1. How to embed risk management
as a strategic activity?
Facilitator:
Tjerk van Dijk – Stork/Fokker
Presenters:
Claes Mårtenson – Solvay
Cédric Lenoire – FM Global
•1

2. Solvay – 150 Years
Our strengths:
€12.4bn
NET SALES
• 90% of sales in businesses among the
top 3 global leaders
€2.1bn
•  40% of sales in fast growing markets
Adjusted REBITDA
• Balanced portfolio of activities
111
• A culture of sustainability, innovation
and operational excellence
MAJOR
INDUSTRIAL SITES
13
A major global player in
Chemicals with
compelling strengths
Created by Ernest Solvay in 1863, Solvay
is a Global company, with historical
anchorage in Europe,
and headquartered in Brussels.
MAJOR Research &
Innovation SItes
29,100
EMPLOYEES
55 COUNTRIES
2

3. FM Global – 177 Years

Leading commercial property insurer

Expert in underwriting, loss prevention
engineering and risk management services

Mutual Ownership

Our philosophy:


The majority of losses are preventable
When you’re resilient, you’re in business
3

4. Agenda
1.
2.
3.
4.
5.
Context
Examples
ERM in Solvay
Executive Support
Embedding Risk Management Tips
 Risk Management in Strategy
 Strategy in Risk Management
4

5. Agenda
1.
2.
3.
4.
5.
Context
Examples
ERM in Solvay
Executive Support
Embedding Risk Management Tips
 Risk Management in Strategy
 Strategy in Risk Management
5

6. Strategy and Growth
Risk is good!
« Risk taking is part and parcel of entrepreneurship and
business: no risk, no reward.
(…)
Whatever strategy a company chooses, each course of
action comes with its own rewards and risks.
(…)
Good risk management does not imply avoiding all risks at all
cost.»
from Risk appetite, The strategic balancing act, Ernst & Young 2010
6

7. Risk Management Should not
Hold you Back
“They don’t put brakes in race cars
so they can go slower;
They put brakes in race cars
so they can go faster.”
Al Unser, 4 times Indianapolis 500 winner
Enterprise Risk Management
helps a company go faster and
stay on the road
Source Franck Baron, ex. Firmenich Risk Manager
7

8. Embedded Risk Management
10 000 years ago…
Objectives:
Survive,
Find Food (for clan),
Create safe shelter
Opportunities:
New areas with
more food,
Better caves
Risks:
Starvation,
Other clans,
Animals,
Weather
Risk Management tools:
Brain,
Muscles,
Club,
Other clan members
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9. Agenda
1.
2.
3.
4.
5.
Context
Examples
ERM in Solvay
Executive Support
Embedding Risk Management Tips
 Risk Management in Strategy
 Strategy in Risk Management
9

10. Thailand…
Thailand Floods 2011 Estimated Losses:
4th costliest disaster ever
$45-50 billion economic losses
Up to 80% supply chain-related
10

11. Thailand…
Market analyst:
“Seagate stands to make the most out of
the crisis by gaining market share at the
expense of Western Digital ”
11

12. Another Example…
This Time in Japan…
12

13. Texas Instrument Vs. Intel
 Both companies are part of Fortune 500
 Both companies:
• make electronic equipment
• have products that rely on computer processors
• have a critical reliance on semi-conductors
• have a critical reliance on BT Epoxy & Silicon Wafers
 Texas Instrument awarded “Manufacturer of the year for
global supply chain excellence” by World Trade Magazine
 Intel is the largest global supplier of computer processors
13

14. Press Releases – Q2 2011
 Texas Instrument :
 Delay in moving production to alternate factories
 Insufficient existing inventory
 Lack of availability of critical raw materials
 Intel:
 “The current crisis in Japan will not disrupt processor production”
 “Nothing is sole-sourced”
 “BCPs have been activated to ensure no material loss of
production”
14

