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Enterprise Risk Management Cursus Good Governance Leidraad naar Commissariaat Verhouding tussen commissarissen en acountants Steven Martina 17 Januari.

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Presentation on theme: "Enterprise Risk Management Cursus Good Governance Leidraad naar Commissariaat Verhouding tussen commissarissen en acountants Steven Martina 17 Januari."— Presentation transcript:

1 Enterprise Risk Management Cursus Good Governance Leidraad naar Commissariaat Verhouding tussen commissarissen en acountants Steven Martina 17 Januari 2009

2 Why is ERM important? ERM supports value creation by enabling management to: Deal effectively with potential future events that create uncertainty. Respond in a manner that reduces the likelihood of downside outcomes and increases the upside.

3 Enterprise Risk Management “… a process, effected by an entity's board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risks to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.” Source: COSO Enterprise Risk Management – Integrated Framework. 2004. COSO.

4 This COSO ERM framework defines essential components, suggests a common language, and provides clear direction and guidance for enterprise risk management. Enterprise risk management requires an entity to take a portfolio view of risk. Enterprise Risk Management — Integrated Framework


6 The COSO Framework The COSO ERM framework defines essential components, suggests a common language, and provides clear direction and guidance for enterprise risk management.

7 The ERM Framework ERM considers activities at all levels of the organization: Enterprise-level Division or subsidiary Business unit processes

8 The ERM Framework Entity objectives can be viewed in the context of four categories: Strategic Operations Reporting Compliance

9 The eight components of the framework are interrelated … The ERM Framework

10 Internal Environment Establishes a philosophy regarding risk management. It recognizes that unexpected as well as expected events may occur. Establishes the entity’s risk culture. Considers all other aspects of how the organization’s actions may affect its risk culture.

11 Objective Setting Is applied when management considers risks strategy in the setting of objectives. Forms the risk appetite of the entity — a high- level view of how much risk management and the board are willing to accept. Risk tolerance, the acceptable level of variation around objectives, is aligned with risk appetite.

12 Event Identification Differentiates risks and opportunities. Events that may have a negative impact represent risks. Events that may have a positive impact represent natural offsets (opportunities), which management channels back to strategy setting.

13 Event Identification Involves identifying those incidents, occurring internally or externally, that could affect strategy and achievement of objectives. Addresses how internal and external factors combine and interact to influence the risk profile.

14 Risk Assessment Allows an entity to understand the extent to which potential events might impact objectives. Assesses risks from two perspectives: - Likelihood - Impact Is used to assess risks and is normally also used to measure the related objectives.

15 Risk Assessment Employs a combination of both qualitative and quantitative risk assessment methodologies. Relates time horizons to objective horizons. Assesses risk on both an inherent and a residual basis.

16 Kern Vragen Risk Assessment 1.Waar/Wat kunnen we verbeteren? Waar wringt de schoen? Wat gaat er fout? 2.Welk proces betreft het? 3.Waar lopen we risico’s? Wat is het risico? 4.Wat is de oorzaak? 5.Wat zijn de gevolgen bij ongewijzigd beleid? 6.Hoe kunnen we het risico kwalificeren? 7.Hoe kunnen we het risico het beste beheersen? 8.Wat moeten we daarvoor doen? 9.Hoe is de kosten / baten verhouding? 10.Hoe kunnen we de vereiste actie het beste aansturen? Probability / Impact L H

17 CI-VERA 2009 Curacao Accountants in Business 17 IMPACT MARKET POSITION REPUTATION GROWTH EBITDA Loss less than 1% compared to budget Loss between 1% and 10% compared to budget Loss more than 10% compared to budget Drop from nr.3 to nr.5 position Drop from nr.3 to nr.4 position Remaining market position Excessive negative press; regulator sanction Limited negative press; regulator warning No negative press Losing less than 1% growth target Losing between 1 and 3% growth target Losing more than 3% growth target SCORE 12345678910 LOWMEDIUMHIGH RISK IMPACT ASSESSMENT

18 Risk Response Identifies and evaluates possible responses to risk. Evaluates options in relation to entity’s risk appetite, cost vs. benefit of potential risk responses, and degree to which a response will reduce impact and/or likelihood. Selects and executes response based on evaluation of the portfolio of risks and responses.

19 Control Activities Policies and procedures that help ensure that the risk responses, as well as other entity directives, are carried out. Occur throughout the organization, at all levels and in all functions. Include application and general information technology controls.

20 Information & Communication Management identifies, captures, and communicates pertinent information in a form and timeframe that enables people to carry out their responsibilities. Communication occurs in a broader sense, flowing down, across, and up the organization.

21 Monitoring Effectiveness of the other ERM components is monitored through: Ongoing monitoring activities. Separate evaluations. A combination of the two.

22 22 Risk Management (the embedding) Monitoring Information and Communication Control Activities Risk Response Risk Assessment Event Identification Objective Setting Internal Environment STRATEGIC OPERATIONS REPORTING COMPLIANCE ENTITY - LEVEL DIVISION BUSINESS UNIT SUBSIDIARY SWOT/PEST 6 SiGMA Risk appetite Co2/GhG SOX L. Hubbard (ed.) Corp. Planning feed back Customer BSC Performance system TQMCOSOproject EH&S Loss Preventiion Newsletters + websites. IA.Budget + Profit Plan Policies + Procedures Guides Internal AuditCOBIT for IT Continuous monitoring ERP

23 Risico-indeling Extern Environment Externe criminaliteit Zakelijke omgeving Fatum Internal Control Environment Strategic RisksOperational RisksFinancial Risks Concentratie Krediet Liquiditeit Interest Valuta Mismatch Solvabiliteit Verz. tech. reservering. Herverzekeri ng Fiscaal Externe verslaglegging Interne informatie voorziening Strategie ontwikkeling Strategie planning Strategische sturing Processen ICT Projectmanage ment Info beveiliging Interne fraude Compliance Klachtenmanag ement Juridisch Veiligheid Business continuity Cultuur intern Risicomanage ment (quality) Org. Structuur Personeel (quality) Reporting Risks


25 RM can/should be about more than audit “Risk management equals buying reinsurance” → Risk transfer via reinsurance “Decision making across firm is linked to building economic value” → Risk adjusted resource allocation at all levels Value added for insurer Stages of development Insurance & Compliance Risk-return optimisationCore risk management “Regulators are demanding risk management activities” → Over- reliance on ‘checklists’, false sense of security “We need to know the economic impact of our largest risks” → Specific risk quantification “We need a sustainable process for monitoring all our risks” → Qualitative RM “Risk needs to be quantified comprehensively” → Over-control by centralized risk management, initial quant models too primitive “Shareholders demand a risk/return framework” → Risk and growth appetite defined, risk dynamically measured and aggregated properly I IV VI VII II III V

26 CI-VERA 2009 Curacao Accountants in Business 26 VOR VOC VOB

27 De chaotische werkelijkheid In werkelijkheid een bizar en chaotisch geheel van activiteiten Anticiperend op de positieve en negatieve aspecten van risico Allerlei risico indelingen Ontelbare verschillende perspectieven –Soms goed op elkaar aansluitend –Soms ook niet –Soms elkaar zelfs onderling uitsluitend


29 Audit Committee MT Internal Audit External Audit Risk Sessions Risk Corrective Action Management Considered in Control Risk Assessment InitiationAssessmentMonitoringControl ProbabilityImpact LMHLMH Impact >= “M” Probability >= “M” In Control ? yes no yes no yes Risk Life Cycle Request


31 31 Most Risks do have a Reward!

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