Transcript Integrating ERM into Strategic Planning

Integrating ERM
into Strategic Planning
Michael A. Cohen
Cohen Strategic Consulting
September 24, 2008
Discussion Themes
Vision, Mission, Goals/Objectives
Strategy
Where A Company Makes Its Money
Risk Identification, Quantification
Environmental Analysis
Discussion Themes (cont’d)
Financial Analysis
Capital Management
Risk Thresholds
Business Psychology
Corporate Vision, Mission
Vision: What does the company aspire
to be?
Mission: What is the company trying to
accomplish?
Goals/Objectives: By what
benchmarks will the company be
measured?
Integrating ERM Into
Strategic Planning:
Iterative Thinking
Strategy
Risk
Thresholds
Capital
Management
Financial
Analysis
Making
Money
Risk
Identification,
Quantification
Environmental
Analysis
Strategy –
How is the Company Competing,
and Against Whom?
Corporate level – Organic growth vs. strategic
(vis a vis financial) mergers and acquisitions
Business lines
Competitive advantages
Core competencies
Where A Company Makes Its Money
“Driving force”
What businesses?
What functions/activities?
What risks are inherent in activities critical to
a company’s success, and which risks can be
avoided because they might be borne by
tangential or unnecessary activities?
Risk Identification,
Quantification
Identify and quantify potential risks inherent in
strategies, and formulate plans to mitigate
them
Environmental analysis
Identify potential risks caused by not doing
particular things; critical success factors
Contingency planning
Environmental Analysis
Competitive dynamics
Economic/financial
Regulatory/legislative
Consumer/demographics
Technology
Financial Analyses
Profitability - ‘potential eroders’;
product pricing
Capital
ALM/Liquidity
Investment management
Capital Management
Cost of capital by various businesses
ROI (risk-adjusted)
Allocation … optimizing returns, managing
a portfolio of businesses
Capital raising
Risk Thresholds
Earnings
Capital
Ratings
Reputation
Business Psychology
People work on problems they think they can solve, and
they avoid those they don't think they can solve.
Therefore, if the elements of risk are in the latter
category, they won't be addressed.
They are slow and cautious in reacting to new
information. Solutions to risk reduction may exist, but
they might not be implemented without an inordinate
amount of study, or possibly not at all.
They are reluctant to admit ignorance or mistaken
assumptions and tend to forget misassumptions that
have been made. An ill-conceived initiative can be
expected to have additional risk, and if learning doesn't
follow, further mistakes may be made.
Business Psychology (cont’d)
They are inclined to be risk averse when they have made gains
and can be risk seeking when they have incurred losses. This
leads to a strategy basically opposite of what should be pursued,
which is to invest more when gaining and less when losing.
They look at fewer as opposed to more perspectives, possibly
missing a better solution.
They do not realize when they are at an information
disadvantage.
They are inclined to blame others for poor results, as opposed to
studying the causes for their own mistakes and fixing them.
They frequently place greater value on what they have created
than on what others have done, either individually or collectively,
and may well miss out on higher-order thinking generated by a
group and on critical perspectives of others.
General Tactics
Don’t pursue business opportunities you
don‘t understand, don’t have the necessary
expertise for, or can’t control
– Financial services ‘supermarket’ strategy
– Unicover
– Complex, hard to analyze investment strategies