©2005 Risk management - a tool to achieve success Nina Kukuskina Aon Latvia, CEO.

©2005

Risk management - a tool Risk management - a tool

to achieve successto achieve success

Nina KukuskinaNina KukuskinaAon Latvia, CEOAon Latvia, CEO

©2005

AonAonAon is a Fortune 500 company, based in ChicagoAon is a Fortune 500 company, based in Chicago

Listed in NY and London; Listed in NY and London; 53,000 employees in 120 countries53,000 employees in 120 countries

World leaders in insurance broking and risk managementWorld leaders in insurance broking and risk management

o In 1983 Aon set up a commercial property specialisation In 1983 Aon set up a commercial property specialisation o Aon European real estate group set up in 1999, now has 80+ Aon European real estate group set up in 1999, now has 80+

specialist staff, based in UK, Belgium, Chech Republic, Poland, specialist staff, based in UK, Belgium, Chech Republic, Poland, Hungary, France, Germany, Italy, Netherlands & Spain, Baltic Hungary, France, Germany, Italy, Netherlands & Spain, Baltic countries countries

o Corporate member of FIABCI since 1999Corporate member of FIABCI since 1999

©2005

Insurance BrokersInsurance Brokers• Practitioners in RiskPractitioners in Risk

• Intermediaries between risk takers and Intermediaries between risk takers and risk carriers - insurersrisk carriers - insurers

• Needed to access some of the marketNeeded to access some of the market

• Advisers on risk management strategyAdvisers on risk management strategy

• Should be regarded as part of your Should be regarded as part of your professional team professional team

©2005

Hold onto your hats - Hold onto your hats - there’s a lot of there’s a lot of ground to coverground to cover

©2005

What is RISK?What is RISK?

Exposure to chance of injury or loss

©2005

RISRISK !K !

©2005

Why manage risk...Why manage risk...• We always have!We always have!

• Formality will help to cope Formality will help to cope with complexitywith complexity

• In a competitive world - ever In a competitive world - ever smaller margins need to be smaller margins need to be more robustmore robust

• Insurance may be impossible Insurance may be impossible without itwithout it

• It is good management It is good management practicepractice

©2005

RISK !RISK !

©2005

Elimination or reduction of risk

Transfer or retention planning

RISK MANAGEMENTRISK MANAGEMENTA four part process:

REVIEWREVIEW

Risk analysis and quantification

©2005

Insurance is no substitute Insurance is no substitute for effective risk for effective risk

managementmanagement

Don’t worry - We’re Insured!Don’t worry - We’re Insured!

Insurance may not existInsurance may not exist

It will not cover all the lossIt will not cover all the loss

©2005

If you think that you are If you think that you are protected by insurance protected by insurance arranged by someone arranged by someone

elseelse

Check it - quick!Check it - quick!

©2005

Risk AnalysisRisk Analysis

Types of Risk - insured or not?Types of Risk - insured or not?

– Material Damage - fire/corrosion Material Damage - fire/corrosion

– Consequential - flood/latent defectConsequential - flood/latent defect

– Social - sudden pollution/public opinionSocial - sudden pollution/public opinion

– Legal Liability - injury/deliberate actLegal Liability - injury/deliberate act

– Political - terrorism/government policyPolitical - terrorism/government policy

– Finance - credit/marketing errorsFinance - credit/marketing errors

©2005

Key elements - Key elements - Corporate OperationsCorporate Operations

Key Element Description, notes

11 BBuussiinneessss DDeevveellooppmmeenntt IIddeennttiiffiiccaattiioonn ooff ooppppoorrttuunniittiieess,, eevvaalluuaattiioonn,, bbiidd pprreeppaarraattiioonn

22 FFiinnaanncciinngg FFiinnaanncciiaall eennggiinneeeerriinngg,, cchhooiiccee ooff vveehhiiccllee,, ttaaxx

33 AApppprroovvaallss PPoolliittiiccaall

44 JJooiinntt vveennttuurreess PPrreeppaarraattiioonn,, eennggaaggeemmeenntt,, nneeggoottiiaattiioonn,, ffoorrmmaattiioonn,, ooppeerraattiioonn,,

eexxiitt;; ccaappaabbiilliittiieess ooff jjooiinntt vveennttuurree ppaarrttnneerrss;; ccuussttoommeerr aalllliiaanncceess

