Posted tagged ‘Enterprise Risk Management’

ERM is not the End, It is the Means

June 9, 2015

As RISKVIEWS meets with more and more insurers over time, it becomes increasingly obvious that they all have lots of Risk Management.  Probably because they are the survivors.  Perhaps there was much less Risk Management in the failed insurers.

So if they already have Risk Management, why do they need ERM? 

There are four possible reasons:

  1. Discipline -the sports teams with the most discipline win most championships.  The coach can count on the players to execute the same way every time.  In Risk Management, Discipline means doing the risk acceptance and risk mitigation the same way every time.  ERM expects that discipline, but ERM operates on a trust but verify approach.  Perhaps leaning more on the verify than the trust.  So when an Insurer adds ERM to its already pretty full Risk Management processes, they are opting for Risk Management that is totally reliable because it has discipline.
  2. Transparency -much of the existing Risk Management in an insurer is a fairly private affair.  It is done by the folks who need to be doing it but they rarely talk about it.  When ERM comes along, it seems that the number of reports goes up.  Some of those reports are of absolutely no help to the folks who are doing Risk Management.  Those reports are to let everyone else know that the Risk Management is still going on and things in the Risk Management world are still working as expected.  In one sense, Risk Management is all about making sure that some things rarely or never happen.  This Transparency about the actions that result with that nothing happening are the records that need to be kept for the defense of the Risk Manager as well.
  3. Alignment – most of existing Risk Management grew up as the insurer grew up.  That is a good thing because the Risk Management can be totally incorporated into all practices.  But one of the main goals of Risk Management is to make sure that the risks that are insufficiently managed do not disrupt the plans of the company.  The key element to that process is a Risk Tolerance.  With ERM, the Risk Tolerances can be Aligned with the current plans, not with the plans and tolerances of the managers at the time that an activity was first started or last overhauled.
  4. Resiliency – system resilience is not a usual part of traditional Risk Management.  Traditional RIsk Management is most often about defending the status quo.  Resilience is all about figuring out how best to adapt.  Within ERM is a process called Emerging Risks Management.  Emerging Risks Management is all about preparing for the risks that are definitely not yet banking on the door.  They may be far down the road or around the bend.  Emerging Risks Management is an exercise process that builds Resilience Muscles.

Those are the Ends.  ERM is the means to get to those ends.

Out of Sight can lead to Out of Mind

February 12, 2015

Once you have outsourced a process, there is a tendency to forget about it. 

Outsourcing has become possibly the most popular management practice of the past 15 years.  Companies large and small have outsourced many of the non-essential elements of their business.

Many property and casualty (non-life, general) insurers have, for example, outsourced their investment processes.

Over time, if the insurer had any expertise regarding investments, that expertise withered away.  It is quite common that there is only one or two people at a P&C insurer who actually pay any attention to the investments of the firm.

But when Out of Sight becomes Out of Mind, outsourcing becomes dangerous.

Boeing had an outsourcing problem in 2012 and 2013 that resulted in the grounding of their latest jetliner.  Batteries produced by a third party were catching fire.  The ultimate cause of the problem was never identified, but it happened at the point of connection between an outsourced product and the jetliner systems manufactured by Boeing.

There are many possible causes of outsourcing problems.  RISKVIEWS believes that primary among them is the reluctance to recognize that outsourcing will require a higher spend for risk management of the outsourced process.

More on Outsourcing Risk at

How to Build and Use a Risk Register

December 18, 2014

From Harry Hall at

Project managers constantly think about risks, both threats and opportunities. What if the requirements are late? What if the testing environment becomes unstable? How can we exploit the design skills of our developers?

Let’s consider a simple but powerful tool to capture and manage your risks – the Risk Register. What is it? What should it include? What tools may be used to create the register? When should risk information be added?

The Risk Register is simply a list of risk related information including but not limited to:

  • Risk Description. Consider using this syntax: Cause -> Risk -> Impact. For example: “Because Information Technology is updating the testing software, the testing team may experience an unstable test environment resulting in adverse impacts to the schedule.”
  • Risk Owner. Each risk should be owned by one person and that person should have the knowledge and skills to plan and execute risk responses.
  • Triggers. Triggers indicate when a risk is about to occur or that the risk has occurred.
  • Category. Assigning categories to your risks allows you to filter, group, analyze, and respond to your risks by category. Standard project categories include schedule, cost, and quality.
  • Probability Risk Rating. Probability is the likelihood of risk occurring. Consider using a scale of 1 to 10, 10 being the highest.
  • Impact Risk Rating. Impact, also referred to as severity or consequence, is the amount of impact on the project. Consider using a scale of 1 to 10, 10 being the highest.
  • Risk Score. Risk score is calculated by multiplying probability x impact. If the probability is 8 and the impact is 5, the risk score is 40.
  • Risk Response Strategies. Strategies for threats include: accept the risk, avoid the risk, mitigate the risk, or transfer the risk. Strategies for opportunities include: accept the risk, exploit the risk, enhance the risk, or share the risk.
  • Risk Response Plan or Contingency Plan. The risk owner should determine the appropriate response(s) which may be executed immediately or once a trigger is hit. For example, a risk owner may take immediate actions to mitigate a threat. Contingency plans are plans that are executed if the risk occurs.
  • Fallback Plans. For some risks, you may wish to define a Fallback Plan. The plan outlines what would be done in the event that the Contingency Plan fails.
  • Residual Risks. The risk owner may reduce a risk by 70%. The remaining 30% risk is the residual risk. Note the residual risk and determine if additional response planning is required.
  • Trends. Note if each risk is increasing, decreasing, or is stable.

The Risk Register may be created in a spreadsheet, database, risk management tool, SharePoint, or a project management information system. Make sure that the Risk Register is visible and easy to access by your project team members.