15. Impact on Share Price
Japan Earthquake.
11/03/2011
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16. What Have We Learnt From
These Events?
 Businesses can gain competitive advantage & market
share from good risk management practices
 Risk management is most effective when embedded
within the culture
 Strategy and risk management must be linked
 Strong commitment from Senior management is
essential
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17. Agenda
1.
2.
3.
4.
5.
Context
Examples
ERM in Solvay
Executive Support
Embedding Risk Management Tips
 Risk Management in Strategy
 Strategy in Risk Management
17

18. Efficient use of resources
Solvay’s Strategy is based on
Megatrends …
Urbanization
Climate change
Demograhic
change
Globalization
…with opportunities & risks
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19. For Our Sustainable Growth, Solvay
needs Enterprise Risk Management!
Motto:
Protecting the value the business creates
Mission:
To support Solvay’s sustainable growth we promote systematic
Enterprise Risk Management and we manage advanced insurance
solutions so Solvay can take smart risks
19

20. The ERM Process FERMA framework
– systematic – used by Solvay
•Risk Assessment
Risk Analysis
Risk Identification
Risk Description
Risk Estimation
Risk Evaluation
Risk Reporting
Threats and Opportunities
Decision
Risk Treatment
Objectives
Risk Analysis
FORMAL AUDIT
MODIFICATION - improvement
The Organisation’s
•Strategic Objectives
Risk Reporting
Decision
Risk reduction
Residual Risk Reporting
Monitoring
Monitor / Respond / Prepare
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21. Look in all directions
Solvay’s 10 Risk Categories Model
1. Market & Growth – Strategic Risk
2. Supply Chain and Manufacturing Risk
3. Regulatory, Political and Legal Risk
4. Corporate Governance and Risks attached to Internal Procedures
5. Financial Risk
6. Product Risk
7. Risk to People
8. Environmental Risk
9. Information and IT Risk
10.Reputation Risk
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22. Five Enterprise Risk Management
Focus Areas for GS ERM & Insurance
The largest risks
for the Group
Group
Risks
Promote a
risk management Coaching,
approach and culture Training
Plants – fire, natural hazards.
To maintain production flows
and profitability
Risk
Profiling
Risk Analysis on strategic
plan + Actions to reduce
risks
GS ERM
&I
Property
Loss
Prevention
Internal
Control
Risk analysis along a
Business Process leading
to Controls
22

23. ERM in the Strategy Process
Template Slide
OCCASIONAL/
LIKELY
●1
●2
REMOTE/
UNLIKELY
●3
●5
●4
VERY REMOTE/
VERY UNLIKELY
PROBABILITY
VERY LIKELY
The Largest risks from Risk Profiling on <date>
D
C
B
A
LARGEST RISKS and MITIGATION ACTIONS
Risk
Action Plan - actions taken to reduce or
mitigate the risk
1. Failure
of R&I
project
Phoenix
2:No-Go
to new
Thai
plant
SEVERITY
…
List the 5-10 largest risks from the
…
Risk Profiling applied on the Roadmap
…
Be specific about the actions - What
is being done beyond the actions
before the Risk Profiling? What is
done differently?
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24. Healthcare Risk Management
compared to FERMA ERM framework
The Organisation’s
•Strategic Objectives


Identify – Map products to final applications in
food, feed and healthcare
Quantify – Risk Profiling method
Assess – Risks, Standards (in or out), Toxicology


Risk Reporting - Continuous
Decision – BU Management for new products/new
applications

Risk Treatment includes action plans




to reduce risk
to manage market opportunities
to stop selling
Monitoring – Regulatory watch,
New product/application pairs
•Risk Assessment
Risk Analysis
Risk Identification
Risk Description
Risk Estimation
Risk Evaluation
FORMAL AUDIT

