Risk and Quality Management – the Two Sides of One · PDF file ·...

Risk and Quality Management –the Two Sides of One Medal

05/06/2008, Vienna, Wiener Hofburg

Frank Romeike Managing Partner RiskNET GmbH, Member of the board of Risk Management Association (RMA e. V.)

Seite 1

05.06.2008© RiskNET – The Risk Management Network 2008 / RiskNET GmbH

t

€

Risk landscape

Key Risk Indicator

Value at Risk

Trend Analysis

Integrated RiskReporting

Analysis &Drill-down

12

4

3

The dream of all CEOs, CFOs, CROs …

Seite 2


Quite often the reality …

Seite 3


Root cause analysis of risks: what are the main trigger?

Seite 4


Human factors risk

High-severity risks (in all industries) are always caused by a combination of organizational deficiencies, technical failure and always human error (quality!)

Seite 5


Reasons for loss of company value

24

12

76

4

21 1 1

11

7 76

32

10 0

0

5

10

15

20

25

Cost Overruns

Accounting irregularities

Manage-ment

ineffective-ness

Supply Chain Issues

Competitive Pressure

M&A Integration Problems

Mis-aligned

Products

Customer Pricing

Pressure

Loss of Key

Customer

Supplier Problems

R&D Delays

Customer Demand Shortfall

% of top 100

Regulatory Problems

Strategic Operational Financial Hazard

Foreign Macro-

Economic Issues

Interest Rate Fluct-uation

High Input

Comm-odityPrice

Law-suits

Natural Disasters

58% 31% 6% 0%

Risk Events Precipitating Stock Drops of > 25% for 100 of Fortune 1000 companies

Source: Compustat, Mercer Management Consulting analysis 1999.

Over 5 years 10% of the Fortune 1000 lost over 25% of their value within a month

Over two-thirds of these risks could have been mitigated

Seite 6


Challenge: To go with the „right risks“

negative

positivevariance

Gefahren

Chancen

KonTraG: nur negative Zielabweichung

Realität: a

uch positive Zielabweichung

Zukunft

probability

Ta

rge

tE

BIT

etc

.

€

negativevariance

positive

target

Risks/Losses

Chance/Profit

Negative plan variance

Positive plan variance

Future

€

Seite 7


Quelle: Romeike, Frank; Finke, Robert: Erfolgsfaktor Risikomanagement: Chance für Industrie und Handel, Lessons learned, Methoden, Checklisten und Implementierung, Gabler Verlag, 2003.

Successful Risk & Quality Management is all about BALANCE!

© Frank Romeike 2002

Stay with the good risks … or balance the yin and the yang

Seite 8


Integrated Risk & Quality Management

Enterprise and Value-based Management

1920 1940 1960 1980 2000 2000 1990 1980 1970 1960

QualityCheck

QualityControl

QualityAssurance

QualityManagement

Total QualityManagement

occupational health andsafety / fire prevention

conditions precedent to the insurance policy

Risk measurementand inventory

Risk Managementof different silos

Enterprise RiskManagement

Quality Management Risk Management

Pro

-activ

e

RM

Reactive/ ad hoc

RM

Pro

-act

ive

QM

Reactive

/ Ad h

oc

QM

Seite 9


CompanyValue

Risk Identifikation

Risk Quantification

Step 1:Risk ControllingLoss Prevention

Riskand Return

Step 2:

Ongoing Process

CapitalAllocation

PortfolioManagement

Value Based

Management

Step 3:ERM

Evolution in Risk Management

Risk-/Return-Management: Capital Management and Risk Management are two sides of the same coin!

Seite 10


Again: The Balance

Risks of the

company

Risk-bearing

capacity

The Risk-bearing capacity must be sufficient relative to risks. This means an

estimation of the amount of capital necessary to cover potential losses. The required minimum for the capital adequacy is defined by equity capital and

liquidity reserve!

Seite 11


Erwartungswert Betriebsergebnis (+ 3)RAC = Risk Adjusted Capital

(= "Riskoumfang")

0.0%

0.9%

1.7%

2.6%

3.4%

0

42,5

85

127,5

170

-150 -13 3 7 40

200.000 Durchläufe

0 17

VaR 1% (21)

RAC 18 Mio.

Pro

bab

ilit

y

Nu

mb

er

of c

ases

IST Eigenkapital (12)

EK 12‘000 T€

Risk bearing

capacityRAC 18‘000 T€

Total risk

The Risk-bearing capacity must be sufficient relative to risks. And the total risksare amongst others drivenby quality!

Six Sigma is based on RM Toolbox

Seite 12


Added value by Risk Management

• SmithKline Beecham totally revamped its decisionmaking on the funding of research and development projects using a risk management-based approach that has allowed it to be more competitive and profitable in the cutthroat pharmaceutical business.

• Rockwell Collins has been using risk management in its software-intensive avionics projects. 17 % difference in the cost performance index.

• After IBM moved toward a risk-adjusted performance manage-ment and an integrated risk management, they reduced the total cost of risk by 20 % p. a. They utilized risk management as an economic evaluation tool and used the information for their riskadjusted forecast and planning process.

Seite 13


A life boat will not be build during stormy weather …

Seite 14


Adequate risk culture in organizations

An efficient risk management has to be integrated in the culture of an organisation and should be implemented into daily life!

Strategy & clear guidance

• Clear communication of risk

management targets and methodology

• Clear definition of process and responsibilities

• Top Management should be a role-model for risk management (set the

Tone from the Top!)

• Everyone is a Risk Manager

communication

• Risk Management is a value driver!

• Internal communication throughtintranet, in-house magazine, in-

house exhibition et cetera

• To establish an efficient risk

management, open communicationis important.

• acceptance of uncertainties (not all scenarios will occur) = Risk and

unsertainty are fundamental to life!

• Exchange of information throught

companies hierarchy

Motivation

• Training and development of hard-and softskills

• agreement on objectives re riskmanagement

• Monitoring of processes

• Integration of all employees based on

risk committees and cross-functionalteams ("We're all in the same boat.“)

• Use of risk managements (software) tools

• Risk Awareness is the startingpoint of any risk management

process

• Link risk and compensation

Seite 15


... good managers manage risks, poor managers manage problems …

Risk and Quality Management – the Two Sides of One · PDF file ·...

Documents

Transcript of Risk and Quality Management – the Two Sides of One · PDF file ·...