1. MOHSG Nov 2005 CHALLENGING BOUNDARIES The Risk Management Standard Jeff Roycroft Risk Manager Northern & Central Europe Rhodia UK Limited

2. MOHSG Nov 2005 CHALLENGING BOUNDARIES 2 Agenda What is risk? Define risk management Standard structure Examples of use Summary Questions.

3. MOHSG Nov 2005 CHALLENGING BOUNDARIES 3 Definition of risk Risk defined as the combination of the probability of an event and its consequences In the safety field, risk is generally regarded as negative Risk management focus on prevention and mitigation of harm.

4. MOHSG Nov 2005 CHALLENGING BOUNDARIES 4 Definition of risk The RM Std considers risk as: Potential for opportunities (upside) Threats (downside) Risk as uncertainty The standard has a loss bias.

5. MOHSG Nov 2005 CHALLENGING BOUNDARIES 5 Risk management Central to strategic management Process of addressing risks attaching to their activities Goal of achieving sustained benefit within each activity and across the portfolio of all activities.

6. MOHSG Nov 2005 CHALLENGING BOUNDARIES 6 Risk management Fragmentation Health & safety Insurance Financial Corporate governance.

7. MOHSG Nov 2005 CHALLENGING BOUNDARIES 7 Risk drivers Internally driven FinancialHazardOperationalStrategic Externally driven

8. MOHSG Nov 2005 CHALLENGING BOUNDARIES 8 Background Standard prepared by 3 leading UK risk bodies: The Institute of Risk Management (IRM) The Association of Insurance and Risk Managers (AIRMIC) ALARM - The National Forum for Risk Management in the Public Sector.

9. MOHSG Nov 2005 CHALLENGING BOUNDARIES 9 Background Aims was to standardise risk management in terms of: Terminology and words used The risk management process Organisation structure for risk management Risk management objectives Implicitly to bring RM ‘under one roof’.

10. MOHSG Nov 2005 CHALLENGING BOUNDARIES 10 Risk management process

11. MOHSG Nov 2005 CHALLENGING BOUNDARIES 11 Risk management process

12. MOHSG Nov 2005 CHALLENGING BOUNDARIES 12 Risk assessment Assuming a high level of knowledge Identify risks Describe risks Estimate risks.

13. MOHSG Nov 2005 CHALLENGING BOUNDARIES 13 Risk evaluation Evaluate to determine how to treat: Anticipate Eliminate Reduce Control Transfer Retain (with knowledge).

14. MOHSG Nov 2005 CHALLENGING BOUNDARIES 14 Reporting, treatment & monitoring Internal reporting for decision making e.g. via audit committee External reporting for information via annual reports. Decide how to treat Implement measures Determine residual risk Monitor effectiveness.

15. MOHSG Nov 2005 CHALLENGING BOUNDARIES 15 Some case studies

16. MOHSG Nov 2005 CHALLENGING BOUNDARIES 16 The importance of good risk management General Motors Health care for retirees Huge liabilities May be forced into bankruptcy protection in 2006 Once the world’s largest company Ford is not far behind Risk management solution Consideration of future impacts Should not be a surprise GM retained a risk w/o knowledge.

17. MOHSG Nov 2005 CHALLENGING BOUNDARIES 17 The importance of good risk management Nokia vs Ericsson Fire at Phillips chips plant in USA Key supplier for both companies Phillips reassurance over disruption Nokia aggressively sought alternative suppliers Ericsson waited until it was too late Disruption was serious after all Nokia became world leader Risk management Nokia had a superior business continuity plan.

18. MOHSG Nov 2005 CHALLENGING BOUNDARIES 18 The importance of good risk management Pfizer Developed a drug to treat angina ‘Interesting’ side effects Drug developed and marketed for another type of patient Its name? Viagra Risk management Pfizer were able to capitalise on an unexpected opportunity.

19. MOHSG Nov 2005 CHALLENGING BOUNDARIES 19 The importance of good risk management Apple Sony world leaders in portable music players Managed transition from tape to CD Sony missed the download revolution Apple quickly cornered the market with the iPod Sales of $2.9bn Q1 2005 Risk management Apple anticipated the shift to downloads Had a plan should Sony stumble.

20. MOHSG Nov 2005 CHALLENGING BOUNDARIES 20 Closing thoughts Source of sustainable competitive advantage Differentiate from competition Difficult for ‘mature’ products & services Consider internal processes.

21. MOHSG Nov 2005 CHALLENGING BOUNDARIES 21 Summary Risk management is important Currently a fragmented discipline The RM std brings it all under one roof Methodology as a philosophy rather that an ISO type standard Not a panacea Must select correct treatment options If used very well can differentiate from competition.

22. MOHSG Nov 2005 CHALLENGING BOUNDARIES 22 Questions