0. ENTERPRISE RISK MANAGEMENT
Mary Lynn Curran, VP, Clinical Risk Management Ken Felton, SVP, Senior Clinical Risk Management Consultant
July 14, 2009

1. ENTERPRISE RISK MANAGEMENT

2. SOMETIMES IT’S HARD TO REACT TO RISK!

3. COMPETING DEMANDS Competition for resources The level of exposure
Decision making and setting of priorities

4. TODAY’S GOAL
We will speak about LTC risk – and not necessarily INSURABLE risk
OUR challenge for today reflects YOUR challenge every day: Creating a framework to
Give each risk context and
Make each risk actionable
Even when there is no risk transfer option available

5. ERM IS ESSENTIAL TO EVERY BUSINESS
Lord Levene, Chairman of Lloyd’s of London wrote:
“But risk management is not simply about preparing for the worst. It’s also about realizing your full potential. With a clear understanding of the risks they face, businesses can maximize their performance and drive forward their competitive advantage”.
Levene, Lord; “Risk management is essential to every business”: Financial Times, October 17, 2006.

6. WHY CONSIDER UTILIZING THE ERM PROCESS
Connect business and risk management strategies
Determine full realm of risk exposure
Improve business plan execution
Monitor the effectiveness of enterprise actions

7. ENTERPRISE RISK MANAGEMENT PROCESS
Identify critical risks ?) – Whether insurable or not!!
Quantify their impact on organizational objectives
Develop and implement risk management strategies
Mitigate risk and maximize value

8. ENTERPRISE RISK MANAGEMENT
Helps the organization understand that risk can be viewed not only as just a threat, but as an opportunity

9. WHAT IS ENTERPRISE RISK MANAGEMENT?
ERM is a structured analytical process that focuses on identifying, quantifying, prioritizing and eliminating the financial impact and volatility of a portfolio of risks rather than on risk avoidance alone
Essential to this approach is an understanding that risk can be managed to gain competitive advantage1
1”Enterprise Risk Management”, Defining the concept, recognizing the value, ASHRM, January 2006, pg., 1.

10. RISK IDENTIFICATION
Goal: Capture all risks that could potentially affect the achievement of organizational objectives
How does this occur?
Surveys and questionnaires
Checklists
Flow charts
System analysis
FMEA
Brainstorming
Assessments based on records and experience
Results of audits, inspections or site visits

11. ENTERPRISE RISK MANAGEMENT
Four Areas of Focus
Financial Risk – Risks that effect the profitability, cash position, access to capital or external financial ratings through investments, business relationships or the timing of the recognition of revenue or expenses
Hazard Risk – Risks attributable to physical loss of assets or a reduction in their value, or injury to others or their property, including customers, employees or other business entities
Operational Risk – Risks to the conduct of the business operations that result from on-going or changes in business practices, use of resources, external regulations or requirements, inadequate or failed internal processes, people or systems
Strategic Risk – Risks to reputation, market position or ability to pursue strategic goals and objectives

12. FOUR QUADRANTS OF LTC ROUNDTABLE RISK
FINANCIAL
STRATEGIC
HAZARD
OPERATIONAL

13. RISK EVENT PRECIPITATING ENTERPRISING VALUE DROPS (# OF COMPANIES)
Mercer MC Research
Investigated risk factors behind the 100 largest one month drops in shareholder value among Fortune 1000 companies between
Found top 100 stock drops
Identified triggering event
Determined causes of triggering event
Categorized primary cause
Analyzed results and implications
% of top 100 24 12 7 6 4 2 1 11 3 5 10 15 20 25
Competitive
Misaligned
Loss of
R&D
Cost Overruns
Management
Foreign
High
Interest
Lawsuits
Natural
Pressure
Products
Key
Delays
ineffectiveness
Macro-
Input
Rate
Disasters
Customer
Economic
Commodity
Fluctuation
Issues
Price
Customer
M&A
Customer
Regulatory
Supplier
Accounting
Supply Chain
Demand
Integration
Pricing
Problems
Problems
irregularities
Issues
Shortfall
Problems
Pressure
Strategic
Operational
Financial
Hazard
58%
31% 6% 0%

