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1 A Practical Approach to Risk Management Financial Management Institute, Toronto Chapter February 17 2010 Corinne Berinstein, BPT, MBA, MHSC, CA, CFI.

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Presentation on theme: "1 A Practical Approach to Risk Management Financial Management Institute, Toronto Chapter February 17 2010 Corinne Berinstein, BPT, MBA, MHSC, CA, CFI."— Presentation transcript:

1 1 A Practical Approach to Risk Management Financial Management Institute, Toronto Chapter February Corinne Berinstein, BPT, MBA, MHSC, CA, CFI Health Audit Services Team Ontario Internal Audit Division

2 2 Contact Info: Corinne Berinstein, BPT, MBA, MHSC, CA, CFI, Certificate in Risk Management (Canadian Health Care Association Senior Audit Manager Health Audit Services Team Ontario Internal Audit Division Province of Ontario Office:

3 3 Basic Concepts

4 4  Objectives of today’s session  Basic principles, concepts, definitions  A simple framework  Stocking your toolkit – education, job aids, templates  What are you going to do back in the office?  Q &A’s  A case – Let’s practice! Outline

5 5 Objectives  Give you a practical approach, framework and tools so you can start implementing ERM when you get back to the office.  Share some lessons learned. Share some tips and tricks.  Practice concepts and tools with a case study so that you practice

6 6 The only alternative to risk management is crisis management --- and crisis management is much more expensive, time consuming and embarrassing. JAMES LAM, Enterprise Risk Management, Wiley Finance © 2003 Without good risk management practices, government cannot manage its resources effectively. Risk management means more than preparing for the worst; it also means taking advantage of opportunities to improve services or lower costs. Sheila Fraser, Auditor General of Canada Why do we need Risk Management?

7 7 Why bother with RM?  Increase risk awareness – What could affect the achievement of objectives? What could change? What could go wrong? What could go right?  Increase understanding of risk – sensitivities. What makes my risks increase/decrease/disappear?  Promote a “healthy” risk culture – It’s safe to talk about risk. Open and transparent.  Develop a common and consistent approach to risk across the organization. Not intuition-based.

8 8 Why bother with RM?  Allows intelligent “informed” risk-taking.  Focuses efforts –helps prioritize. Top 10 list. Or top 3. Or…  Is proactive…. not reactive – Prepare for risks before they happen. Identify risks and develop appropriate risk mitigating strategies.  Improve outcomes – achievement of objectives (corporate, clinical, etc)  Really comes to down to simple good management  Enables accountability, transparency and responsibility  And maybe even mean survival

9 9 A risk is ANYTHING that may affect the achievement of an organization’s objectives. It is the UNCERTAINTY that surrounds future events and outcomes. It is the expression of the likelihood and impact of an event with the potential to influence the achievement of an organization’s objectives. Basic principles, concepts, definitions

10 10 Threats and opportunities Threat – a risk that may HINDER the achievement of objectives Opportunities - a risk that may HELP in the achievement of objectives Interest rates Foreign exchange rates Supply of service/product/resources Demand/uptake for service/product/resources The economy The weather The stock market

11 11 Interactive Session #1 – 10 minutes  Introduce yourselves to others at your table  Pick 1 risk – discuss it as both a threat and an opportunity  Report to the large group. Pick a spokesperson. 1

12 12 Definition of ERM “… 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 The Committee of Sponsoring Organizations of the Treadway Commission (COSO)

13 13 Enterprise vs Integrated Risk Management  Similarities: Formal process Consistent and systematic Includes projects, programs, operations Is embedded in key processes such as strategic planning, budgeting, project planning, evaluation, etc Must be driven and supported by Leadership Adds value to decision-making  Differences: Enterprise-wide: Is organizational-centric Success is defined as implementation over the entire organization Integrated: Take a systems-focus May actually create risks for individual organizations

14 14 Periodic Summary Analysis & Report Enterprise Risk Management Periodic Summary Analysis & Report Division Level Branch Level Unit or Project Level

15 15 Periodic Summary Analysis & Report Integrated Risk Management Periodic Summary Analysis & Report System Level Regional Level Organiz- ational Level

16 16 Slide 16 Risk Management Basics  Risk (uncertainty) may affect the achievement of objectives.  Effective mitigation strategies/controls can reduce negative risks or increase opportunities.  Residual risk is the level of risk after evaluating the effectiveness of controls.  Acceptance and action should be based on residual risk levels. INHERENT

17 17 A Simple Framework Evaluate & Take Action Evaluate & Take Action Establish Objectives Establish Objectives Identify Risks & Controls Identify Risks & Controls Assess Risks & Controls Assess Risks & Controls Monitor & Report Monitor & Report Step 1Step 2Step 3Step 4Step 5 Communicate, learn, improve

