Risk Scorecard Making risk visible and actionable…. Brett Knowles CMA Foundation Thought Leader for Performance Measurement Performance Management Brett.Knowles@pm2Consulting.com © pm2Consulting.com

Our clients have been profiled by the Thought-Leaders Over the last 10 years, every book written by the founders of the Balanced Scorecard, Drs Kaplan and Norton have profiles our clients.

Four Clients have become Kaplan-Norton Hall of Fame Winners! Hall of fame Winner – 1999. Quadrupling of share price, Growth 30% above industry, exceptional customer and employee satisfaction. Hall of fame Winner – 2001. 8-Fold increase in share price, ground-breaking development of intangible asset measurement, exceptional stakeholder satisfaction. Drs Kaplan and Norton’s prestigious Hall of Fame award, presented by Kaplan & Norton to the best scorecards in the world. Hall of Fame Winner – 2004. Breakthrough performance results including average annual revenue growth of 20 percent, net income improvement from $19.4 million to $100.9 million. Datacraft Hall of fame Winner – 2011. In three years revenues grew 8%, productivity 8.5%, and profit 27%. Customer satisfaction is up 13% and employee engagement is up 12%.

Risk Scorecard’s Location in the e-MAGs Strategy 9) Strategic Management Practices 1) Strategy Model Performance Metrics 2) Balanced Scorecard Core Processes 3) Process Strategic Performance Analysis 6) Performance Dashboards 4) Strategic –Organization Design 8) Accountability & Compensation Process Improvement Initiatives 5) Initiative Strategic Performance Analysis 7) Process Improvement Management Risk Ledger 10) Risk Scorecard

The Risk Scorecard RISK ELEMENTS 1 2 3 4 5 6 7 8 A B C D STRATEGIC GOALS & PRIORITIES © pm2Consulting.com

The Risk Scorecard RISK ELEMENTS 1 2 3 4 5 6 7 8 A B C D STRATEGIC GOALS & PRIORITIES © pm2Consulting.com

The Risk Scorecard RISK ELEMENTS 1 2 3 4 5 6 7 8 A B C D STRATEGIC GOALS & PRIORITIES © pm2Consulting.com

The Risk Scorecard RISK ELEMENTS 1 2 3 4 5 6 7 8 A 10% B 50% C 20% STRATEGIC GOALS & PRIORITIES © pm2Consulting.com

The Risk Scorecard RISK ELEMENTS 1 2 3 4 5 6 7 8 A 10% B 50% C 20% STRATEGIC GOALS & PRIORITIES © pm2Consulting.com

What benefit would this offer your leadership team? The Risk Scorecard What benefit would this offer your leadership team? © pm2Consulting.com

Benefits to the Leadership Team Visibility of the risks Alignment around criticality of each risk Ability to focus on the few Actionable information © pm2Consulting.com

What benefit would this offer your Board? The Risk Scorecard What benefit would this offer your Board? © pm2Consulting.com

Benefits to the Board of Directors Confidence in the Leadership Team Visibility of risks Alignment and support with the Leadership Team Ability to focus on the few © pm2Consulting.com

What benefit would this offer your Investors? The Risk Scorecard What benefit would this offer your Investors? © pm2Consulting.com

Benefits to Investors Confidence in the Leadership Team Visibility of risks Ability to take risks into account when determining risk tolerance © pm2Consulting.com

If you could build this next week, would you? The Risk Scorecard If you could build this next week, would you? © pm2Consulting.com

Use case example © pm2Consulting.com

strategy © pm2Consulting.com

STRATEGIC RISK REGISTER The Overall Process STRATEGY RISKS STRATEGIC RISK REGISTER RISK SCORECARD © pm2Consulting.com

Frederick Industries Story Southwest has been using a scorecard since the early 90’s They are 4 times more profitable then the airline industry average There success has come from having a clear strategy and sticking to it – at all levels and all locations.

Frederick 5% 5% 3% 15% 4% 4% 16% 5% 10% 15% 6% 4% 6% 4% To be our customers’ supplier of choice by providing a quality product with exceptional service at a competitive price. v1 FINANCIAL F1: Profitable Growth F2: Low Cost Producer 5% 5% CUSTOMERS C1: Build Loyalty 3% C2: Low Price C3: Quality Product C4: Great Service 15% 4% 4% INTERNAL I1: Continuous Improvement 16% I2: Develop New Products I4: Anticipate Customer Needs I3: Improve Inventory Management 5% 10% 15% ENABLERS E1: Invest in Our People E2: Embrace Change E3:Promote a Safe Work Place E4: Leverage Technology 6% 4% 6% 4%

STRATEGIC RISK REGISTER The Overall Process STRATEGY RISKS STRATEGIC RISK REGISTER RISK SCORECARD © pm2Consulting.com

Risk categories © pm2Consulting.com

There are countless Frameworks… © pm2Consulting.com

Strategic risk assessment © pm2Consulting.com

Your Strategic Risk Assessment STRATEGY RISKS STRATEGIC RISK REGISTER RISK SCORECARD © pm2Consulting.com

Strategic Risk Analysis © pm2Consulting.com

Strategic Risk Analysis © pm2Consulting.com

Strategic Risk Analysis © pm2Consulting.com

Strategic Risk Matrix Low impact/Low probability – Risks in the bottom left corner are low level, and can often be ignored. Low impact/High probability – Risks in the top left corner are of moderate importance – if these things happen, you can cope with them and move on. However, you should try to reduce the likelihood that they'll occur. High impact/Low probability – Risks in the bottom right corner are of high importance if they do occur, but they're very unlikely to happen. For these, however, you should do what you can to reduce the impact they'll have if they do occur, and you should have contingency plans in place just in case they do. High impact/High probability – Risks towards the top right corner are of critical importance. These are your top priorities, and are risks that you must pay close attention to. © pm2Consulting.com

Risk scorecard © pm2Consulting.com

STRATEGIC RISK REGISTER The Risk Scorecard STRATEGY RISKS STRATEGIC RISK REGISTER RISK SCORECARD © pm2Consulting.com

Building the Risk Scorecard © pm2Consulting.com

Pulling in the Impact Estimates © pm2Consulting.com

Finding Leading Indicators Leading indicator of that aspect of risk occurring. In this example, a leading indicator of the ERP Implementation Failing on the Strategic Objective Profitable Growth might be: ERP Customer Profitability Roll-up vs. non-ERP roll-up ERP Revenue growth projections based on ERP numbers © pm2Consulting.com

Graphing the Impact Graphical representation of the leading-indicator’s projection of risk that is occurring with respect to that strategic objective. (Strategic Weighting) * (Impact) * (Leading Indicator Performance) © pm2Consulting.com

Understanding the Graphs Even though they both have a risk-impact of four and a poorly performing risk indicator, because C4 has a weighting of 4% it has a shorter bar-graph than I1 with a weighting of 16% © pm2Consulting.com

Looking at Each Risk Providing the Predictive Indicator for each risk is the sum of: (Strategic Weighting) * (Impact) * (Leading Indicator Performance) across all strategic objectives. © pm2Consulting.com

The Impact of Strategic Weighting © pm2Consulting.com

The Impact of Strategic Weighting © pm2Consulting.com

Key Risk Points © pm2Consulting.com

© pm2Consulting.com

Next steps © pm2Consulting.com

Next Steps 1. CMA Risk Scorecard 2. RiskScorecard.net © pm2Consulting.com

www.pm2Consulting.com To learn more, please go to Over 200 You Tubes and webinars on performance measurement and management © pm2Consulting.com