Strategic Risk Management in Universities

Harry Rosenthal

University of New South Wales

What Is Risk?

Risk – the chance of something happening that will have an impact upon objectives.

Measured in terms of : • likelihood • consequence

Era of Disasters

Floods, Drought, Storms, Terrorism, Wars, Asteroids

Cost of Disasters Increasing.

• WTC is between $70 to $120 Billion • • First WTC bombing – 350 businesses were evacuated from building – 150 of them subsequently went out of business.

Australia: On average, 1 business in 10 will experience a serious disruption that may force them out of their facility.

Reasons will range from power failure to sabotage.

Era of Disasters?

• • • • Life Expectancy Has Increased by at Least 2/3 in 100 Years (In Aust: 78 for boys and 83 for girls – higher than Canada, Britain, New Zealand and the US) Many Diseases Have Become Less Hazardous Democracy Has Spread (2001 -58.6% of world population) Wars in Western World –Less Likely

Perception of Risk: How Risky Is It Out There?

What Do We Need to Do About It?

Limited Resources

Era of Disasters? - Education

• • • • • Aussie teens can read, count and understand scientific concepts better than the teens of the US, Sweden, France and Italy 15 year olds perform in top one third of 41 OECD and other countries in maths, and science scores. Australian household wealth is increasing Number of children aged 1- 14 who die as a result of injuries has halved since the 1980’s (230 fatalities a year – most transport and drowning).

Proportion of school leavers going straight in to higher education rose from one in four in 1984 to four in 10 in 2004. • Youth unemployment is halved since 1984.

Cost of Getting It Wrong

Regardless of Ambient Risk – Cost of failure is high.

• Increased Values • Concentration of Values • Competitive/Unforgiving Environment • Modern Expectations

Outside the University World View Perception of Threat

In a recent survey of 1,400 CEO’s globally PwC found: Greatest threats to business were: •Competition •Global terrorism •Over-regulation •Currency fluctuations •Loss of talent In Australia, competition was #1 but regulation was #2 (ASX,APRA,ASIC,CLERP9) Only 40% of Aussie CEO’s felt global terrorist operations was a threat.

Classes of University Risk

Operational Risk - Risks of day to day operations Compliance Risks Staff Safety - WC Finance Related Risks Legal Risks Security Risks Industrial Risks Building/Facilities Risks

Classes of University Risk

Operational Risk Treatment Methods Operational Plans Guards Safety Plans Lawyers Budgets SOPs Internal Audit

Classes of University Risk

Strategic Risks - Goals and Objectives of Organisation Catastrophic Losses Predictability of Revenue Risks Student Numbers Funding Models Legal Models of Operation Emerging Risks Legislative/Political Risks

Classes of University Risk

Business Continuity Plans Strategic Risks - Treatment Methods Student Forecasting Models Strategic Risk Management Programs Funding Models Marketing Plans Legislative/Political Participation Emerging Risk Profiling

Classes of University Risk

Operational Risks

Property Liability Personnel Net Income

Strategic Risks

Reputation Issues Business Continuity Issues Environmental Issues •Legal •Political •Industry

Corporate Approach

• Understands the strategic

goals and objectives of the organisation.

• Understands the

pre-loss and post loss impact of risk.

• Understands

limits of insurance and its effect on risk.

• Understands the

Total Cost of Risk

Pre- Loss Objectives

• Profitability • Growth

(acquisition/internal)

• Stability of Earnings

(service, client retention)

• Good Corporate Citizen • Brand Protection • Efficient Operations

Relevance to University???????

Post – Loss Objectives

• Survival • Continuity of operations • Profitability – shareholders

expectations

• Stability of earnings • Growth • Brand protection

Relevance to University???????

Insurable Risks

Limits of Insurance

Uninsurable Risks

Total Cost of Risk

Loss Control Costs Insurance Costs Legal Costs RM Staff Below Excess Costs

Objective of Risk Management – Reduction of Total Cost of Risk

Outside the University World View

•50% CEOs surveyed said they were more aggressive about risk management than last year.

•Financial services industry has embraced RM to a greater degree than most other industries.

•Nearly 90% of financial services CEOs responded to PwC survey that they’ve implemented

Enterprise Risk Management

Principles.

•65% of Asia-Pacific firms have formal enterprise wide risk monitoring vs. 45% in the US.

•US firms are stronger on issues surrounding compliance as the dominate view is that

Enterprise Risk Management

is a tool to assist with regulatory compliance.

Enterprise Concept of Risk

6 Basic Processes of

Enterprise Risk Management

1. Formal enterprise wide risk identification 2. Risk assessment 3. Agreed upon patterns of response 4. Risk control activities 5. Risk monitoring activities 6. Regulatory compliance activities

Components of a University Strategic Risk Management Program

Risk Management Policy Statement • Documented • One A4 page • VC Signs • Senior management commitment • Promulgated across the organisation • Outlines strategies and plans for risk management

Components of a University Strategic Risk Management Program

Risk Management Governing Board Committee • Senior management participation • Accountable to Executive for management of risk • Monitors risk management process • Monitors emerging risks

Components of a University Strategic Risk Management Program

Risk Management Plan/Guidelines/Program • Designed to take in to account relevant stakeholders (clients to Ministers) • Follows risk management standards • Eg. AS/NZ4360 • Clearly outlines a risk management process • Has an assurance program

Components of a University Strategic Risk Management Program

Risk Management Tools • Risk identification tools • Risk analysis and assessment tools • Risk treatment guidelines • Templates

Risks - Identification

Sources of Risk (AS/NZS 4360:1999 Approach) Area of Impact Assets Revenue People Environment Commercial/ Legal relationships Economic Human Behavior Natural Events Political Circumstances Technology Management

Components of a University Strategic Risk Management Program

Risk Register • List of risks of the organisation • Assessment & analysis of indemnified risks • Treatments for identified risks • Staff/Personnel responsible for monitoring risk and treatments.

Components of a University Strategic Risk Management Program

Business Continuity Planning • Business Impact Analysis • Business Continuity Plan (BCP) • Testing of BCP

Guiding Principles

1. Tie RM Program to Existing Activity • Strategic Planning • OH&S 2. Keep It Simple & Evolve Over Time 3. Remember the WIFM 4. Report (Up and Down) 5. Cultural Approach – Not Compliance

Advantages of Risk Management To an Organization * Protect assets * Reduce deterrence effects - Take advantage of opportunities - Good night sleep factor - More attractive to global markets * Resource allocation * Reduces the cost of risk - Self insured vs. Insurance

Advantages of Risk Management Benefits for a Nation * Competition for limited resource - Human - Financial - Technological * Environmental impact - Short term - Long term * Better use of resources - Reduce fear of experimentation - R&D - Thinking outside the box