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Fifth Edition Fundamentals of Risk Management Understanding, evaluating and implementing effective risk management Paul Hopkin
Contenu du document
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Publisher’s note Every possible effort has been made to ensure that the information contained in this book is accurate at the time of going to press, and the publishers and authors cannot accept responsibility for any errors or omissions, however caused. No responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result of the material in this publication can be accepted by the editor, the publisher or any of the authors. First published in Great Britain and the United States in 2010 by Kogan Page Limited Fifth edition 2018 Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licences issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned addresses: 2nd Floor, 45 Gee Street London EC1V 3RS United Kingdom c/o Martin P Hill Consulting 122 W 27th St, 10th Floor New York, NY 10001 USA
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4737/23 Ansari Road Daryaganj New Delhi 110002 India www.koganpage.com © The Institute of Risk Management, 2010, 2012, 2014, 2017, 2018 The right of The Institute of Risk Management to be identified as the author of this work has been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. ISBN 978 0 7494 8307 4 E-ISBN 978 0 7494 8308 1 Typeset by Integra Software Services, Pondicherry Print production managed by Jellyfish Printed and bound by CPI Group (UK) Ltd, Croydon, CR0 4YY
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CONTENTS Cover Title Page Copyright Contents List of figures List of tables Foreword Acknowledgements Introduction Risk management in context Nature of risk Risk management Risk management terminology Benefits of risk management Features of risk management Book structure Risk management in practice Future for risk management Changes for the fifth edition PART ONE Introduction to risk management Learning outcomes for Part One Part One further reading Part One case studies Rank Group: How we manage risk
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ABIL: Risk management overview BIS: Approach to risk 01 Approaches to defining risk Definitions of risk Types of risks Risk description Inherent level of risk Risk classification systems Risk likelihood and magnitude 02 Impact of risk on organizations Level of risk Impact of hazard risks Attachment of risks Risk and reward Attitudes to risk Risk and triggers 03 Types of risks Timescale of risk impact Four types of risk Embrace opportunity risks Manage uncertainty risks Mitigate hazard risks Minimize compliance risks 04 Scope of risk management Origins of risk management Development of risk management Specialist areas of risk management
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Simple representation of risk management Enterprise risk management Levels of risk management sophistication 05 Principles and aims of risk management Principles of risk management Importance of risk management Risk management activities Effective and efficient core processes Implementing risk management Achieving benefits PART TWO Approaches to risk management Learning outcomes for Part Two Part Two further reading Part Two case studies United Utilities: Our risk management framework Birmingham City Council: Scrutiny, accountability and risk management Tsogo Sun: Risk management process 06 Risk management standards Scope of risk management standards Risk management process Risk management context COSO ERM cube Revised ISO 31000 (2018) Updating of RM terminology 07 Establishing the context
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Scope of the context External context Internal context Risk management context Designing a risk register Using a risk register 08 Enterprise risk management Enterprise-wide approach Definitions of ERM ERM in practice ERM and business continuity ERM in energy and finance Integrating strategy and performance 09 Alternative approaches Changing face of risk management Managing emerging risks Increasing importance of resilience Different approaches Structure of management standards Future of risk management PART THREE Risk assessment Learning outcomes for Part Three Part Three further reading Part Three case studies AA: Risk governance British Land: Our assessment of risk is a cornerstone Guide Dogs NSW/ACT: List of major residual risks
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10 Risk assessment considerations Importance of risk assessment Approaches to risk assessment Risk assessment techniques Nature of the risk matrix Risk perception Attitude to risk 11 Risk classification systems Short-, medium- and long-term risks Nature of risk classification systems Examples of risk classification systems FIRM risk scorecard PESTLE risk classification system Compliance, hazard, control and opportunity 12 Risk analysis and evaluation Application of a risk matrix Inherent and current level of risk Control confidence 4Ts of hazard risk response Risk significance Risk capacity 13 Loss control Risk likelihood Risk magnitude Hazard risks Loss prevention Damage limitation
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Cost containment 14 Defining the upside of risk Upside of risk Opportunity assessment Riskiness index Upside in strategy Upside in projects Upside in operations PART FOUR Risk response Learning outcomes for Part Four Part Four further reading Part Four case studies Intu Properties: Insurance renewal The Walt Disney Company: Disclosures about market risks Australian Mines Limited: Risk assessment and management 15 Tolerate, treat, transfer and terminate The 4Ts of hazard response Tolerate risk Treat risk Transfer risk Terminate risk Strategic risk response 16 Risk control techniques Types of controls Hazard risk zones