55 AAsssseett mmaannaaggeemmeenntt IInnvveessttmmeenntt mmaannaaggeemmeenntt,, ccoonnfflliiccttss ooff iinntteerreesstt

66 TTeecchhnnoollooggyy IITT ssyysstteemmss,, ccoommmmuunniiccaattiioonn

77 HHuummaann RReessoouurrcceess SSkkiillllss,, llooccaalliittyy

88 MMaannaaggeemmeenntt RReessoouurrcceess,, ssyysstteemmss,, pprroocceesssseess,, ccoonnttrroollss,, cchhaannggee mmaannaaggeemmeenntt

99 LLeeggaall && ccoommpplliiaannccee IInntteeggrraattiioonn wwiitthh bbuussiinneessss,, ccoonnttrraaccttss ((ggeenneerraall iissssuueess)),,

ccoommpplliiaannccee aanndd dduuee ddiilliiggeennccee iissssuueess nnoott ccoovveerreedd eellsseewwhheerree

1100 SSppeecciiffiicc pprroojjeeccttss PPrroojjeecctt--ssppeecciiffiicc iissssuueess,, ffiinnaanncciiaall aarrrraannggeemmeennttss

1111 CCoouunnttrryy iissssuueess IIssssuueess ssppeecciiffiicc ttoo iinnddiivviidduuaall ccoouunnttrriieess nnoott ccoovveerreedd aabboovvee

1122 OOtthheerr iissssuueess IInntteelllleeccttuuaall ccaappiittaall,, ccoonnfflliiccttss ooff iinntteerreesstt,, ootthheerr iissssuueess

©2005

Undertaken by a small project groupUndertaken by a small project groupUndertaken by a small project groupUndertaken by a small project group

Key elementsKey elements

Analysis - Project ManagementAnalysis - Project ManagementAnalysis - Project ManagementAnalysis - Project Management

EElleemmeenntt DDeessccrriippttiioonn,, nnootteess

IInniittiiaattiivvee//ccoonncceepptt

FFeeaassiibbiilliittyy

Feasib

ilit

y

ph

ase

PPrroojjeecctt ddeeffiinniittiioonn//rreeffiinneemmeenntt

CCoonncceeppttuuaall ddeessiiggnn

PPllaannnniinngg aanndd ppeerrmmiittss

PPrree--ddeessiiggnn

BBuuddggeettttiinngg

LLeettttiinngg aanndd pprroojjeecctt ffiinnaannccee

Desig

n p

hase

FFiinnaall ddeessiiggnn

DDeettaaiilleedd ssppeecciiffiiccaattiioonn

TTeennddeerr ssppeecciiffiiccaattiioonn

CCoonnttrraacctt aawwaarrddss

PPrreelliimmiinnaarriieess && llooggiissttiiccss

CCoonnssttrruuccttiioonn

Pre

co

nstr

ucti

on

ph

ase

CCoommmmiissssiioonniinngg && hhaannddoovveerr

OOccccuuppaattiioonn

MMaaiinntteennaannccee

Po

st

co

mp

leti

o

n p

hase

PPrrooppeerrttyy mmaannaaggeemmeenntt

MMooddiiffiiccaattiioonn//rreeffuurrbbiisshhmmeenntt

Mo

dif

icati

on

/

Deco

mm

issio

n

ph

ase DDeeccoommmmiissssiioonniinngg &&

ddeemmoolliittiioonn

©2005

The DeveloperThe Developer

The BankerThe Banker

Everyone has their own agendaEveryone has their own agenda

The TenantThe Tenant

The Gap!!!