18 18 Risk Management is critical to ALL levels of decisions Decisions can be categorized into three types. The amount of risk (uncertainty) varies with the type of decisions. Most decisions are concerned with implementation. The HM Treasury’s The Orange Book

19 19 The relationship between IRM & MOHLTC’s Complex Risk Environment

20 20 Slide 20 Categorizing Risk – Comprehensive 1. Political or Reputational Risk 2. Financial Risk 3. Service Delivery or Operational Risk 4. People / HR Risk 5. Information/Knowledge Risk 6. Strategic / Policy Risk 7. Stakeholder Satisfaction / Public Perception Risk 8. Legal / Compliance Risk 9. Technology Risk 10. Governance / Organizational Risk 11. Privacy Risk 12. Security Risk 13. Equity Risk 14.Patient Safety NEW

21 21 Slide 21 Risk Prioritization – likelihood and impact Likelihood of a risk event occurring  Very High: Is almost certain to occur  High: Is likely to occur  Medium: Is as likely as not to occur  Low: May occur occasionally  Very Low: Unlikely to occur Risk Impact: Level of damage that can occur when a risk event occurs  Very High: Threatens the success of the project  High: Substantial impact on time, cost or quality  Medium: Notable impact on time, cost or quality  Low: Minor impact on time, cost or quality  Very Low: Negligible impact

22 22 Third dimension for rating risks - proximity  Immediate – now  Less than 6 months  Between 6-12 months  Between 12 – 24 months  Between 24 – 36 months  More than 36 months

23 23 Slide 23 Risk rating … Combining impact and likelihood

24 24 Risk reporting and communications

25 25

26 26 Key Risk Indicators (KRIs) are linked to strategy, performance and risk Risk Consequence Strategy & objectives Cause KRI KRIs need to be linked to strategy, objectives and target performance levels, with a good understanding of the drivers to risk. Performance

27 27 EXAMPLES OF KRIs Human resource Average time to fill vacant positions Staff absenteeism /sickness rates Percentage of staff appraisals below “satisfactory” Age demographics of key managers Information Technology Systems usage versus capacity Number of system upgrades/ version releases Number of help desk calls Finance Daily P&L adjustments (#, amt) Reporting deadlines missed (#) Incomplete P&L sign-offs (#, aged) Legal/compliance Outstanding litigation cases (#, amt) Compliance investigations (#) Customer complaints (#) Audit Outstanding high risk issues (#, aged) Audit findings (#, severity) Revised management action target dates (#) Risk management Management overrides Limit breaches (#, amt)

28 28 Measure and report RM implementation progress Excellent Advanced capabilities to identify, measure, manage all risk exposures within tolerances Advanced implementation, development and execution of ERM parameters Consistently optimizes risk adjusted returns throughout the organization Strong Clear vision of risk tolerance and overall risk profile Risk control exceeds adequate for most major risks Has robust processes to identify and prepare for emerging risks Incorporates risk management and decision making to optimize risk adjusted returns Adequate Has fully functioning control systems in place for all of their major risks May lack a robust process for identifying and preparing for emerging risks Performing good classical “silo” based risk management Not fully developed process to optimize risk adjusted returns Weak Incomplete control process for one or more major risks Inconsistent or limited capabilities to identify, measure or manage major risk exposures Source: Standard & Poor

29 29 Progress to Date – ERM Report Card Quality of Care and Patient Safety Corporate Governance Operation & Business Support Reputation and Public Image Human Resources and Staff Relations Financial Resources Information Systems and Technology Physical Assets Legal and Regulatory Environmental Health and Safety Policies Standards

30 30 An Approach to Risk Management  Establish centralized support  Develop a standardized framework  Provide education and coaching  Ensure ministry-wide implementation  Embed IRM into all major processes including strategic planning and resource allocations decisions  Enable our stewardship role

31 31 The Approach  Incorporates risk information into the strategic direction- setting, making decisions that consider established risk tolerance levels.  Takes a systems approach to managing risk at the strategic, operational and project levels which is continuous, proactive and systematic.  Fosters a working culture that values learning, innovation, responsible risk-taking and continuous improvement.

