Transcript Venture Capital and Private Equity investments fuelling

THE INSTITUTE OF
COST ACCOUNTANTS
OF INDIA
Half day Seminar on
Enterprise
Risk Management
THE INSTITUTE OF
COMPANY
SECRETARIES OF INDIA
Presented by:
D. Sundaram
Vice Chairman & Managing Director,
TVS Capital Funds Limited
CONFIDENTIAL AND PROPRIETARY
March 7, 2015
SOME BACKGROUND CONCEPTS AND THOUGHTS
• RISK vs UNCERTAINTY
o Variation in outcome around an expectation versus
o Doubts about ability to know / absence of information
• Sources of risk / exposure to risk
• Pure risk / speculative risk
• Insurable risk
• What do you know (A) vs what you do not know (B)
o (A) – Degree of impact
o (B) – Black Swan
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RISK AND UNCERTAINTY
Can’t Do
Anything
?
Uncertainty
(Randomness)
Can Do
Something
Risk
Management
Oxymoron?
Know
Don’t Know
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SOME BACKGROUND CONCEPTS AND THOUGHTS… Contd
• Enterprise risk
o Means looking at all risks to Balance Sheet or the ongoing
concern of an organization
o Reputation Risk ?
• Strategic Risk Management
o Leveraging opportunities vs mitigating risks
o Performance gap vs Opportunity gap
• Targeting Behavioral risks key to improve loss control
o E.g. Safety and Security
• Every manager to have risk management thinking
• Risk Management Framework is only an enabler
o Safety Health Environment
o Policies Compliance
o Control Assurance (Internal Audits)
o Operating Control Assessment
o Risk Management Framework
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RISK AND UNCERTAINITY ARE INTEGRAL PART OF LIFE
Adventure without Risk is
-------------
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RISK AND UNCERTAINITY ARE INTEGRAL PART OF LIFE
Adventure without Risk is
Disneyland
(Dong Coupland,
Canadian Author)
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A ship in harbor is safe but is not what ships are
built for
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Warren Buffet on RISK
 Don’t Measure the Depth of the river with both
feet
 Risk comes from not knowing what you are doing.
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VUCA
VOLATILITY
UNCERTAINTY
COMPLEXITY
AMBIGUITY
Nature is never a straight Line = spirals everywhere
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THE SPIRAL IS CENTRAL TO LIFE – THE STRAIGHT LINE DOES NOT
WORK QUITE OFTEN
B
B
A
A
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ORGANIZATIONAL (ENTERPRISE) RISK MANAGEMENT
Building Blocks
Overall Mission and Purpose
Risk / Uncertainty Assessment
Risk Mitigation and Control
Risk Financing
Program Admin
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RISK ASSESSMENT
Role of Organizational Management to indentify, not to
externalize to a “risk manager”
Identification (RISK SOURCES)
Analysis
Measurement
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RISK SOURCES
Physical
Social
HAZARDS
Environmental conditions that
elevate likelihood and/or severity
Political
Legal
EXPOSURE
Economic
Operational
PERILS / OPPORTUNITIES
Actual causes of loss or gain
Cognitive
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WIDE SCOPE OF CORPORATE RISK EXPOSURE
Economic Policies
Demand Conditions
New Product Introductions
Inflation rate
Consumer Taste
Financial market prices
Competitive Structure
Terrorist events
Natural catastrophes
CORPORATION
Sales and distribution
Marketing approaches
Hazards
Commodity prices
Input supply lines
Energy prices
Logic systems
Process Improvements
Technology development
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PROCESSES / WAYS FOR IDENTIFICATION
Environmental Scan
Financial / Legal Documentation
ALERT
VIGILANT
INSIGHTFUL
PROACTIVE
MANAGEMENT
COCA: Contracts, Obligations,
Commitments, Agreements
Onsite inspections
Interviews
Statistical Analysis
Benchmarking
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RISK ANALYSIS
Source
Risk / Hazard
Factor
Exposure
Consequence
Outcome
Perils /
Opportunities
Judgment
Decisions
Actions
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RISK MEASUREMENT
Be aware of Direct & Indirect Costs
and Consequences
Learn to separate important from
unimportant
Likelihood / Severity
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MEASUREMENT: RISK MATRIX
High
SEVERITY
Low
Low
Medium
High
LIKELIHOOD
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ASSESSING THE MATERIALITY OF RISK
Pg 115, CFO: Architect Of The Corporation’s Future, Wiley/PriceWaterhouse
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RISK ASSESSMENT PROCESS
Physical
Environment
Social
Environment
Political
Environment
Legal
Environment
Economic
Environment
Operational
Environment
Cognitive
Environment
H
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Physical
Assets
Financial
Assets
Human
Assets
Legal
Assets
Moral
Assets
The Risk Field
P
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RISK MITIGATION (CONTROL)
Prevent
Eliminate
Reduce
MEASURES AND PROCESSES