The ContractorThe Contractor

©2005

Strategic

Processes & assets

CategorieCategories of s of risriskk

• Design risks•Performance risks

•Natural risks•Property risks•Construction risks•Liability risks

•Labour risks•Liability risks•Information risks

•Procedural risks•Information risks•Availability risks

•Performance risks•Property risks•Construction risks•Design risks

•Crime risks•Liability risks•Social risks

•Political risks

•Financial risks•Liability risks

•Performance risks•Liability risks

Market

Economic

Political

Society

Humanresources

Organization

Nature

INTERNAL THREATS EXTERNAL THREATS

©2005

Likelihood AnalysisLikelihood Analysis

R a t I n g L I K E L I H O O D

T h e p o t e n t I a l f o r p r o b l e m s t o o c c u r I n a y e a r

AA VVEERRYY HHIIGGHH:: AAllmmoosstt cceerrttaaiinn,, wwiillll ooccccuurr aatt lleeaasstt sseevveerraall ttiimmeess ppeerr yyeeaarr

BB HHIIGGHH:: LLiikkeellyy ttoo aarriissee aabboouutt oonnccee ppeerr yyeeaarr

CC MMOODDEERRAATTEE:: PPoossssiibbllee,, mmaayy aarriissee aatt lleeaasstt oonnccee iinn aa oonnee ttoo tteenn yyeeaarr ppeerriioodd

DD LLOOWW:: UUnnlliikkeellyy bbuutt nnoott iimmppoossssiibbllee,, lliikkeellyy ttoo ooccccuurr dduurriinngg tthhee nneexxtt

tteenn ttoo ffoorrttyy yyeeaarrss

EE VVEERRYY LLOOWW:: RRaarree,, vveerryy uunnlliikkeellyy dduurriinngg tthhee nneexxtt ffoorrttyy yyeeaarrss

©2005

Impact analysisImpact analysisRRaattiinngg FFiinnaanncciiaall SSaaffeettyy PPuubblliicc IImmaaggee && RReeppuuttaattiioonn PPeerrffoorrmmaannccee EEnnvviirroonnmmeennttaall &&

CCoommmmuunniittyyEEmmppllooyyeeeess

A(Catastrophic)

DDiirreecctt lloossss oorrooppppoorrttuunniittyy ccoosstt ooff

>> ££xx mmiilllliioonnSSuussttaaiinneedd nneeggaattiivvee

rreettuurrnn oonniinnvveessttmmeenntt oorr

nneeggaattiivvee ggrroowwtthh

MMuullttiippllee ffaattaalliittiieessooff ssttaaffff,, aaggeennttss

oorr ppuubblliicc

AAddvveerrssee gglloobbaall//nnaattiioonnaallmmeeddiiaa ccoovveerraaggee

PPaarrlliiaammeennttaarryy iinnqquuiirryyMMaajjoorr ppuubblliicc ccoonncceerrnnss

rraaiisseeddMMaajjoorr lloossss ooff sshhaarreehhoollddeerr

ssuuppppoorrttSSttoocckk EExxcchhaannggee ssuussppeennddss

sshhaarree ttrraaddiinngg

MMaajjoorr mmiilleessttoonnee oorrddeeaaddlliinnee mmiisssseedd bbyy >>

11 yyeeaarrMMaajjoorr aaddvveerrssee qquuaalliittyy

pprroobblleemmFFaaiilluurree ttoo aacchhiieevveeppeerrffoorrmmaannccee ggooaallss

CCaattaassttrroopphhiicciirrrreevveerrssiibbllee

eennvviirroonnmmeennttaall hhaarrmmCCoommmmuunniittyy oouuttrraaggee ––ppootteennttiiaall llaarrggee--ssccaallee

ccllaassss aaccttiioonn

AA llaarrggeennuummbbeerr ooff

kkeeyyeexxeeccuuttiivveess oorr

ddiirreeccttoorrsslleeaavvee tthheeccoommppaannyy

B(Major)


££xx –– yy mmiilllliioonnNNeeggaattiivvee rreettuurrnn oonn

iinnvveessttmmeenntt oorrnneeggaattiivvee ggrroowwtthh iinn aa

ppeerriioodd

SSiinnggllee ffaattaalliittyy ooffssttaaffff,, aaggeennttss oorr

ppuubblliicc

AAddvveerrssee nnaattiioonnaall mmeeddiiaaccoovveerraaggee

SSiiggnniiffiiccaanntt ddeeccrreeaassee iinnsshhaarreehhoollddeerr ssuuppppoorrtt

