Transcript Document 7125453

Presentation
Risk Management for
Competitive Advantage
1
Presentation
COSO
2
COSO ERM Framework
Internal
Environment
•What is the internal philosophy and
culture?
Objective Setting •What are we trying to accomplish?
Event
Identification
•What could stop us from
accomplishing it?
•How bad are these events?
Risk Assessment •Will they really happen?
Risk Answer
•What are our options to stop those
things from happening?
do we make sure they don’t
Control Activities •How
happen?
Information and
Communication
•How [and from/with whom] will we
obtain information and communicate?
Monitoring
•How will we know that we’ve achieved
what we wanted to accomplish?
Source: Committee of Sponsoring Organizations
of the Treadway Commission www.coso.org.
Used with permission.
3
Presentation
Panasonic
4
COSO and Panasonic
Panasonic implemented COSO. It identified two
categories of risks in its ERM program:
 800 Business Risks.
 2100 Common Risks
 Total -- 2900
5
Results of Business Risk Consolidation
- Business risks in the external environment, operational processes, and internal environment External
environment
Country-specific
risks
Natural
disasters
Laws and
regulations
Operational
processes
Business partners
Customers
Technica
Subcontractor Supplier
l
s
s
partners
R&D
Delayed
technological
development
Failures to respond
to changing
customer needs
Manufacturing
Lack of
differential
technology
Increasing
competition
due to competitors'
products
Falling market
prices
Dependence on
specific business
partners
Inadequate business
partner handling
Competitors
Marketing & Sales
Delayed
production
Failures of sales
channel
strategies
PL and quality issues
Failures of sales
promotion
Cost increases (increasing inventory, soaring material costs, declining yield)
Delayed collaboration due to insufficient linkage between divisions
Internal
environment
Informatio
n
Organization
Human
resources
Internal
infrastructure and
organization
operations
Staff allocation and
development
Insufficient
manufacturing reforms
and IT innovations
Structural reformrelated issues
6
Business Structure
Segment
AVC
Networks
Global
and
Group
Head
Office
Home
Appliances
Business domain
AVC
Panasonic AVC Networks Company
Fixed-line communications
Panasonic Communications Co., Ltd.*
Panasonic Mobile Communications Co., Ltd.*
Mobile communications
Panasonic System Solutions Company
Systems
Panasonic Shikoku Electronics Co., Ltd.*
Home appliances, household equipment,
healthcare systems
Matsushita Home Appliances Company,
Matsushita Refrigeration Company*
Healthcare Business Company
Lighting Company
Matsushita Ecology Systems Co., Ltd.*
Lighting
Environmental systems
CISC
Components
and Devices
Panasonic
Design
Company
R&D divisions
Semiconductor Company
Display devices
Matsushita Battery Industrial Co., Ltd.*
Batteries
Panasonic Electronic Devices Co., Ltd.*
Electronic components
Motor Company
Motors
Solutions
Panasonic Automotive Systems Company
Automotive electronics
Semiconductors
Head Office
Business Domain Companies and Group Companies
FA, Corporate eNet Business Division
Others
Panasonic Factory Solutions Co., Ltd.*, and others
Sales division
Overseas
divisions
MEW and PanaHome
JVC
Matsushita Electric Works, Ltd.*, PanaHome Corporation*
Victor Company of Japan, Ltd.*
Group-wide Risk Management System for General Contro
(2) Establish a G&G Risk Management Committee to address the current problems
After the Committee's
establishment
Establishing and improving Group-wide RM system
Instructing risk assessment
<Roles of the Committee>
[1] Establishing and improving
Group-wide RM system
[2] Conducting Group-wide risk
assessment
[3] Reporting to the President,
and Board of Corporate
Auditors
[4] Studying possible measures
to prepare for major risks;
suggesting such measures to
President and Corporate
Functional Divisions
[5] Improving Group-wide
support systems against
emergencies
Committee
Corporate Functional
Division A
G&G RM
Committee
Domains
Support
Subsidiaries
Committee
Corporate Functional
Division B
Support
Corporate Functional
Division C
Corporate Regional
Management
Divisions /
Regional HQs
Results of Groupwide risk
assessment
Secretariat
Collecting risk information from
across the Group
8
Clarify Sections Responsible for Each Risk
(4) Information systems
1. Disasters and accidents
Earthquakes, typhoons, tsunamis, floods, and
other natural disasters
General Affairs Group, Overseas
Security management Office
Fires, explosions, airplane crashes, terrorist
attacks, and other major destructive or violent
events
General Affairs Group, Corporate
Personnel Group, Overseas Security
Management Office
2. Politics, economy, and society
Shutdown or malfunction of information
systems and communication networks
General Affairs Group, Corporate
Information Security Division
Unauthorized use of information systems
General Affairs Group, Corporate
Information Security Division
Inadequate security measures related to
information systems
General Affairs Group, Corporate
Information Security Division
(5) Environment
Wars, civil wars, conflicts, etc.