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Preventive controls Corrective controls Directive controls Detective controls 17 Insurance and risk transfer Importance of insurance History of insurance Types of insurance cover Evaluation of insurance needs Purchase of insurance Captive insurance companies 18 Business continuity Business continuity management Business continuity standards Successful business continuity Business impact analysis (BIA) Business continuity and ERM Civil emergencies PART FIVE Risk strategy Learning outcomes for Part Five Part Five further reading Part Five case studies AMEC Foster Wheeler: Principal risks and uncertainties BBC: Internal controls assurance Emperor Watch & Jewellery: Risk management 19 Core business processes
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Dynamic business models Types of business processes Strategy and tactics Effective and efficient operations Ensuring compliance Reporting performance 20 Reputation and the business model Components of the business model Risk management and the business model Reputation and corporate governance CSR and risk management Supply chain and ethical trading Importance of reputation 21 Risk management context Architecture, strategy and protocols Risk architecture Risk management strategy Risk management protocols Risk management manual Risk management documentation 22 Risk management responsibilities Allocation of responsibilities Range of responsibilities Statutory responsibilities of management Role of the risk manager Risk architecture in practice Risk committees
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23 Control of selected hazard risks Cost of risk controls Learning from controls Control of financial risks Control of infrastructure risks Control of reputational risks Control of marketplace risks PART SIX Risk culture Learning outcomes for Part Six Part Six further reading Part Six case studies Network Rail: Our approach to risk management Ekurhuleni Metropolitan Municipality (EMM): Risk management Ericsson: Corporate governance report 24 Risk-aware culture Styles of risk management Steps to successful risk management Defining risk culture Measuring risk culture Alignment of activities Risk maturity models 25 Importance of risk appetite Nature of risk appetite Risk appetite and the risk matrix Risk and uncertainty Risk exposure and risk capacity
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Risk appetite statements Risk appetite and lifestyle decisions 26 Risk training and communication Consistent response to risk Risk training and risk culture Risk information and communication Shared risk vocabulary Risk information on an intranet Risk management information systems (RMIS) 27 Risk practitioner competencies Competency frameworks Range of skills Communication skills Relationship skills Analytical skills Management skills PART SEVEN Risk governance Learning outcomes for Part Seven Part Seven further reading Part Seven case studies Severn Trent Water: Our approach to risk Tim Hortons: Sustainability and responsibility DCMS: Capacity to handle risk 28 Corporate governance model Corporate governance OECD principles of corporate governance
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LSE corporate governance framework Corporate governance for a bank Corporate governance for a government agency Evaluation of board performance 29 Stakeholder expectations Range of stakeholders Stakeholder dialogue Stakeholders and core processes Stakeholders and strategy Stakeholders and tactics Stakeholders and operations 30 Operational risk management Operational risk Definition of operational risk Basel II and Basel III Measurement of operational risk Difficulties of measurement Developments in operational risk 31 Project risk management Introduction to project risk management Development of project risk management Uncertainty in projects Project lifecycle Opportunity in projects Project risk analysis and management 32 Supply chain management Importance of the supply chain
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Scope of the supply chain Strategic partnerships Joint ventures Outsourcing of operations Risk and contracts PART EIGHT Risk assurance Learning outcomes for Part Eight Part Eight further reading Part Eight case studies Unilever: Our risk appetite and approach to risk management Colgate Palmolive: Damage to reputation Sainsbury’s and Tesco: Principal risks and uncertainties 33 The control environment Nature of internal control Purpose of internal control Control environment Features of the control environment CoCo framework of internal control Good safety culture 34 Risk assurance techniques Audit committees Role of risk management Risk assurance Risk management outputs Control risk self-assessment Benefits of risk assurance
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35 Internal audit activities Scope of internal audit Role of internal audit Undertaking an internal audit Risk management and internal audit Management responsibilities Five lines of assurance 36 Reporting on risk management Risk reporting Sarbanes–Oxley Act of 2002 Risk reports by US companies Charities’ risk reporting Public-sector risk reporting Government report on national security Appendix A: Abbreviations and acronyms Appendix B: Glossary of terms Appendix C: Implementation guide Index Backcover
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LIST OF FIGURES FIGURE 1.1 Risk likelihood and magnitude FIGURE 2.1 Attachment of risks FIGURE 2.2 Risk and reward FIGURE 2.3 Disruptive events and the bow-tie FIGURE 4.1 8Rs and 4Ts of (hazard) risk management FIGURE 4.2 Risk management sophistication FIGURE 6.1 IRM risk management process FIGURE 6.2 Components of the RM context FIGURE 6.3 COSO ERM cube FIGURE 6.4 RM process from ISO 31000 (2018) FIGURE 7.1 Three components of context FIGURE 10.1 Risk attitude matrix FIGURE 11.1 Bow-tie representation of risk management FIGURE 11.2 Bow-tie and risks to premises FIGURE 12.1 Personal risk matrix FIGURE 12.2 Inherent, current and target levels of risk FIGURE 13.1 Loss control and the bow-tie
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