planning for the unknown - risk & opportunity management

OUR EXPERIENCE, YOUR SUCCESS

AusIndustry

AusIndustry Planning for the Unknown

Building risk management strategies in business

Presented by: Wayne Moloney

Partner, Inform Consulting Group

1 Copyright InForm Consul3ng Group 2013. All Rights Reserved.

A Different Kind of Planning


Business interrup3on – a threat to every business •  Planning is essen3al to stay in business •  Managing risks is the key

• Risk is a probability or threat of damage, injury, liability, loss or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action. •  www.businessdictionary.com

What Is Risk?

Opportunity and Risk

•  No venture or project is without risk

•  Some risks must be taken to achieve an acceptable ROI

•  Good risk management maximises opportunity for growth

Three Parts To The Problem

There are three elements of a business interrup3on:

1.  Normal business opera3ons are disrupted

2.  The disrup3on takes place during a defined period of 3me

3.  A financial impact or economic loss results from the disrup3on


Three Types Of Business InterrupAons

1.  Opera3onal Problems

2.  Natural Events 3.  Incited Events


SunGard Data Systems analysed their customers’ disaster declarations over a five year period.

56% resulted from Operational Problems

24% resulted from Natural Events

20% resulted from Incited Events

What we commonly call ‘disasters’ - natural events like earthquakes and floods, are in a minority as causes of business interruptions reported to SunGard. SunGard serves more than 20,000 customers in 50 countries so this information would be indicative of business interruptions worldwide

What Happens When The Lights

Go Out?


Trust A Plan, Not Your Luck


Cover Yourself With Insurance …and not just ‘normal insurance’

•  A specialised types of policy •  Compensates for money/profits you would have earned

•  Needs to be very specific •  Versa3le protec3on


Insurance Isn’t Enough

•  Risk management is part of the process

•  Iden3fy and analyse possible causes of loss

•  Choose best way to deal with poten3al for loss


Find and Manage Your Exposures •  Exposures need to be prevented or limited

Find your exposure

– What can go wrong and why?

–  Look closely at your opera3ons – What could cause business interrup3ons?

– What’s the poten3al loss?


Define the limits What is Your Risk AppeAte?

•  Understand how much risk you want to take

•  Consider both upper and lower thresholds

•  Good analysis highlights not enough as well as too much risk

•  Communicate to all stakeholders

•  Get the balance right •  Investment in risk minimisation –  V

•  Business losses

Ask The Right QuesAons


Your People Create Risk PotenAal!


Risk Management


Useful Risk Control Strategies

•  Eliminate an ac3vity •  Modify an ac3vity •  Restrict investment

•  Create and implement con3ngency plans •  Manage events

•  Respond to events


Analyse Risks

What are the rela3onships between:

•  LIKELIHOOD of a bad outcome

and

•  The CONSEQUENCES of the bad outcome


LIKELIHOOD

Priority Description Detailed Description 1 Remote The likelihood of this event occurring is assessed as very

remote 2 Possible It is possible that during the course of production this

event will occur at some stage 3 Almost certain This event will almost certainly occur during the course

of production


CONSEQUENCES

Priority Description Detailed Description

1 Minor If the event occurred it would have a minor impact on production or delivery

2 Moderate If the event occurred it would place production and or delivery in jeopardy

3 Major If the event occurred it would certainly mean either production to technical specifications would not be achieved, or delivery with time frames would not occur


Type Likelihood Impact Treatment New likelihood New impact

Machinery 3 3 Our machinery is old. Seek out and find new parts, and fix the back up machine

2 1

Staff 1 2 Staff may get sick Not a material problem, so we won’t do anything about this

1 2

Materials 3 2 Supplies delivered are sometimes wrong or inadequate quality. Re-negotiate the supply agreement highlighting concerns about quality. Make sure that the supplier takes responsibility for errors at his own cost

1 1

Ptime 2 2 Using normal shift might be risky. Increase work by one hour per day for first period, change maintenance program from once per week to twice per week

1 1

Dtime 3 1 Our supplies are sometimes late. Re-negotiate supply paying premium for delivery and financial penalties on supplier for late delivery.

1 1

Ctime 2 1 The contract may be optimistic. This is unlikely as the sales rep gave the production manager final say on the time frame – we don’t need to do anything

2 1


Treat

•  Iden3fy op3ons •  Rank preferred op3ons •  Select Ac3vity (Cost-‐effec3veness) •  Implement


There’s Money In Risk Management

•  Quality-‐control programme improves products and marketplace posi3on

•  Accident-‐preven3on programme ensures resources are put to best possible use

•  Agreements with lenders reduce likelihood of a cash flow crisis

•  Advice from professionals improves financial posi3on


Risk Management -‐ An Ongoing Process

•  Your business will change •  Your environment will change

•  New dangers will arise •  All risks need to be incorporated in planning


Summary

•  Business interrup3ons can put you out of business •  Insurance cover can be arranged – if you know what to insure against

•  Risk management should be an ongoing part of every business

•  Insurance + Risk management = Survival