SSttoocckk EExxcchhaannggee rreeqquuiirreeddiimmmmeeddiiaattee pprreessss ssttaatteemmeenntt

MMaajjoorr mmiilleessttoonnee oorrddeeaaddlliinnee mmiisssseedd bbyy 66

–– 1122 mmoonntthhssFFaaiilluurree ttoo aacchhiieevveessoommee ppeerrffoorrmmaannccee

ttaarrggeettss

MMaajjoorr eennvviirroonnmmeennttaallhhaazzaarrdd ccaauusseedd –– lloonngg

tteerrmm rreeccoovveerryyHHiigghh pprrooffiillee ccoommmmuunniittyy

ccoonncceerrnnss rraaiisseedd ––rreeqquuiirriinngg ssiiggnniiffiiccaanntt

rreeccttiiffiiccaattiioonn mmeeaassuurreess

SSoommee kkeeyyeexxeeccuuttiivveess

lleeaavveeCCoommppaannyy nnoottppeerrcceeiivveedd aassEEmmppllooyyeerr ooff

CChhooiicceeC

(Medium)DDiirreecctt lloossss oorr

ooppppoorrttuunniittyy ccoosstt ooff££xx –– yy mmiilllliioonn

ZZeerroo rreettuurrnn oonniinnvveessttmmeenntt oorr

ggrroowwtthh

SSeerriioouuss hheeaalltthhiimmppaacctt oonnmmuullttiippllee

mmeemmbbeerrss ooffssttaaffff,, aaggeennttss oorr

ppuubblliicc

AAddvveerrssee llooccaall mmeeddiiaaccoovveerraaggee

CCoonncceerrnnss oonn ppeerrffoorrmmaanncceerraaiisseedd bbyy sshhaarreehhoollddeerrss


–– 66 mmoonntthhssSSoommee rreedduuccttiioonn iinn

ppeerrffoorrmmaannccee

MMeeaassuurraabblleeeennvviirroonnmmeennttaall hhaarrmm ––mmeeddiiuumm tteerrmm rreeccoovveerryyCCoommmmuunniittyy ccoommppllaaiinnttss

vvooiicceedd pprriivvaatteellyy ––mmiinnoorr rreeccttiiffiiccaattiioonnmmeeaassuurreess rreeqquuiirreedd

PPoooorrrreeppuuttaattiioonn aassaann eemmppllooyyeerr

D(Minor)


££xx –– yyLLoowweerr rreettuurrnn oonniinnvveessttmmeenntt oorr

ggrroowwtthh

SSeerriioouuss hheeaalltthhiimmppaacctt oonn oonneeppeerrssoonn ((ssttaaffff,,

aaggeennttss oorr ppuubblliicc))

IInnttrraa--iinndduussttrryy kknnoowwlleeddggeeooff iinncciiddeenntt,, bbuutt nnoo mmeeddiiaa

aatttteennttiioonnMMaarrggiinnaall ddeeccrreeaassee iinnsshhaarreehhoollddeerr ssuuppppoorrtt


–– 33 mmoonntthhssMMiinnoorr ppeerrffoorrmmaannccee

ddeeggrraaddaattiioonn

MMeeddiiuumm tteerrmm,,iimmmmaatteerriiaall eeffffeecctt oonn

eennvviirroonnmmeenntt//ccoommmmuunniittyy –– rreeqquuiirreedd ttoo iinnffoorrmm

aauutthhoorriittyy((eegg:: nnooiissee,, dduusstt))

GGeenneerraall ssttaaffffmmoorraallee

pprroobblleemmssAA kkeeyy

eemmppllooyyeeeelleeaavveess

E(Negligible)


<<££xxSSttaattiicc rreettuurrnn oonniinnvveessttmmeenntt oorr

ggrroowwtthh

TTrraannssiieenntt hheeaalltthhiimmppaacctt oonn ssttaaffff,,aaggeennttss oorr ppuubblliicc