14. FOUR QUADRANTS OF RISK FINANCIAL 6% STRATEGIC 58% HAZARD 0%
OPERATIONAL
31%

15. ENTERPRISE RISK MANAGEMENT PROCESS
Understand the organization’s business and strategic objectives
List all of the risks in the four specific areas of focus; financial, hazard, operational and strategic
Arrange risks by order of magnitude
Risks are quantified in dollars or order of magnitude
Severity of probability and frequency of loss (Risk Map)
Risks are defined as uninsured, partially insured or insured
What controls are in place to address the risks
Develop a Financial Exposure Snapshot – identifying what degree of risk the organization faces
Determine if the organization can do one of the following:
Avoid the risk
Transfer the risk
Retain and manage the risk
Identify what controls are in place to address each risk from 1) least risk control to 5) greatest risk control
Determine gaps and opportunities for improvement

16. THE RISK MAP MODEL Risk # Description Type of Risk Probability Impact
Score 1
Loss of state licensure
Legal and Regulatory 10 2
Failing a high profile joint venture
Financial, Strategic 9 81 3
Medication error
Operational 8 5 40 4
Manufacturer backlog fails
Technologic 20
Risk Priority
Critical = High = Medium = Low = 1-15
Adapted from the Housing Corporation. London (UK) [cited 2005 Dec 15] Risk Management Topic Paper No. 4; 2003 Apr.

17. THE RISK MAP MODEL 10 1 9 2 8 7 6 5 4 3 Catastrophic Moderate10 1 9 2 8 7 6 5 4 3
Catastrophic
Moderate
Insignificant
Impact
Not Likely
Likely
Almost Certain
Probability
Adapted from the Housing Corporation. London (UK) [cited 2005 Dec 15] Risk Management Topic Paper No. 4; 2003 Apr.

18. ENTERPRISE RISK MAP: PART ONE
HIGH
5 CAT LF HF HS HS 3 4
SEVERITY LF HF LS LS 1 2
LOW 0%
50%
100%
PROBABILITY OF OCCURRENCE

19. RISK EVALUATION
Beswick, Kelsey and Bloodworth, Jane: Housing Corporation “Risk Mapping – Dilemmas and Solutions”; Risk Management Topic Paper No. 4

20. Measurements – Defining Impact

21. Description/Type of Risk
THE ERM RISK MODEL
Risk #
Description/Type of Risk
Frequency
Impact
Severity
Controls
Score
Gap Interventions
Risk Priority
Frequency + Impact X Severity = Inherent Risk Score X Controls = Residual Risk Score

22. THE ERM RISK MODEL Risk # Description/Type of Risk Frequency Impact
Severity
Controls
Score 1
Falls with Injury/(H) (F) (S) (O) 5 3 23 2
Decreasing Occupancy Rate /(F) (S) (O) 4 30
Elopement /(F) (S) (O) 15
Inconsistent communication among a multi-facility organization / (F) (S) (O) (H) 19
Gap Interventions
Risk Priority
Frequency + Impact X Severity = Inherent Risk Score X Controls = Residual Risk Score

23. RISK CONTROL ASSESSMENT AND ACTION PLAN
Beswick, Kelsey and Bloodworth, Jane: Housing Corporation “Risk Mapping – Dilemmas and Solutions”; Risk Management Topic Paper No. 4

24. CONCLUSIONS:
There is no right or wrong way to implement Enterprise Risk Management within your organization
Enterprise Risk Management fosters communication among organizational departments
Experts believe Enterprise Risk Management must be:
Customized to the organization
Kept simple and understandable
Able to show immediate success
Understand and utilize the process to maximize your value in the organization