How to embed risk management

as a strategic activity?

Facilitator:

Tjerk van Dijk – Stork/Fokker

Presenters:

Claes Mårtenson – Solvay

Cédric Lenoire – FM Global

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Solvay – 150 Years

Created by Ernest Solvay in 1863, Solvay is a Global company, with historical anchorage in Europe, and headquartered in Brussels.

Our strengths:

• 90% of sales in businesses among the top 3 global leaders

• 40% of sales in fast growing markets

• Balanced portfolio of activities

• A culture of sustainability, innovation and operational excellence

€12.4bn NET SALES

€2.1bn Adjusted REBITDA

111 MAJOR INDUSTRIAL SITES

13 MAJOR Research & Innovation SItes

29,100 EMPLOYEES 55 COUNTRIES

A major global player in

Chemicals with

compelling strengths

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FM Global – 177 Years

Leading commercial property insurer

Expert in underwriting, loss prevention

engineering and risk management services

Mutual Ownership

Our philosophy:

The majority of losses are preventable

When you’re resilient, you’re in business

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Agenda

Risk Management in Strategy

Strategy in Risk Management

1. Context

2. Examples

3. ERM in Solvay

4. Executive Support

5. Embedding Risk Management Tips

5

Agenda

Risk Management in Strategy

Strategy in Risk Management

1. Context

2. Examples

3. ERM in Solvay

4. Executive Support

5. Embedding Risk Management Tips

6

Strategy and Growth

Risk is good!

« Risk taking is part and parcel of entrepreneurship and

business: no risk, no reward.

(…)

Whatever strategy a company chooses, each course of

action comes with its own rewards and risks.

(…)

Good risk management does not imply avoiding all risks at all

cost.»

from Risk appetite, The strategic balancing act, Ernst & Young 2010

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Risk Management Should not

Hold you Back “They don’t put brakes in race cars

so they can go slower;

They put brakes in race cars

so they can go faster.” Al Unser, 4 times Indianapolis 500 winner

Enterprise Risk Management helps a company go faster and

stay on the road

Source Franck Baron, ex. Firmenich Risk Manager

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Embedded Risk Management

10 000 years ago… Objectives:

Survive,

Find Food (for clan),

Create safe shelter

Opportunities:

New areas with

more food,

Better caves

Risk Management tools:

Brain,

Muscles,

Club,

Other clan members

Risks:

Starvation,

Other clans,

Animals,

Weather

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Agenda

Risk Management in Strategy

Strategy in Risk Management

1. Context

2. Examples

3. ERM in Solvay

4. Executive Support

5. Embedding Risk Management Tips

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Thailand…

Thailand Floods 2011 Estimated Losses: 4th costliest disaster ever

$45-50 billion economic losses

Up to 80% supply chain-related

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Thailand…

Market analyst: “Seagate stands to make the most out of the crisis by gaining market share at the

expense of Western Digital ”

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Another Example…

This Time in Japan…

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Texas Instrument Vs. Intel

Both companies are part of Fortune 500

Both companies:

• make electronic equipment

• have products that rely on computer processors

• have a critical reliance on semi-conductors

• have a critical reliance on BT Epoxy & Silicon Wafers

Texas Instrument awarded “Manufacturer of the year for global supply chain excellence” by World Trade Magazine

Intel is the largest global supplier of computer processors

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Press Releases – Q2 2011

Texas Instrument :

Delay in moving production to alternate factories

Insufficient existing inventory

Lack of availability of critical raw materials

Intel:

“The current crisis in Japan will not disrupt processor production”

“Nothing is sole-sourced”

“BCPs have been activated to ensure no material loss of

production”

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Impact on Share Price

Japan Earthquake. 11/03/2011

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What Have We Learnt From

These Events?

Businesses can gain competitive advantage & market

share from good risk management practices

Risk management is most effective when embedded

within the culture

Strategy and risk management must be linked

Strong commitment from Senior management is

essential

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Agenda

Risk Management in Strategy

Strategy in Risk Management

1. Context

2. Examples

3. ERM in Solvay

4. Executive Support

5. Embedding Risk Management Tips

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Solvay’s Strategy is based on

Megatrends …

Climate change

Demograhic change

Globalization

Urbanization

Eff

icie

nt

us

e o

f re

so

urc

es

…with opportunities & risks

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For Our Sustainable Growth, Solvay

needs Enterprise Risk Management!

Motto:

Protecting the value the business creates

Mission:

To support Solvay’s sustainable growth we promote systematic Enterprise Risk Management and we manage advanced insurance solutions so Solvay can take smart risks

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The ERM Process FERMA framework

– systematic – used by Solvay The Organisation’s

•Strategic Objectives

•Risk Assessment

Risk Analysis Risk Identification Risk Description Risk Estimation

Risk Evaluation

Risk Reporting Threats and Opportunities

Decision

Risk Treatment

Residual Risk Reporting

Monitoring

FO

RM

AL

AU

DIT

MO

DIF

ICA

TIO

N -

im

pro

ve

me

nt

Objectives

Risk Analysis

Risk Reporting Decision Risk reduction

Monitor / Respond / Prepare

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Look in all directions

Solvay’s 10 Risk Categories Model

1. Market & Growth – Strategic Risk

2. Supply Chain and Manufacturing Risk

3. Regulatory, Political and Legal Risk

4. Corporate Governance and Risks attached to Internal Procedures

5. Financial Risk

6. Product Risk

7. Risk to People

8. Environmental Risk

9. Information and IT Risk

10.Reputation Risk

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Five Enterprise Risk Management

Focus Areas for GS ERM & Insurance

Internal Control

Risk Profiling

Coaching, Training

Group Risks

Property Loss

Prevention

GS ERM & I

Risk Analysis on strategic plan + Actions to reduce risks

Risk analysis along a Business Process leading to Controls

Plants – fire, natural hazards. To maintain production flows and profitability

Promote a risk management

approach and culture

The largest risks for the Group

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ERM in the Strategy Process

Template Slide The Largest risks from Risk Profiling on <date>

LARGEST RISKS and MITIGATION ACTIONS

Risk Action Plan - actions taken to reduce or

mitigate the risk

1. Failure

of R&I

project

Phoenix

2:No-Go

to new

Thai

plant

…

…

…

List the 5-10 largest risks from the Risk Profiling applied on the Roadmap

Be specific about the actions - What is being done beyond the actions before the Risk Profiling? What is done differently?