RReeppuuttaattiioonn iinnttaacctt,, iinntteerrnnaallkknnoowwlleeddggee oonnllyy

MMiinniimmaall oorr nnoo iimmppaacctt oonnsshhaarreehhoollddeerr ssuuppppoorrtt

MMaajjoorr mmiilleessttoonnee oorrddeeaaddlliinnee mmiisssseedd bbyy <<

11 mmoonntthhNNeegglliiggiibbllee

ppeerrffoorrmmaannccee iimmppaacctt

SShhoorrtt tteerrmm ttrraannssiieenntteennvviirroonnmmeennttaall oorr

ccoommmmuunniittyy iimmppaacctt ––nneegglliiggiibbllee aaccttiioonn

rreeqquuiirreedd

HHiigghh ssttaaffffttuurrnnoovveerr

©2005

RRisk Mapisk Map

10.000

100.000

1.000.000

10.000.000

1.000

1/10 1 10 100 1.000

LOSS AMOUNT

LOSS FREQUENCY per year

Acceptable

Continuous improvement

Not acceptable

Expected loss < $100.000,--

Expected loss from $ 100.000,-- to $ 1.000.000,--

Expected loss > $ 1.000.000,--

High

Medium

Low

Low Medium High

LIKELIHOOD

©2005

Good Risk ManagementGood Risk Management

• Keep it SimpleKeep it Simple

• Be Honest about Risk AwarenessBe Honest about Risk Awareness

• Implement Fundamental ControlsImplement Fundamental Controls

• Maintain Awareness of Business ObjectivesMaintain Awareness of Business Objectives

• Set up Early Warning Mechanisms and Set up Early Warning Mechanisms and Quick Response StrategiesQuick Response Strategies

• Regular Consultation with Project TeamRegular Consultation with Project Team

©2005

Case StudyCase StudyInner-City regeneration projectInner-City regeneration project

– Ministry of Transport are building underground motorway Ministry of Transport are building underground motorway and tramway alongside existing below-ground railway systemand tramway alongside existing below-ground railway system

– Railway company is constructing new station complex (train, tram, Railway company is constructing new station complex (train, tram, bus, taxi, metro)bus, taxi, metro)

– The site will be covered by a concrete raftThe site will be covered by a concrete raft– The resulting new free-standing surface is being offered for the The resulting new free-standing surface is being offered for the

following uses: offices, retail, housing, public areas, leisure & following uses: offices, retail, housing, public areas, leisure & entertainment (a new city within a city)entertainment (a new city within a city)

– Site use: 50 % of area remains in public ownership, balance Site use: 50 % of area remains in public ownership, balance passes to private ownership, on 999 year leasepasses to private ownership, on 999 year lease

– Potential office development of 20,000 sq. mPotential office development of 20,000 sq. m– Full design team with standard construction by a main contractorFull design team with standard construction by a main contractor– Planning permission is anticipatedPlanning permission is anticipated

©2005

The Workshop TeamsThe Workshop Teams

B = Bankers B = Bankers

C = Contractors C = Contractors

D = DevelopersD = Developers

Assignment:Assignment:

- What are the goals?What are the goals?

- Establish risk profileEstablish risk profile

- Prioritize risks using the risk mapPrioritize risks using the risk map

- Set up recommendations for top risksSet up recommendations for top risks

©2005

A Summary of the results from the A Summary of the results from the

Chartered Surveyors Livery Company, Chartered Surveyors Livery Company,

City Seminar - January 2005City Seminar - January 2005

©2005

The BankersThe Bankers• GoalsGoals

– Lend to successful developerLend to successful developer– Achieve good return to reflect riskAchieve good return to reflect risk– Have reliable exit strategyHave reliable exit strategy– Repeat businessRepeat business

• Threats & Key risk controlsThreats & Key risk controls1 - Planning application fails 1 - Planning application fails 2 - Interest rate rise and inflation risk 2 - Interest rate rise and inflation risk

HedgeHedge3 - Market conditions deteriorate3 - Market conditions deteriorate4 – Failure of Developer/Contractor 4 – Failure of Developer/Contractor

