The Developing Role of the Risk Manager

1
The Developing Role of the Risk Manager

• ALARM Scotland
• 2 September 2002
• Mark Butterworth
• Chairman, The Institute of Risk Management

2
Introduction

• Role and functionality of risk management
• Traditional and future roles of risk managers
• Why engage a risk manager?
• Developing risk managers skill set
• Changes with senior management
• Conclusions

3
Role of Risk Management

• A function to optimise outcomes, such as profit
  objectives return on investment performance
  measures value creation
• Strong loss prevention implications
• Effective and comprehensive risk management
  facilitates risk taking - better risk analysis
  assists improved decision making
• Effective risk management requires good
  communication within an organisation
• It is a role that has grown out of insurance,
  audit, health and safety or accounting
• Closely related to Corporate Governance

4
Functionality of Risk Management

• Specialist advisers on risk management
  methodology
• Owner of the design and operation of the risk
  framework
• Co-ordination of Combined Code/Turnbull review
  work, including reporting to the board on risk
  issues
• Risk financing - including insurance
• Full functionality is highly variable according
  to prevailing culture (silo or open management)
  position of risk management in its development
  within the entity industry
• Industry emphasis
• banks credit risk IT continuity
• food quality property market
• media libel healthcare clinical

5
Traditional Focus - Insurance Event Risk

• Risk awareness at board level low - left to
  specialists - risk management ill-defined
• Loss control dictated by insurers requirements -
  typically on fire, theft, storm protection
  employee vetting ship inspections
• Loss experience a driver for change (rear view
  mirror)
• Insurance seen as a burden
• Risk always seen as a negative

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Future Focus of the Risk Managers Role?

• Risk financing as a vital balance sheet
  management tool
• Strong interest in risk reduction - but not
  always risk avoidance
• Emphasis on risk profiling and mapping
• Stewardship of the Corporate Governance framework
• Setting the agenda for the risk management
  roundtable
• User of risk information - undertakes research
• Compilation of reports to senior management

7
Categories of Risk Manager

• Insurance risk manager
• Credit risk manager
• Treasury risk manager
• Legal/Compliance risk manager
• Health and Safety
• Investment
• Security
• Enterprise-wide risk manager (CRO)

8
The Risk Management Roundtable(or Steering
Group or Committee)

• Members of a team all having a part to play but
  facilitation and co-ordination by the Risk
  Manager
• Members would include
• Legal/Secretarial
• Finance
• Treasury
• IT
• Corporate Comms/Brand
• Health and Safety
• HR
• Security
• Quality
• Procurement

9
Why Engage a Risk Manager?

• Measures of value added are important in
  answering this question
• Cost of risk analysis
• based on defined cost headings (uninsured losses
  insurance premiums/fees expenses etc)
• year on year comparison
• benchmarked with peer group companies
• Scope of influence at board level (frequency of
  reports time allowed for presentations
  sponsorship of specific initiatives by senior
  managers/directors)
• Clean reports from external regulators
• Influence on cost of capital and bidding for
  funding
• Customer satisfaction surveys

10
Risk Managers Skill Set - Delivery of RMgt
Requires Diverse Attributes

• Numeracy - financial analysis quantitative
  methods budgeting
• Communication - written verbal presentational
• Influencing - internal and external
• Facilitation - bringing the risk management
  roundtable together
• Project management - maintaining order in RM
  processes
• Negotiation - deal making building relationships
• Conceptualising - creativity experimentation
• Doing and completing - closure of RM initiatives

11
Risk Managers Skill Set - What Employers Are
Looking For (1)

• Excellent communication skills, the ability to
  work in partnership with others, team leader,
  computer skills
• Risk Manager - Staffordshire Police Force
• Experience of collaborative risk/audit functions,
  qualified accountant, highly energised, enjoy
  working in a highly skilled team
• Head of Risk Management - Link Network Ltd
• Qualification in risk management (AIRM, ACII or
  degree essential), practical experience of claims
  management and insurance covers, ability to
  communicate effectively at all levels and to
  operate at strategic and operational levels
• Risk and Insurance Manager - Croydon Council

12
Risk Managers Skill Set - What Employers Are
Looking For (2)

• ACII and/or AIRM, you should be a dynamic leader,
  adviser and strategist
• Group Risk Manager, Transport for London
• Studying towards ACII or AIRM.. excellent
  communication and interpersonal skills
• Risk and Insurance Officer, Portsmouth City
  Council
• Disciplined and self motivated, you will need to
  display an abundance of drive and enthusiasm
• UK Risk Manager, Tibbett and Britten
• Chris Mandel (President of RIMS)
• Core competencies are financial acumen,
  persuasion skills and ethical management

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Thoughts on the Developing Role

• Changing senior management perceptions of risk
• Greater awareness of risk management
• Ray Mattholie, Group Risk Manager, BT plc
• its about timing its about profile
• Raises questions
• are my senior managers aware
• is the timing right?
• is my profile right?

14
Importance of Senior Management Support for Risk
Management

• Top level sponsorship - usually the most
  effective way of opening doors, building networks
• Focal point for changes necessary following risk
  analysis
• Ultimately the board are responsible for risk
  performance - they need good risk reports for
  decision making
• The senior management team authorise
  budgets/resources for the risk management
  function
• Its vital to have a client who values what you
  do

15
Reasons Why Senior Managements Awareness of RM
Has Grown

• Direct personal involvement in incidents/losses
• Listing Authority requirements for corporate
  governance structures and reporting
• Media coverage of major scandals and high profile
  losses
• Maxwell Enron Pensions Misselling
• BCCI Lyme Bay Selby rail crash
• Barings Firestone AIB
• Bhopal Mellisa Fat cats salary criticism
• Business school references to risk management
• Self-promotion by risk managers, consultants
  and professional organisations

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Role of Risk Management IT Programs

• Software ranges from accident/loss database to
  predictive scenario analysis
• A risk management information system (RMIS)
  typically acts as an information management tool
  - useful for analysis of historical
  losses/causes/locations etc, and for report
  generation
• Predictive software uses Monte Carlo simulation
  to allow many possible outcomes to be modelled,
  e.g _at_RISK
• Used widely in investment risk analysis, capital
  and banking markets
• An important tool for the developing risk manager

18
Growing Role of Risk Management in Government

• Review of best practice in the commercial sector
  carried out by the National Audit Office (NAO) -
  report published in August 2000
• Encouragement of well thought through risk
  taking
• Rollout in Government departments
• Supporting Innovation - Risk Management in
  Government Departments (www.nao.gov)

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Conclusion

• The expectations of senior management is for
  insurance and risk managers to contribute more
• The role is changing, requiring a wider skill set
• technical
• business
• personal attributes
• Everyone can (must?) develop into a more
  recognised and highly valued role

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Further websites

• The Institute of Risk Management www.theirm.org
• The Financial Services Authority www.fsa.gov
• Erisk www.erisk.com
• The Association of
• Corporate Treasurers www.corporate-
• treasurers.co.uk
• Institute of Internal Auditors www.iia.org.uk
• RMIS Directory www.rmisweb.com
• Strategic Risk magazine www.strategicrisk.co.uk