General Affairs Group, Overseas
Security Management Office
Corporate threats, abduction, and violent civil
unrest
General Affairs Group, Overseas
Security Management Office
Environmental pollution
Corporate Environmental Affairs Group
Waste treatment
Corporate Environmental Affairs Group
Environmental regulations
Corporate Environmental Affairs Group
(6) International relations
3. Operations
(1) Quality, CS, and intellectual property
PL and recall issues, other quality problems
Corporate Quality Administration
Division
Failure in complaint-handling
Corporate CS Division
Intellectual property right infringements
Corporate Intellectual Property Division
(2) Sales and procurement
Violation of security export control
Corporate Legal Affairs Division
Trade issues
Corporate Legal Affairs Division
(7) Finance
Bad loans and business partner bankruptcy
Corporate Accounting Group
Tax and accounting system changes
Corporate Accounting Group
Exchange rate fluctuations
Corporate Finance & IR Group
Violation of antitrust (competition laws)
Corporate Legal Affairs Division
Interest fluctuations
Corporate Finance & IR Group
Bribery
Corporate Legal Affairs Division
Stock price fluctuations
Corporate Finance & IR Group
Violation of Subcontractors Act
Corporate Procurement Division
Corporate Accounting Group
Soaring raw material prices and unavailability
Corporate Procurement Division
Impairment of long-term assets and deferred tax
assets
(8) Labor issues
(3) Information
Human rights issues, including sexual
harassment
Industrial Relations Group, Corporate
Personnel Group, Overseas Security
Management Office
Corporate Information Security
Division
Employment
Corporate Personnel Group, Industrial
Relations Group
Information security incidents related to products
and services
Corporate Information Security
Division
Industrial accidents
Industrial Relations Group
Health issues such as infectious diseases
Insider trading
General Affairs Group
Industrial Relations Group, Overseas
Security Management Office
Trade secret leakage
Corporate Information Security
Division
Private data leakage and violation of privacy
9
Presentation
Hurricane Andrew
10
Situation
In 1992, Hurricane Andrew caused significant
losses to Allstate, State Farm, and other insurance
companies. At the time:
 Florida insurance law did not handle flood and
wind damage properly.
 Insurance companies lobbied for and received
changes in the law.
 The changes were in place in 2004 and 2005.
11
Presentation
Ford and Palladium
12
Situation
In the 1990s, Ford Motor Corp. recognized an
exposure to price fluctuations in the rare metal
palladium.
 Palladium was an important component in
catalytic converters.
 Ford implemented a financial risk management
strategy.
 It hedged the exposure by signing long-term
contracts to purchase Palladium at stable
prices.
13
Risk Management?
Ford’s Research and Development department
recognized the same risk.
It redesigned catalytic converters requiring
minimal palladium.
In 2001, the price per ounce of palladium
dropped from $1,500 to $400.
Ford took a $1 billion financial loss on the longterm supply contracts.
14
Risk Management Tier #1
Risk management as a 2-tier structure:
 Daily operations
 Risk managed by unit heads.
 Oversight is provided by internal audit,
compliance, finance.
 Broader than the use of financial instruments.
15
Risk Management Tier #2
The second tier has a longer-term perspective.
Higher-level executives seek to understand the
implications of big risks and opportunities in:
 Products.
