Risk ManagementUniversity of Economics, Kraków, 2012

Tomasz Aleksandrowicz

media monitoring: current risk events (27 Feb - 4 Mar)

What is risk management (RM)

• protecting the organization from loss through avoiding the downside

• process where organisations methodically address the risks attaching to their activities with focus of identification and treatment of these risks

• address relationship between risk, growth and return• central part of any organisation’s strategic management

Risk Management variants

• Enterprise Risk Management (ERM)• Financial Risk Management (FRM)• Operational Risk Management (ORM)• IT Risk Management (e.g. Risk IT)• Social Risk Management (SRM)• Supply Chain Risk Management (SCRM)• Project Risk Management

Framework, Process and Principles of Risk Management

based on ISO 31000:2009

Principles and Guidelines on Implementation

Risk management definitions• Risk owner

– person or entity with the accountability and authority to manage a risk

• Risk attitude– approach to assess and eventually pursue, retain, take or turn away

from risk

• Risk appetite– level of risk that an organization is prepared to accept

• Risk management policy– statement of the overall intentions and direction of an organization

related to risk management

• Risk management plan– approach, the management components and resources to be applied

to the management of risk

Framework of RM

Relationship between various components of the risk management framework

RM Framework (I)

• Mandate and commitment:– continuous process, not one-off project– mandated from the Board (or equivalent), – implemented by senior management– supported by all levels of management and risk owners

• Design of framework for managing risk:– formulating a risk management policy– designing processes– assigning resources and responsibilities

RM Framework (II)

• Implementing risk management::– communication with risk owners– ensuring risk management activities take place– Ensuring decisions and business processes factor risk approach

• Monitoring and review:– confirmation that RM si working properly– gaps identification and remediation

• Continual improvement

Process of RM

Principles of risk management (I)

• should create and protect value• integral part of organizational processes• part of decision making• addresses uncertainty by defining possible

risks• systematic, structured and timely• based on the best available information

Principles of risk management (II)

• tailored to organization’s stakeholders, context and risk profile

• takes human and cultural factors into account• includes stakeholders impact on organization• dynamic, iterative and responsive to change• facilitates continual improvement and

enhancement of the organization

RM processPractical implementation

Tools & TechniquesCase-study

Establishing the context

• external factors analysis (e.g. political, economic, social, etc)• alignment with internal factors such as strategy, resources and

capabilities• strategic analysis tools used:

– PEST / PESTEL (also SLEPT) analysis

PEST / PESTEL analysisPolitical Economic Socialpolitical stabilitygovernment activitiestaxationtrade & tariffs policylabour policyindustry specific regulations

economic growthinterest ratescurrency exchange ratesinflation rategovernment spending

cultural & religious factorsdemographicssocial trends & fashionhealth & safety consciousness

Technological Environmental LegalR&D activityautomationrate of technological changetechnology incentives

weather factorsclimate changeenvironment awareness

consumer lawcompetitive and antitrust lawemployment regulationshealth and safety law.

RM processEstablishing the context

Ryanair case

summary

• public company listed on ISEC, LSE and NASDAQ, HQ in Dublin• 2011 revenue 3,6 billion euro, net income 375 million euro• 72 million passengers in 2011 (up 10% from 2010)• 178 destinations (Europe, North Africa), plans for US (2014)• operates over 280 Boeing 737-800 aircraft• Low-cost business model (low initial price with paid add-ins,

secondary airports, limited customer service)• aggressive marketing incl. price marketing, huge competition