The risk management processes include: 1) plan risk management, 2) identify risks, 3) evaluate/assess risks, 4) plan risk responses, and 5) monitor and control risks.

The initial risk information is entered when identifying risks in the planning process. For example, PMs may capture initial risks while developing the Communications Plan or the project schedule. The initial risk information may include the risks, causes, triggers, categories, potential risk owners, and potential risk responses.

As you evaluate your risk in the planning process, you should assign risk ratings for probability and impact and calculate the risk scores.

Next, validate risk owners and have risk owners complete response plans.

Lastly, review and update your risks during your team meetings (i.e., monitoring and control). Add emerging risks. Other reasons for updating the risk register include change requests, project re-planning, or project recovery.

ERM: Who is Responsible?

November 7, 2014


The Board is Responsible.

The CEO is Responsible.

Top Management is Responsible.

The CRO is Responsible.

The Business Unit Heads are Responsible.

The CFO is Responsible.

And on and on…

But this sounds like a recipe for disaster.  When everyone is responsible, often no one takes responsibility.  And if everyone is responsible, how is a decision ever reached?

Everyone needs to have different responsibilities within an ERM program.  So most often, people are given partial responsibility for ERM depending upon their everyday job responsibilities.

And in addition, a few people are given special new responsibilities and new roles (usually part time) are created to crystallize those new roles and responsibilities.  Those new roles are most often called:

  • Risk Owners
  • Risk Committee Members

But there are lots and lots of ways of dishing out the partial responsibilities.  RISKVIEWS suggests that there is no one right or best way to do this.  But instead, it is important to make sure that every risk management task is being done and that there is some oversight to each task.  (Three Lines of Defense is nice, but not really necessary.  There are really only two necessary functions – doing and assurance.)

To read more about a study of the choices of 12 insurers &

Risk Culture, Neoclassical Economics, and Enterprise Risk Management

September 22, 2014

Pyramid_of_Capitalist_System copyFinancial regulators, rating agencies and many commentators have blamed weak Risk Culture for many of the large losses and financial company failures of the past decade. But their exposition regarding a strong Risk Culture only goes as far as describing a few of the risk management practices of an organization and falls far short of describing the beliefs and motivations that are at the heart of any culture. This discussion will present thinking about how the fundamental beliefs of Neo Classical Economics clash with the recommended risk practices and how the beliefs that underpin Enterprise Risk Management are fundamentally consistent with the recommended risk management practices but differ significantly from Neo Classical Economics beliefs.

Risk Culture and Enterprise Risk Management (1/2 Day Seminar)

September 2, 2014

Afternoon of September 29 – at the ERM Symposium #ERMSYM

Bad risk culture has been blamed as the ultimate source of problems that have caused gigantic losses and corporate failures in the past 10 years. But is that a helpful diagnosis of the cause of problems or just a circular discussion? What is risk culture anyway? Is it a set of practices that a company can just adopt or does culture run deeper than that? How does risk culture vary between countries and continents? How do risk cultures go bad and can they be fixed? This is, of course, a discussion of the human side of Enterprise Risk Management. 

This half-day seminar (1 – 4:30 p.m.) will draw together materials from business organizational theorists, anthropologists, regulators, rating agencies, investors, corporations, insurers and auditors to help define risk culture and diagnose problem causes. The objective is to provide the attendees with multiple perspectives on risk culture to help them to survive and thrive within the potentially multiple risk cultures that they find themselves operating alongside – or against. In addition, the speakers will draw upon their own experiences and observations to provide a number of practical examples of how risk cultures can and do go wrong. This discussion may help you to identify the signs of devolving risk culture if they start to appear in your organization. Finally, the difficult topic of fixing a bad risk culture will be discussed. That part of the discussion will help attendees to attain a realistic perspective on that extremely difficult process. 

The seminar will be presented by three speakers from very diverse backgrounds. Andrew Bent, Risk Coordinator for Suncor Energy Inc. has also worked in multiple levels of government in New Zealand and Canada. Bent has co-authored several articles and papers on strategic risk assessment and the use of root cause analysis in risk management. Carol Clark is Senior Policy Advisor at the Federal Reserve Bank of Chicago where she has most recently been focused on operational risk issues associated with high speed trading. Her research has been published in the Journal of Payment Systems Law, the Federal Reserve Bank of Chicago’s Chicago Fed Letter and Economic Perspectives as well as Euromoney Books. Dave Ingram is Executive Vice President at Willis Re where he advises insurers on ERM practices. Ingram has worked extensively with both Life and Property and Casualty insurers on various aspects of risk management over the past 30 years. He has recently co-authored a series of articles and papers on risk culture and has had a number of experiences with the risk cultures of over 200 insurers.

Andrew Bent, ARM-E, ARM-P, CCSA, CRMA, Risk Coordinator, Suncor Energy
Carol Clark, Senior Policy Advisor, Federal Reserve Bank of Chicago 
David Ingram, CERA, PRM, EVP, Willis Re


The History of Risk Management

August 28, 2014

Please find a new permanent page on RISKVIEWS – The History of Risk Management.  It is a simple list of major historical events that are important to Risk Management and ERM as it is practiced today.  This list was compiled with the help of INARM

Risk Management development has not followed a particularly straight line.  Practices have been adopted, ignored, misused.  Blow up have happened.  Some of those blow ups are mentioned on another page in RISKVIEWS – Risk Management Failures

But Risk Managers have learned from those blow ups and the next generation of Risk Management programs incorporated those learnings. 

The most important thing to know about risk management that we have learned from history is that risk management must be practiced in earnest.  No amount of good talks or fancy charts will take the place of roll up your sleeves and do it risk management.  Promoting that sort of Risk Management is the objective of this Blog. 




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