risk management at corporate level and strategic … business level enterprise risk management (erm)...
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Risk Management at Corporate Level and
Strategic Business Level
Enterprise Risk Management (ERM) Model
Business Strategy
Risk Strategy
Measuring & Monitoring
Risk Structure
Aligning ERM Resources and
actions with the business strategy is
necessary to maximize
organizational effectiveness
Corporate Structure
Corporate Entity
Legal Financial
Marketing Personnel
SBU (A) SBU (B) SBU (C) SBU (E) SBU (D)
Projects Projects Projects Projects Projects
Corporate Strategy Plan (CSP)
Johnson and Scholes (1999) believe that the plan is produced within the following objectives:
Create and maintain a strategy that achieves the corporate intent, corporate commitments and expectations of the customers, shareholders, and other stakeholders
Incorporate and maintain the commitments and the requirements of business sectors, specially SBUs and process owners that support the strategic direction
Communicate the strategic direction and relevant objectives and target to each SBU
Manage strategic change to maintain or gain competitive advantage
Corporate strategy is a portfolio of integrated business strategies that will deliver the corporate intent and are consistent with the financial investments or constraints facing the group
Increasing diversification within corporations gives the new problems to the senior manager:
1. How to manage a wide spread of businesses?
2. How to organize the corporation?
3. How much power should the organization delegate?
4. How is the scarce capital allocated between the diverse business?
5. The risk associated with each business and its management?
Board main roles
Houlden (1990):
1. To direct the company
2. to appoint the managing director/chief executive
3. To delegate the appropriate powers for running the company
4. To monitor the performance of the company
5. To take corrective action where necessary
Roles of Corporate Mission
Direction Point the organization in certain direction
Legitimization Convey to all stakeholders, on each level and outside the
company, what the organization is pursuing, and that these goals and objectives will add value to the company
Motivation Inspiring individuals and different levels of the organization to
work together in a particular way
Three important functions of addressed to corporate level
Forming Function To influence the forming of the corporate mission
Performance Function To contribute to the strategy process with the intention of
improving the future performance of the corporation
Conformance Function To ensure corporate conformance to the stated mission and
strategy
Key Corporate Strategy Components
Corporate Added Value Organizational
Scope
Corporate Parenting
Corporate Strategy
Three styles of corporate management
1. Strategic Planning
2. Strategic Control
3. Financial Control
Risk at Corporate Level (1)
Harley (1999) states that:
Risk is now beginning to be consolidated as a fundamental threat that runs through an organization’s entire
structure and a companies approach to risk is coming to be seen as just as important as its approach to
operations, finance, or any other basic corporate function. The way a company engineers its risk structure
is a fundamental part of corporate strategy
Risk at Corporate Level (2)
Managing corporate risk is a continuous process in which the main principle in risk management is used as identified by Thompson and Perry (1992):
1. Identification of risk/uncertainty
2. Analysis of implication
3. Response to minimum risk
4. Allocation of appropriate contingencies
Chapman and Ward (1997)
Risk Avoidance Cancel a project, move out of a market, sell off part of the corporation
Risk Reduction Acquisitions or mergers, move to the new market, develop a new
product/technology in existing market, business process re-engineering, corporate risk management policy
Risk Transfer Partnership, corporate policy on insurance
Risk Retention A positive decision to accept the risk due to the potential gain it
allows
GAP Analysis
GAP analysis involves identifying ways of closing the gap between the actual and the projected levels of performance, by:
1. Change the strategy
2. Add businesses to or delete them from the corporate portfolio
3. Change SBU political strategies
4. Change objectives
Business - Introduction
French and Saward (1983): Business is the activities of buying and selling goods,
manufacturing goods or producing services in order to make a profit
Collins English Dictionary (1995) Business is a commercial or industrial environment
Three essentials requirements for starting a business
1. The financial resources needed to support a business
2. A product or service that is wanted outside the business, and can be sold and
exploited by it
3. Sufficient people to operate the business
Strategic Business Unit (SBU)
Johnson and Scholes (1999):
SBU is a part of the organization for which there is a
distinct external market for goods and services
Langford and Male (2001):
Large firms will normally set up a strategic business unit.
It will have the authority to make its own strategic decisions within corporate guidelines that will cover a particular product, market, client, or geographic area
Strategic Linkages
A corporation without strategy is like an aero plane weaving through stormy skies,
hurling up and down, slammed by the wind, and lost in the thunderheads. If
lightning or crushing winds do not destroy it, it will simply run out of fuel
(Toffler, 1985)
Verway and Comninos (2002)
Strategic planning at the organizational level results in a set of ‘organizational imperatives’.
The business managers convert these into business strategies
Business strategies are in turn carried out through projects whose strategy is the ‘project approach or plan’
Business Strategy
Michael Porter believe an organization’s strategy is normally defined by four components:
1. Business scope
2. Resources utilization
3. Business synergy
4. Competitive advantage
Three fundamental characteristics of SBU’s strategic position
McNamee (1985):
1. Its market growth rate
2. Its relative market share in comparison with the market leader
3. The revenues generated from the product’s sales of the SBU’s activities
Programme Management
Central Computer and Telecommunication Agency (CCTA) (1994):
selection and planning of a portfolio of projects to achieve a set of business objectives; and the efficient execution of these projects within a
controlled environment such that the realize maximum benefit for the resulting business operation
Reiss (2000)
The effective implementation of change through multiple projects to realize distinct and measurable benefits for an organization
Lockitt (2000)
Set of management activities and processes which facilitate the translation, conversion, prioritization, balancing and integration of new strategic
initiatives within the context of the current organization and planned time and cost constraints, thereby minimizing risk and maximizing benefit to
the organization
Key components of programme management (1)
PROJECTS
Performance Analysis & Reporting
Organizational Arrangements
Requirements Management
Financial Management
Resource Management
Risk Management
Contract Management
Quality Management
Timeline Management
Procurement Management
Key components of programme management (2)
Organizational arrangements
defining and maintaining the programme management environment
Requirements management
keeping track of the requirements and changes to the requirements
Financial management
the policies, procedures, practices, techniques and tools necessary to establish and maintain effective financial planning and reporting
Resource management
The direction and co-ordination of all resources throughout the programme’s life cycle
Key components of programme management (3)
Risk management
systematic identification of, analysis of and proactive response to risks, issues and problems, both real and anticipated, throughout the programme’s life cycle
Contract management
the organizational, procedural and functional tasks, policies and practices for the day-to-day handling of commercial, legal, administrative and monetary considerations of the contracts between the programme and its suppliers
Procurement management
acquisition of purchased services and labor, goods, physical plant and equipment, operational equipment, raw material, component finished parts and equipment, and software for the programme
Key components of programme management (4)
Timeline management
the guidelines, techniques, knowledge and tools required to develop and maintain appropriate allocations of time and effort throughout all phases of the programme’s life cycle
Quality management
the composite of technical and managerial standards, procedures, processes and practices necessary to empower and provision each person fully to accomplish and exceed the mission, objectives, needs, requirements and expectations for which the programme was establish
Performance analysis and reporting
disciplines, techniques, tools, and systems necessary and adequate to establish and maintain programme performance analysis and reporting throughout the life cycle of the programme