MODIFICATION - improvement
Objectives: Avoid injury and Improve Solvay sales!
Risk Reporting
Threats and Opportunities
Decision
Risk Treatment
Residual Risk Reporting
Monitoring
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25. Turning Risk into Opportunity
and applying the ERM FERMA
Framework Solvay Example Implants
 Solvay had a policy to stop sales if end application was an implant!
 Solvay had polymer material that was used in the implants
industry.
 Applying “Healthcare Risk
Management” helped to turn
the risk into an opportunity!
 Policy changed 180 degrees.
 Solviva product area uses Risk
Management integrated in business/
Risk Profiling, research,
toxicology and
qualification of customers
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26. Agenda
1.
2.
3.
4.
5.
Context
Examples
ERM in Solvay
Executive Support
Embedding Risk Management Tips
 Risk Management in Strategy
 Strategy in Risk Management
26

27. Why Securing Executive Support?
 Strategic risk management can only be implemented with
strong senior management support
 Risk managers must demonstrate how critical risk
management is to maintain and enhance the strengths
and competitiveness of the organisation.
27

28. Connecting the dots…
 What Senior Executives typically care about:
 Competitive advantage
 Strong financial performance
 Shareholder value enhancement
 Anything else that make them look good….
 What Risk managers should typically care about:
 Competitive advantage
 Strong financial performance
 Shareholder value enhancement
 Anything else that make their bosses look good….
28

29. What risks keep Executives awake at night?
Aon Global Risk Management Survey 2013
1. Economic slowdown / slow recovery
2. Regulatory / legislative changes
3. Increasing competition
4. Damage to reputation/brand
5. Failure to attract or retain top talent
6. Failure to innovate / meet customer needs
7. Business interruption
8. Commodity price risk
9. Cash flow/Liquidity risk
10. Political risk / uncertainties
29

30. Quote of the Day…
“ If you think safety is expensive,
try an accident”
Stelios Haji-Ioannou
CEO-EasyJet
30

31. Agenda
1.
2.
3.
4.
5.
Context
Examples
ERM in Solvay
Executive Support
Embedding Risk Management Tips
 Risk Management in Strategy
 Strategy in Risk Management
31

32. TIPS: Define Risk Appetite with
Exec. Committee & Board
 Level of risk that an organization is
prepared to accept
 Appropriate risk appetite will depend on
the nature of the business and objectives
pursued
 Precise measurement is not always
possible:
 Risk appetite statement qualitative, approach
 An organisation may have an appetite for
some types of risk and be averse to
Good Reading on Risk Appetite
others
http://www.theirm.org/publications/documents/IRMRiskAppetiteFullweb.pdf
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33. What are the risks here?
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34. TIPS: Proposed Methodology to
Understand the Business
Specific financial
quantifications:
• Prioritize business
drivers
• Comprehensive,
objective
measurements
Identify business drivers,
relationships and recovery
capabilities:
• Locations
• Processes
• Unique/Multiple
Suppliers
Leverage risk analysis
data:
• Scenarios
• Recovery times
• Prioritize recs
• Comprehensive view of
financial and physical
risk
34

35. TIPS: Implement solutions
Operational
Resilience
Risk
Improvement
Business
Continuity
Management
Risk Transfer
 Successful business models are naturally resilient.
 The majority of losses are preventable.
 Maintain market share, reputation and good
relationships to all stakeholders.
 Transfer residual exposure.
 Use risk transfer in a business savvy way.
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36. TIPS: ERM Roadmap
1.
2.
3.
4.
Get/Maintain Top Management Support!
Understand Company culture, objectives, strategy
What risks keep Executives awake at night?!
Use the standard Risk Management Process
to develop a Vision and a Policy
5. Identify and Develop Tools that fit your Company
6. Develop an ERM Implementation Plan
7. Develop a first Company Risk Profile
8. Integrate ERM in the Strategy Process
9. Develop Opportunity Management
10. Work closely with other departments and Group projects
and COMMUNICATE!
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37. In Summary…
 Risk is Good! It is in the DNA of
successful organisations
 Executive Support is essential to embed
risk management in the strategic
orientations of the company
 Risk Managers increasingly play a key role
in the success of their companies once they
manage to influence the corporate culture
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38. Please do not try this at home…
Thank you!
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