32 32  We wanted to add value not work. We developed forms and templates.  So we developed and delivered educational sessions – usually attended by all team members. Included risk 101 and then time for the team members to discuss how to apply concepts to their work.  We assisted teams in actual risk assessments. Sometimes we used voting software.  We trained the trainer. Your toolkit – education, job aids, templates

33 33 A Process for Embedding IRM HAST SessionsComponentsParticipant Outcomes Risk 101 Presentation Introduction – Integrated Risk Management  Introduction to basic risk concepts and terminologies  Introduction to the MOHLTC’s Integrated Risk Framework  Status of IRM in MOHLTC (Most effective when followed-up with facilitated risk assessment workshop or application to actual project)  Understanding of risk management process  Understanding of how risk management is relevant to their day-to-day work  Knowledge of IRM in MOHLTC Management IRM Planning Meeting Planning  Discuss best way to implementation IRM in area  Proposed IRM implementation plan presented for area  Clarify roles & responsibilities for risk management  Commitment to IRM implementation in area or stream of work  Risk management roles and responsibilities clearly defined  Review of IRM roll-out; timelines, deliverables, related forums  Commitment to continuous risk communication & learning Risk Assessment Workshop Facilitated Training – Identification of risks & mitigation strategies  Identification of objectives  Brainstorming and identification of risks to meeting objectives (for project, branch, initiative, etc. )  Identification of source, mitigation strategies, ownership and residual risk for each ‘risk category’  Hands-on experience allowing assimilation of consistent risk management techniques  Hands-on practice of IRM process, enabling application of risk management principles and tools to work  Greater understanding of work and inter-dependencies Risk Prioritization & Voting Workshop Facilitated Training – Assessment of mitigation strategies & prioritization  Review of risks, mitigation strategies and ownership  Anonymous voting on the impact and probability of each risk  Prioritization of risks on ‘heat map’  Discussion of mitigation strategies for high priority risks  Review of risks, mitigation strategies, ownership, residual risk to their work in a seamless manner  Unbiased risk prioritization and identification of high risks  Enables application of complete risk management process to every day work Risk follow-up Session Monitoring & Review  Review of risks six months after initial assessment  Review mitigation strategies and residual risks  Review of risks and status  Continuous improvement

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37 37

38 38 The Cyclist and the Risk Manager

39 39 Interactive Session #2 – 15 minutes  Identify risks that the cyclists faces in cycling to work.  Report back. 1

40 40 Risk Factors – the cyclist.

41 41 Risk Factors – the weather, the road, visibility, the bike, the lock.

42 42 Risk Factors – the driver.

43 43 Risks Threats: Death Head Injury Injury Reputation Financial Damage to the bike Sunburn/frost bite Opportunities: Exercise Sunlight Reputation Financial Role model Environment

44 44 Mitigation Strategies for threats Death, head injury, other injury – helmet, bright clothes, lights, bell, CANbike course, obeying traffic laws, positive attitude, anger management course Reputation – great outfit, change of wrinkle-free clothes, shower, time management Financial – high quality locks, “beater”, stopping at stop signs Damage to the bike – regular maintenance, avoiding pot holes Sunburn/frost bite – sunscreen, mittens, hats, token/change Dehydration- filled water bottle

45 45 ERM/IRM can be complex and messy

46 46 Keep it simple

47 47 Back at the office  Why is the organization interested in RM? What are they hoping will be achieved with its implementation?  Who is doing what? Roles & responsibilities must be clearly defined. Make sure Leadership supports RM and uses RM results to make decisions. Everyone is a risk manager. Make sure that all risks have owners and the responsibilities for mitigation are assigned  How will it be implemented? What is your framework? What is the common language? How will risks be measured and reported?  Where will you start? Choices could be where you can most easily succeed or where it is needed the most or where interest is high.  When will it be implemented? It is a journey not a destination; 3-5 years for complete roll-out; how often will risks be assessed; when will mitigation plans be implemented and monitored; when will risks be reported.

48 48 Ask questions and develop your approach  Do we understand our major risks? Do we know what is causing our risks to increase, decrease or stay the same?  Have we assessed the likelihood and impact of our risks?  Have we identified the sources and causes of our risks?  How well are we managing our risks?  Are we trying to prevent the downside risks from happening? Or are we trying to simply recover from them?  Who is accountable for these risks?  How do we talk about risk? Do we have a common language across branches, across divisions, across the ministry, across the OPS, across the health care system?  Are we taking too much risk? Or not enough risk?  Are the right people taking the right risks at the right time?  What’s our culture? Are we risk adverse or are we risk-takers? Or are we somewhere in between?

49 49 TAKE SMALL BITES………. IRM IMPLEMENTATION

50 50 Questions?

51 51  Case 1 – The Pan Am Games 2015  Case 2 – The provincial response to the next Pandemic  Case 3 – The extension of Hwy 404  Case 4 – The rescue efforts in Haiti  Case 5 – Human Resources in the Ontario Public Services  Case 6 – A big teaching hospital in Toronto The case - You are responsible for Risk Management for:

52 52  Consider the 13 categories of risk  Identify top 5 threats (downside) and top 5opportunities (upside)  Propose mitigation strategies  Discuss how the following risk factors would affect your assessment:  Economy  Demographics  Weather  Technology  Timing of events such an election  Others The case

53 53 Questions?


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