from value at risk to values at risk
TRANSCRIPT
From Value at Risk to ValueS at Risk -
Operationalizing Risk Appetite in High-Reliability Organizations
Anette Mikes, Kurt Meyer
16 March 2021
© Anette Mikes
Risk appetite
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Risk appetite in FS
3
Risk appetite in non-FS
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Risk appetite
▪ “The amount and types of risk that an organization
is willing to pursue”…Says who?
o ISO(2009)
o …in the pursuit of various objectives (COSO, 2012, 2020)
o …volatility of expected results… an organization is willing
to accept in pursuit of a desired financial performance
(RMA, 2013)
o The ‘language’ used to communicate the boundaries within
which banks should operate (OW, 2015)
o The aggregate amount of risk (EY)
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Risk appetite guidelines - insurance
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Questions
▪ How do risk managers make sense of risk appetite?
▪ Case studies in non-FS
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Starting with Values…
▪ We are customer driven
▪ We develop superior brands and technologies
▪ We aspire to excellence in quality
▪ We strive for innovation
▪ We embrace change
▪ We are successful because of our people
▪ We are committed to shareholder value
▪ We are dedicated to sustainability and corporate social responsibility
▪ We communicate openly and actively
▪ We preserve the tradition of an open family company
Risk appetite - Unilever
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Risk appetite - Centrica
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Risk appetite - Centrica
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Toronto Transit Commission
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Toronto Transit Commission
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Toronto Transit Commission
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Risk Appetite: more than a value statement
▪ Core Values
▪ Commitments
▪ Philosophy of risk-taking
▪ Boundaries (e.g., red
lines)
▪ Willingness to take risk
(e.g., to innovate)
▪ Trade-offs and priorities
▪ A degree of quantification!
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Risk appetite is about corporate
integrity
▪ It is not enough to simply elaborate a purpose. We have the
problem of infusing values into the life of the organization.”
(Selznick (2000))
▪ It is important to talk about the integrity of the organization
▪ What business are we (really) in?
o “
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Why is corporate integrity an
issue?
▪ Professed versus operational goals
▪ Value drift (Selznick, 2000)
▪ Man-made disasters (Turner, 1976)
▪ The problem of responsiveness (action, not words)
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▪ Bank culture reform: return to values
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Risk Management & Ethical Turn
▪ Multiple values are at risk at any time
▪ Risk management now carries business ethics (Power, 2009)
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From Value at Risk… … to ValueS at Risk
Man-made disasters
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Risk
incubation
Value drift
Skyguide Überlingen
BP Deepwater HorizonDB Eschede
© Anette Mikes
The Measurement Problem
▪ Value drift
▪ The problem:o Identify gaps
o Make (tough) decisions
o Close gaps
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Case studies
▪ How do risk managers monitor corporate
commitments?
▪ What are the emerging practices?
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Pioneers: Risk appetite Practices (c. 2011-2012)
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Rob Quail, Hydro One
Mohamed Ismail, TTC
© Anette Mikes
Example: Target setting for integrity
Adapted from: Rob Quail: Defining your taste for Risk, Corporate Risk Canada, 2012
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Commitments, core values and priorities
© Anette Mikes
Example: Monitoring integrity
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Adapted from: Rob Quail: Defining your taste for Risk, Corporate Risk Canada, 2012
Actions speak louder than words
© Anette Mikes
RIMS award winner of 2017
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Representatives of the Toronto Transit Commission
© Anette Mikes
SAFETY 5
CUSTOMER 2
PEOPLE 3
ASSETS 4
GROWTH 2.5
FINANCIAL
SUSTAINABILITY2
REPUTATION 3
Corporate Objective Weights
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…in capital allocation
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Risk appetite approaches
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“Map and Gap Analysis”
(e.g., Hydro One)
“Map and Rank” Analysis
(e.g., TTC)
Aids in: Strategy execution
(intervention)
Capital budgeting
Approach: Selective crack-down on
commitments
Balancing commitments
Method: Survey (workshops) Ranking (weighted averages)
Transparency: Broad
Value conflicts visible
Limited
Value conflicts suppressed
Direction: Top-down and
Bottom-up
Top-down
© Anette Mikes
Digitizing risk appetite
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“Rank and Gap
Analysis”
(e.g., Swissgrid)
Aids in: Strategy execution
(intervention)
Approach: Selective crack-down
on commitments
Method: Digital Application
Transparency: Broad
Value conflicts visible
Direction: Top-down and
Bottom-up
Example: Electrical power supply
▪ Extreme dependency of all sectors in developed
countries
▪ Blackout: Biggest risk for
the nation (electricity shortage)*
▪ CHF 200 to CHF 300 bn*
▪ High Reliability Organization
▪ Risk appetite → avoid risk incubation
© Anette Mikes 32*Source: Swiss federal government, 2020
Speaking up about Commitments…
▪ When employees speak
up…
with reference to core
values and priorities
whenever, wherever
employees want to report
▪ …companies benefit.
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Measurement and action
▪ Voice to “silent majority”
▪ Action and monitoring
▪ Is safety really No.1?
▪ Generate action; monitor
progress
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Kaplan, R & Mikes, A. Swissgrid.
© Anette Mikes
A pull from the board
“We need to
know what is
going on in the
operations.”
Adrian Bult, Chairman
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An opportunity …
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From: CRO
To: Risk team
Date: 8.11.2018
Subject: Workshop
«The opportunity is to link operational risk with strategic...
concerns, by using RiskTalk and other Information Systems to ask:
Do the actions of the company correspond to its ... priorities, as per
the board’s strategic intent ...?
The benefits to knowing the answer to this question include:
• Corporate integrity
• Employee motivation...»
© Anette Mikes
The Chairman’s reaction
1. “…a vast diversity in how
risks are perceived.
2. … you get patterns.
3. …make it easy to
participate –
a much more honest
dialogue.”
- Adrian Bult,
Chairman of the Board of
Directors, Swissgrid
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Impact at Swissgrid
▪ Culture
▪ Arresting risk incubation
▪ c. 100 issues a year
▪ Focus on what matters
▪ Learning and process improvements
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Costs-benefits
▪ Operations
o No new hires
o Taking turns
o Less than 5% of their time
▪ Software license
▪ Loss prevention.
▪ Process improvements.
▪ Efficiency improvements.
▪ Purpose and values
implemented.
▪ Credibility.
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Q & A
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When every employee is
a risk mananager…