk & compliance

Multipurpose

risk assessment

Joint activity planning

and sequencing

Coordinated

control testing

Shared access to data and results Joint risk and

control monitoring

Streamlined, transparent, and focused management reporting

Governance, Risk & Compliance




1717


What is ERM?




ERM at Fluor4


Key Learnings6

18

ERM maturityIntegrated Basic Sustainable Mature Advanced

ERM maturity in the EPC industry



1919


What is ERM?




Key Learnings6

ERM at Fluor4


20

Enterprise Risk Program HistoryERM at Fluor

ERM Practice

Risk Register

Enterprise

Risk

Assessment

Annual

Survey

Risk Profile

Management

Capability

® © 2017 Fluor. All rights reserved.

21

Actual risk profile

What does the company’s risk profile look like

given the current state of risk strategies and plans?

Risk appetite and risk capacity

Risk appetite

How much risk is the company willing to accept in

pursuit of value and growth?

Risk-taking capacity

What is the maximum risk that the company can possibly take, given appetite,

linked to available capital or equity, liquid assets, borrowing capacity, resources?

Target risk profile

Given the risk appetite and capacity, what should the company’s risk

profile look like, considering business objectives and external perceptions?

What is ERM?



22

Risk Profile - So What?

Top 5 Global Risks in Terms of Impact

ERM at Fluor

Major systemic

financial failureFiscal crises Water crises

Failure of climate-

change mitigation

and adaptation

Weapons of mass

destruction

Water supply crises Climate change

Rapid and massive

spread of infectious

diseases

Weapons of mass

destruction

Extreme weather

events

Chronic fiscal

imbalancesWater crises

Weapons of mass

destructionWater crises Water crises

Diffusion of

weapons of mass

destruction

Unemployment and

underemployment

Interstate conflict

with regional

consequences

Large-scale

involuntary

migration

Major natural

disasters

Failure of climate-

change mitigation

and adaptation

Critical information

infrastructure

breakdown

Failure of climate-

change mitigation

and adaptation

Severe energy

price shock

Failure of climate-

change mitigation

and adaptation

2013 2014 2015 2016 2017

World Economic Forum Global

Risks Report 2017Economic Environmental Geopolitical Societal Technological

® © 2017 Fluor. All rights reserved.

23

Risk Profile - So What?ERM at Fluor

ERM

Practice,

Risk Register

Enterprise

Risk

Assessment

Annual

Survey

Risk Profile,

Management

Capability

ERM Policy,

Feedback

Loop,

Strategic

Linkage

®

©2017 Fluor. All rights reserved.

HO20170668-001 ERM pres.pptx

2424


What is ERM?



Key Learnings6



ERM at Fluor4

25

Understanding Various Frameworks

▪ COSO – The Committee of Sponsoring Organizations of the Treadway Commission

▪ RIMS – Risk and Insurance Management Society, Inc.

▪ ISO

▪ EU Regulations

▪ Published Consultant Documents

▪ BOD Guidance (NACD, Conference Board)

▪ Academic Research

Adapting an ERM Framework

A VALUE BASED APPROACH TO ENTERPRISE RISK MANAGEMENT

IN THE ENGINEERING & CONSTRUCTION INDUSTRY

by

Dr. Sean Paul de la Rosa

®



26

Fluor’s Definition of ERM

▪ Risks that, either individually or when aggregated across projects or the enterprise, affect any

or a combination of the following:

• Sustainability of the enterprise

• Ability to achieve company objectives

• Ability to implement business strategies

• Fluor’s business model, and

• Fluor’s reputation


®



27

Jacobs to Acquire CH2M

to Create Premier $15

Billion Global Solutions

Provider Business Wire August 02,

2017

Train technology updates delayed by cost, complexity

Positive train control (PTC)

ERM Principles in the EPC ContextAdapting an ERM Framework

®



Strategies & Business Objectives

▪ Vertical integration

▪ M&A vs. organic growth

▪ Geographic expansion

▪ High-value execution

Business Model

▪ Process Technology

▪ IT

▪ Joint ventures

▪ Commoditization

Huge nuclear cost overruns push Toshiba’s Westinghouse into bankruptcy

Reuters March 29, 2017

Enterprise Sustainability

▪ HSE

▪ Corporate finance (cash, debt, liquidity, solvency)

▪ Fixed price content

Is CB&I Hiding A Debt Problem?

Reputation

▪ Investors & analysts

▪ Client perception

▪ Government standing

28

Working with KPMG

▪ Series of workshops

• Assessment

o Goals and objectives

o Current and future state

o Existing documents and metrics

• Education and alignment

• Planning

• Strategizing

• Re-assessing…

▪ Share forum


®



2929


What is ERM?



Key Learnings6


ERM at Fluor

— Working with KPMG4




30

Key Learnings

▪ ERM needs to be driven from the top.

▪ Stakeholder management >> Technical sophistication

▪ Understand your organization’s absorptive capacity

▪ Identify shared interests

▪ People respond enthusiastically when given a voice

▪ Significant effort and treasure can be spent with little to show for it

ERM in the EPC Industry

®



Questions

Thank you

Mike Wilson, US National Lead for ERM

KPMG

312- 771-2376

[email protected]

Paul Rajmaira, Commercial Strategies and Risk

Fluor

281-637-1497

[email protected]

mailto:[email protected]

mailto:[email protected]