1. Insights – Risky Business

2. Risk ………a journey into the unknown!
April 19

3. Assessing risk Risk assessment is important to businesses of ALL sizes
Recent business catastrophes
Typical assessment process
Identifying Risks - don’t focus on the trivial – make it real!
Risk process example
Risk mapping
Outcome of example
Workshop, presentations back to group and discussions
Conclusions
April 19

4. Why do you think we should bother assessing risk?
What is risk?
Why do you think we should bother assessing risk?
April 19

5. Risk assessment is important to businesses of ALL sizes
The business world is volatile, subject to more regulation, and becoming more complex which means that it is fraught with risk
Risk assessment is a mechanism for identifying pitfalls and opportunities
Risks can be anticipated before they arise and actions put in place
Forms the foundation for an effective Enterprise Management Programme (ERM) which can be reviewed regularly, offer insights, help the business achieve its objectives and prepare it for lasting success
BUT it needs to be tailored to the organisation
April 19

6. Recent business catastrophes
Tesco, Findus, Lidl, Iceland, Aldi
Shame on you BP!
IT failure at RBS/NatWest resulted in some re-payments taken out of borrowers’ accounts twice
April 19

7. Typical assessment process
Step 1
Identify
relevant business objectives
Step 2
Identify, describe and document risks
that could affect success
Step 3
Estimate the
Impact and likelihood of risks
Step 4
Evaluate the
portfolio of risks and
determine
risk responses
Step 5
Assess
residual
Likelihood and Impact of risks - proceed/not proceed
Define risk tolerance
April 19

8. Identifying risks - Need to take internal and external risk factors into consideration
External Risk Factors (Examples)
Internal Risk Factors (Examples)
Availability of Customers
Strategic
Changing markets
Operational
Degree of Competition
Compliance
Political Arena
Financial health
Environmental
Market risk (Could be currency exchange if operating offshore)
Social media (Twitter, FB etc.)
Credit risk – offering customers credit
Technological changes
Customer profiles
Legal
Supply chain risk
Economic
Product risk
IT and Security
Human Resources (talent, availability etc.)
Reputation - Brand
April 19

9. Focus on real risks not trivial!
April 19

10. Process example: NPD – cooker
Identified Risk
Likelihood
of Occurrence
Impact
Category
Category Coding for Mapping
The final quality of the product poor
Low
High
Product P1
Failure to follow customers needs/wants
Customers C1
Changing health and safety regulations for cookers
Medium
Compliance R1
Cost of raw materials
Financials/Profit F1
Reactions of competitors
Sales S1
Availability of skilled workforce
Resources
HR1
Supply chain network – many suppliers/providers
Operations O1
Many providers overseas companies – adverse actions by their Governments
Macro-environment E1
Changes in economic conditions E2
Exchange rate fluctuations F2
April 19

11. Evaluate portfolio of risks - mapping
April 19

12. Outcome of risk assessment (for NPD – cooker example)
Consider actions to mitigate risks
Re-evaluate residual risk
Determine whether to proceed/not proceed
April 19

13. Practical – Workgroups
Using your scenario and choosing the borrower/s and stakeholders, evaluate the potential that the borrower/s will fail to meet the obligations in accordance with the terms
Identify and consider all the risks inherent to the business, as well as the risk in individuals (typically performed by credit risk specialists)
Determine an overall risk score (1- 5, 1= Low, 5 = High)
Score 6 if you wouldn’t lend
Would you lend?
Prepare presentations and report back to group with reasons for decision
April 19