 Markets.
 Customers.
 Competitors.
16
Contributions of ERM
ERM contributions are:
 #1. Upside of Risk
 #2. Risk Owners
 #3. Alignment with Business Model
 #4. Central Risk Function
 #5. High-tech Platform
17
Risk as Loss or Opportunity
Contribution #1. Recognize Upside of Risk.
 Companies invest capital and accept risks
because risk has an upside.
 Failure to take a risk is a risk itself.
 Thus, risk = danger plus opportunity.
18
Risk Ownership
Contribution #2. Identify Risk Owners.
 Assign each risk to a single owner.
 Assign sub-risks to co-owners in a hierarchical
structure.
 Assign ownership of risks that cross
organizational lines to a committee or other
coordinating unit.
19
Align Risk with the Business Model
Contribution #3. Align Risk Accountability.
 With existing functional activities.
 With business units.
 With key initiatives.
20
Central Risk Management
Contribution #4. Create a Central Risk
Function. It:
 Should occupy a high position in an
organizational hierarchy.
 Should identify risks in a constant scanning
process.
 Should share unaligned risks and
opportunities.
21
Central Risk Management
Contribution #4. Create a Central Risk
Function. It:
 Should occupy a high position in an
organizational hierarchy.
 Should identify risks in a constant scanning
process.
 Should share unaligned risks and
opportunities.
 Should not manage risk itself.
22
High Tech Platform
Contribution #5. Create a Technology
Platform.
 Risk identification.
 Risk understanding.
 Collaboration.
23
Presentation
BP Oil Spill
24
The BP Crisis, an Extreme Event
Day 1. (April 20, 2010)
Transocean is preparing to move the Deepwater
Horizon:
 Leased to the BP Group.
 Finished drilling a high pressure well for BP.
 Explosion creates an out-of-control sea-floor
oil gusher.
 The oil rig sinks.
25
In Fairness to BP
Horizon Deepwater was a very successful rig until
April 20, 2010:
 Seven-year safety record.
 Drilling some of the deepest wells in the
world.
 Never fail or mostly working?
 Should BP have known?
26
Mostly Working in Normal Times
2005: Texas City Refinery explosion.
 15 deaths.
 180 injuries.
 Cause: Hydrocarbon overflow. Maintenance
was cut as a cost-saving measure.
2009 post-disaster inspection findings:
 270 unfixed safety violations.
 439 new violations.
27
Mostly Working
At the BP Texas City refinery in :
 2006. Worker crushed between a pipe stack
and mechanical lift.
 2007. Worker electrocuted.
 2008. Worker killed by a 500-pound piece of
metal.
In the North Sea in good weather:
 2009. BP helicopter ferrying workers from BP
oil platform crashed killing all 16 on board.
28
Mostly Not Working
From 2007 to 2010, (Occupational Safety and
Health Administration) OSHA reported:
 851 willful safety violations by U.S. oil
refiners.
 829 by BP.
February 2010. OSHA reported that “BP has a
serious, systemic safety problem in their
company."
29
Information not Shared
On the Horizon Deepwater, workers were
surveyed prior to the oil spill:
 Concerned about safety practices.
 Feared reprisals if they reported problems.
 Unreliable equipment.
 “Run it, break it, fix it.”
 Did BP have access to the information?
30
Failure to Collaborate
On the Horizon Deepwater, Transocean did a 112page equipment assessment report:
 Unsafe conditions and practices.
 Rig had never been in dry dock.
 Blowout preventer rams and fail-safe valves
not inspected.
 26 components and systems in “bad” or
“poor” condition.
31
Lacey Resignation
Kevin Lacey was a drilling engineer who had
implemented a rigorous drilling safety program at
Chevron.
 He was hired by BP in 2007 senior vice
president for drilling operations.
 He tried to improve and standardize the BP
drilling policies and practices.
 He resigned in 2009 believing BP was not
committed to improving safety in offshore
drilling.
32
Ready to Respond?
Slow progress.
 It was one thing to be surprised.
 It is another thing to not be ready to respond.
 The crisis was attacked in stages.
