European Risk Management Practice:

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European Risk Management Practice

• Where are we and where are we heading to?
• Dr. M. Dequae
• IV international professional forum
• Moscow 30.05.06

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• Overview evolution
• Where are we today?
• Options for further development
• Ferma actions
• ProRim
• Benchmark Survey

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1. Overview evolution

• Change in risk management
• in theory
• in practice
• from compliance to adding value
• Reasons for this change
• Regulatory initiatives
• Corporate collapses
• Changing attitudes of directors
• Risk management as
• a genuine discipline
• a priority on the corporate agenda

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History of risk management practice
PAST
PRESENT

• Insurable and financial risks Hazard Risk
  Management
• Focus on preservation oftangible assets
• Each department/function manages its risks
  independentlysilo approach
• Risk Management separate function within the
  organization
• Focused on avoidance of negative events risks
  are threats

Operational, strategic, financial and Insurable
risks Enterprise Risk Management Recognition
of the value of tangible and intangible assets
Coordinated at highest level within the
organization Integrated approach RM is
everyone's daily concern embedded in the
operations Considering all business
uncertainties risks are threats and
opportunities business risk management
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Loi de Sécurité Financière (F)
2004
2003
US Sarbanes-Oxley Act (EU)
2002
Groupe travail AFEP, MEDEF (F)
2001
Basel II (fin. Inst.)
2000
1999
1998
1997
1996
1995
1994
COSO report (US)
1992
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2. Where are we today?

• Key activities of risk management
• See risk management process
• Evolution from business risk management
  organisation over assurance to disciplined risk
  management organisation
• More global approach to all risks (not only
  insurable risks)
• Enterprise risk management
• Business continuity planning
• Supply chain risk management
• Risk management in most cases reporting to CFO
  (not directly to board)
• Changing role of internal audit
• Increasing scope for assurance (see IIA guidance)
• Risk mapping (also as basis for risk based
  auditing) supporting risk management
• New organisation put in place to respond to a
  changing external environment

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3. Options for further development

• Two options for further development in risk
  management possible, with focus on
• the hard changes, into a performance risk managed
  organisation
• more quantitative qualitative risk management
  techniques
• the soft changes, into an embedded risk managed
  organisation
• embedding risk management practice in management
  culture

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• Both are a challenge shift in mindset from risk
  management
• needed as a compliance activity, to
• contributing to value and business success
• Purpose is to link risk management with future
  business success.
• Risk managers will need for more expertise in
• business management
• risk sciences (financial engineering)
• to complement focus on audit and operational risk

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The disciplined risk management organisation

• hurdle
• Risk management is not a specialist activity
• It is done differently in different functions
• It is not a core part of how we do business

• Characteristics
• Dedicated resources for ensuring high standards
  of risk management practice
• Consistency of approach across the whole business
• Risk management a high priority for the executive
• Risk management becomes a core management process
  and activity
• Central oversight and direction from a management
  leader

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The performance risk managed organisation

• hurdle
• Risk management has no contribution to make to
  the business strategy
• Risk management is more of a cost than an
  investment
• Risk management does not help the executive to
  make decisions

• Characteristics
• Quantitative qualitative risk management
  techniques applied to strategic and business
  planning
• Senior specialist risk management resources
  (Chief Risk Officer)
• Demonstrable returns to stakeholders for risk
  management investment

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The embedded risk managed organisation

• hurdle
• Risk management is done with some reluctance
• It is done in addition to normal working
  practices
• It consumes valuable management time

• Characteristics
• Risk management is an accepted personal
  performance measure
• Limited reluctance or challenging of risk
  management requirements
• Self-improvement through sharing of best
  practices
• Cross-functional risk management forums

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4. Ferma actionsProRimBenchmark Survey

• see more on www.ferma-asso.com

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PRORIM (professional in risk management)

• E-learning course realised with the financial
  support of EUs Leonardo da Vinci programma
• Will be commercialised in the second half of 2006
• PRORIM is
• A combination of 6 distance learning modules and
  a 1 day programme.
• Based on the Risk Management Standard
• Interactive, practical very relevant to todays
  needs
• Very user friendly
• Easy to customise for each country

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PRORIMs modules
Sales Marketing
Business Continuity
Human Resources
Finance
Strategy
1 day training
Introduction
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Ferma Benchmarking survey 2006 on risk
management practices

• The latest trends in risk management. This is
  for you, risk managers. The latest assessment
  of European practices New corporate governance
  trends The Risk Management process, function
  and reporting The major evolutions in insurance
  practicesThe Risk Management survey starts in
  March 2006!
• Dont miss to answer! Results will be
  available and presented at the FERMA Seminar in
  Brussels on 11th October 2006!Free registration
  Members of FERMA risk managers only Book the
  date in your diary now!With the support of
  Ernst and Young and AXA Corporate Solutions

Third edition