AVOIDANCE
TRANSFER / DISTRIBUTION
REDUCTION
PREVENTION
NEUTRALISATION
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RISK MITIGATION (CONTROL)
REDUCTION

INCREASE IN KNOWLEDGE AND INFO REDUCES THE RISK
IMPROVED INFORMATION
 Barriers and Counter measures
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RISK MITIGATION (CONTROL)
PREVENTION
 Eliminate likelihood of loss occurring
•
•
•
•
•
E.g. Location of facilities
Legal screening of contracts
Concurrent Audit
IPR registration
Policies / Procedures
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RISK MITIGATION (CONTROL)
NEURALISATION
Measures to reduce effects of risk to near zero by
arranging to offset one risk with another action.
e.g. Helpers
3P Sourcing for IR reasons
BCP
Succession Planning
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ASSET EXPLOSURES TO RISK
 Physical Assets
Property Asset
Type
Cause of Loss
Natural Hazard
Behavioural
Type of Loss
Direct
Indirect
 Financial Assets
 Human Assets. Key man risk
 Reputation Asset.
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REPUTATION ASSET
Context : Societal Themes / Pressures
Investigative reporting
Threats of litigation
Global Standards
Political / Special Interest Groups
- Neglect of warning signals
- Poor implementation of Processes / Procedures / Policies
- Many instances
Past
Sara Lee
Nike
Coca Cola
Recent
TOYOTA RECALL
B.P
Satyam
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SAMPLE RISK MITIGATION TEMPLATE
Short Title:
Risk Definition:
Current Safeguards:
New/Improved Safeguards Needed:
Actions Required:
Action
Responsible
Deadline
20XX SiA Ref.
Assessment of:
Impact?
Likelihood?
Level of Acceptability?
With the implementation of the above actions, when will the level of risk become acceptable?
Other Notes:
Focusing on the upside
“Enterprise is about being prepared to go for it - its
about having a real passion for what you’re doing
and wanting to win. It’s about being courageous
and taking risks. Accepting that when you take
risks you can make mistakes, but that these can
provide a rich learning opportunity”
- Niall
Fitzgerald
-Ex Unilever Chairman
INFORMATION – A POWERFUL INPUT TO RISK MANAGEMENT
Transparency of information
Provided by an unbiased source
Distils learnings
from past
experiences
Tells you what
you are going
in for
Facilitates midcourse correction
Helps guage `stop
loss’ limit
Helps keep
exposure within
the organisation
`risk appetite’
A Quote
 “Trying to enclose risk is a bit like trying to embrace water – it
seeps into just about everything.. Pervasiveness is daunting, yet
most risk can be channeled and directed in less threatening
ways.
 Those that pose little hazard can be mopped up and disposed,
those that present serious danger can be dammed up and
contained, and others with thought and ingenuity can be
captured and transformed into new sources of value”
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In conclusion :
“ It is not the strongest species that survive, nor the
most intelligent, but the ones most responsive to
change……”
Charles Darwin
SEE THIS VIDEO AND THINK ABOUT IT
THANK YOU!