Examine track record & financials/Proof of Pre-let /Parent GuaranteeExamine track record & financials/Proof of Pre-let /Parent Guarantee5 - Major loss is uninsured5 - Major loss is uninsured

Involve insurance broker fromInvolve insurance broker from the start to protect own intereststhe start to protect own interests

©2005

RRisk Mapisk Map

10.000

100.000

1.000.000

10.000.000

1.000

1/10 1 10 100 1.000

LOSS AMOUNT


Acceptable


Not acceptable




High

Medium

Low

Low Medium High

LIKELIHOOD

1

23

45

©2005

The ContractorsThe Contractors

• GoalsGoals– Make a profitMake a profit– Deliver on time (enhance reputation)Deliver on time (enhance reputation)– Ensure correct quality with no defectsEnsure correct quality with no defects– Maintain a safe siteMaintain a safe site– Gain repeat business (develop long-term relationship)Gain repeat business (develop long-term relationship)

• Threats & Key risk controlsThreats & Key risk controls1 - Disruption from other works1 - Disruption from other works2 - Damage to other works - esp. railway2 - Damage to other works - esp. railway

Regular monitoring process/ Professional Liability InsuranceRegular monitoring process/ Professional Liability Insurance3 - Supply of labour /materials3 - Supply of labour /materials

Framework AgreementsFramework Agreements 4 - Sub-contractor failure4 - Sub-contractor failure

Know your clientKnow your client5 - Client insolvency 5 - Client insolvency

©2005

RRisk Mapisk Map

10.000

100.000

1.000.000

10.000.000

1.000

10/1 1 10 100 1.000

LOSS AMOUNT


Acceptable


Not acceptable




High

Medium

Low

Low Medium High

LIKELIHOOD

12

34

5

©2005

The DevelopersThe Developers• GoalsGoals

– Obtain satisfactory planning permissionObtain satisfactory planning permission– Secure a pre-letSecure a pre-let– Obtain fundingObtain funding– Control costsControl costs– Maximise profitMaximise profit– Completion on timeCompletion on time

• Threats and Key risk controlsThreats and Key risk controls1 –Delayed completion1 –Delayed completion

Adequate and effective project managementAdequate and effective project management2 - Deterioration in office letting market ( Failure to attract/keep tenant)2 - Deterioration in office letting market ( Failure to attract/keep tenant)3 - Contractor insolvency3 - Contractor insolvency4 – Exceeded budget: interest increase/ cost4 – Exceeded budget: interest increase/ cost

Manage interest rates risks/ tight cost controlManage interest rates risks/ tight cost control5 - Stability of professional team5 - Stability of professional team6 - Catastrophic uninsured losses6 - Catastrophic uninsured losses

Use insurance broker to get the best available insurance coverUse insurance broker to get the best available insurance cover

©2005

RRisk Mapisk Map

10.000

100.000

1.000.000

10.000.000

1.000

1/10 1 10 100 1.000

LOSS AMOUNT


Acceptable


Not acceptable




High

Medium

Low

Low Medium High

LIKELIHOOD

1 2

6

4

5

3

©2005

1

23

45

12

34

5

1 2

3

4

5

BANKERS CONTRACTORS

DEVELOPERSInteresting how Interesting how

their perceptions their perceptions differdiffer

6

©2005

Risk in your businessRisk in your business isis

your businessyour business

It might also be the end of it!It might also be the end of it!

Take it seriouslyTake it seriously

©2005

Further informationFurther information

Contact us at Contact us at Aon LatviaAon Latvia

telephonetelephone +371 789 2551+371 789 2551

faxfax +371 789 2552+371 789 2552

e-mail e-mail [email protected]@aon.lv

Regular Property Risk Management updates:Regular Property Risk Management updates:

www.aonproperty.com www.aonproperty.com

©2005 Risk management - a tool to achieve success Nina Kukuskina Aon Latvia, CEO.

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Transcript of ©2005 Risk management - a tool to achieve success Nina Kukuskina Aon Latvia, CEO.