 Close blowout preventer valves.
 Add a containment dome.
 Pump in heavy fluids
 Pump in mud and cement.
33
Outcome
Day 86. July 15, 2010 – Gusher was capped after
releasing 5 million barrels of oil.
34
Missing Elements
BP Oil lacked two important components of
financial risk management:
 No central process to identify financial risks
that cannot be transferred with financial
instruments.
 No collaborative system for bringing such
risks to the attention of management.
35
Question
Did BP have the big picture in 2010?
36
Was this Visible?
Safety
Practices in
Texas
Cost
Cutting
Kevin Lacy
Resignation
Maintenance
of Oil Rig
itself
Board of
Directors
OSHA
Violations
Concerns of
Rig Workers
37
Was this Visible?
High pressure
well
Rig
needs
overhaul
Everybody
not ready
Top
Management
Rushing to
complete
drilling
41 miles from
Louisiana
wetlands
38
Interrelationship of Risk
Linkages.
Cost
Cutting
leads to
Poor
maintenance
of oil rig
41 miles from
Louisiana
wetlands
for a big loss
creating
Unsafe
practices
while
Everybody is
not ready
when
Rushing to
complete
drilling
39
Lesson Learned
A broader view of risk management
recognizes.
 We cannot predict extreme events.
 We can look for the big picture.
 We can avoid some situations.
 We can prepare for others.
40
Presentation
Global Tankships
41
Financial Role in Crisis
Sometimes the finance function has a role in risk
management that can be critical to success.
42
Overview
Global Tankships is a worldwide operator of
general purchase and medium-range product
tankers:
 Size of Fleet. 65 vessels.
 Cargoes. Hydrocarbon liquids ranging from
crude oil to refined petroleum products.
 Voyage Routes. Worldwide.
 Headquarters. Netherlands.
43
Business Model
The company creates value as follows:
 Reliability. Known as one of the safety and
most modern tanker operators.
 Efficiency. Recognized for rapid loading and
discharge and speedy port turnaround.
 Cost. Although has higher charter and
contract of affreightment rates, excellent
operations make it highly competitive saving
money for cargo owners.
44
Situation
To be consistent with its business model, the
company has decided to create its own crisis
management team. The team would:
 Personnel. Recommend the members of the
team.
 Plan. Create a crisis plan to be approved by
the CEO.
 Respond. Take charge in the event of an oil
spill, collision at sea, or other incident.
45
Question
Assume the company picked a team leader who
wanted a total of six people on the Global
Petroleum team. Who would you recommend by
title to be part of the team?
46
Answer
The company decided that the team would consist
of:
 Team Leader
 Systems Specialist
 Finance Specialist
 Petroleum Engineer
 Logistics Specialist
 Public Relations Manager
47
Situation
A Global Petroleum Company refined-products
tanker was rounding the coast of Scotland at the
height of the summer vacation season. It ran
aground in a storm on rocks close to a small resort
town with 300 year-round residents and one 40room hotel. Within 24 hours a crisis team arrived
to contain the oil spill, which was growing by the
hour.
This story comes from U.S. Coast Guard files.
48
Crisis Management Efforts
Within 12 to 36 hours after the spill, the following
events occurred:
 Tugs from London arrived with oil
containment equipment.
 150 personnel arrived to undertake the
cleanup of oil. They would work shifts of 12
hours on and 12 hours off.
 The team leader learned that cleanup
workers would be needed at the spill for 3-4
weeks.
49
Investigating Housing and Subsistence
The crisis team determined the following:
 Few local residents were willing to provide
sleeping accommodations for workers.
 The hotel was booked solid with summer
vacationers. The owner was not willing to
displace them for workers.
 The nearest town with hotels was 120
kilometers (75 miles).
 Adequate food supplies would be shipped via
truck in time to feed workers.
50
Question
Describe the alternatives available to the team
leader to solve the housing problem for the
cleanup workers.
51
Answer (1)
Possibilities include:
 Negotiate with the hotel.
 Negotiate with homeowners.
 Bring in tents.
 Bring in a small cruise ship.
 Bus workers in from hotels in the other town.
52