D A B C

SEVERITY

VE

RY

LIK

EL

Y

OC

CA

SIO

NA

L/

LIK

EL

Y

RE

MO

TE

/ U

NL

IKE

LY

V

ER

Y R

EM

OT

E/

VE

RY

UN

LIK

EL

Y

PR

OB

AB

ILIT

Y

● 1

● 2

● 4

● 3

● 5

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Healthcare Risk Management

compared to FERMA ERM framework

The Organisation’s •Strategic Objectives

•Risk Assessment

Risk Analysis Risk Identification Risk Description Risk Estimation

Risk Evaluation

Risk Reporting Threats and Opportunities

Decision

Risk Treatment

Residual Risk Reporting

Monitoring

FO

RM

AL A

UD

IT

MO

DIF

ICA

TIO

N -

im

pro

ve

me

nt

Objectives: Avoid injury and Improve Solvay sales!

Identify – Map products to final applications in

food, feed and healthcare Quantify – Risk Profiling method Assess – Risks, Standards (in or out), Toxicology

Risk Reporting - Continuous

Decision – BU Management for new products/new applications

Risk Treatment includes action plans to reduce risk to manage market opportunities

to stop selling

Monitoring – Regulatory watch, New product/application pairs

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Turning Risk into Opportunity

and applying the ERM FERMA

Framework Solvay Example Implants

Solvay had a policy to stop sales if end application was an implant!

Solvay had polymer material that was used in the implants industry.

Applying “Healthcare Risk Management” helped to turn the risk into an opportunity!

Policy changed 180 degrees.

Solviva product area uses Risk Management integrated in business/ Risk Profiling, research, toxicology and qualification of customers

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Agenda

Risk Management in Strategy

Strategy in Risk Management

1. Context

2. Examples

3. ERM in Solvay

4. Executive Support

5. Embedding Risk Management Tips

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Why Securing Executive Support?

Strategic risk management can only be implemented with

strong senior management support

Risk managers must demonstrate how critical risk

management is to maintain and enhance the strengths

and competitiveness of the organisation.

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Connecting the dots…

What Senior Executives typically care about:

Competitive advantage

Strong financial performance

Shareholder value enhancement

Anything else that make them look good….

What Risk managers should typically care about:

Competitive advantage

Strong financial performance

Shareholder value enhancement

Anything else that make their bosses look good….

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What risks keep Executives awake at night? Aon Global Risk Management Survey 2013

1. Economic slowdown / slow recovery

2. Regulatory / legislative changes

3. Increasing competition

4. Damage to reputation/brand

5. Failure to attract or retain top talent

6. Failure to innovate / meet customer needs

7. Business interruption

8. Commodity price risk

9. Cash flow/Liquidity risk

10. Political risk / uncertainties

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Quote of the Day…

“ If you think safety is expensive,

try an accident”

Stelios Haji-Ioannou CEO-EasyJet

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Agenda

Risk Management in Strategy

Strategy in Risk Management

1. Context

2. Examples

3. ERM in Solvay

4. Executive Support

5. Embedding Risk Management Tips

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TIPS: Define Risk Appetite with

Exec. Committee & Board

Level of risk that an organization is

prepared to accept

Appropriate risk appetite will depend on

the nature of the business and objectives

pursued

Precise measurement is not always

possible:

Risk appetite statement qualitative, approach

An organisation may have an appetite for

some types of risk and be averse to

others Good Reading on Risk Appetite http://www.theirm.org/publications/documents/IRMRiskAppetiteFullweb.pdf

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What are the risks here?

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TIPS: Proposed Methodology to

Understand the Business Identify business drivers, relationships and recovery capabilities: • Locations • Processes • Unique/Multiple

Suppliers

Leverage risk analysis data: • Scenarios • Recovery times • Prioritize recs • Comprehensive view of

financial and physical risk

Specific financial quantifications: • Prioritize business

drivers • Comprehensive,

objective measurements

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TIPS: Implement solutions

Successful business models are naturally resilient.

Business Continuity

Management

Risk Transfer

Risk Improvement

Operational Resilience

The majority of losses are preventable.

Maintain market share, reputation and good relationships to all stakeholders.

Transfer residual exposure.

Use risk transfer in a business savvy way.

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TIPS: ERM Roadmap

1. Get/Maintain Top Management Support!

2. Understand Company culture, objectives, strategy

3. What risks keep Executives awake at night?!

4. Use the standard Risk Management Process

to develop a Vision and a Policy

5. Identify and Develop Tools that fit your Company

6. Develop an ERM Implementation Plan

7. Develop a first Company Risk Profile

8. Integrate ERM in the Strategy Process

9. Develop Opportunity Management

10. Work closely with other departments and Group projects

and COMMUNICATE!

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In Summary…

Risk Managers increasingly play a key role

in the success of their companies once they

manage to influence the corporate culture

Executive Support is essential to embed risk management in the strategic orientations of the company

Risk is Good! It is in the DNA of successful organisations

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Please do not try this at home…

Thank you!