Enterprise Risk Management: Aligning Risk with Strategy & Performance June 26, :45 p.m. 4:45 p.m.

Transcription

1 Enterprise Risk Management: Aligning Risk with Strategy & Performance June 26, :45 p.m. 4:45 p.m. Presented by: Marc Winkler Director P&G Associates 646 Highway 18 East Brunswick, NJ P: E:

2 Agenda COSO and Enterprise Risk Management 2004 ERM Integrated Framework ERM Framework Update Bank Strategic Planning Aligning Risk with Strategy & Performance Q&A

3 Committee of Sponsoring Organizations of the Treadway Commission (COSO) S COSO is a private sector initiative, jointly sponsored and funded by: American Accounting Association American Institute of Certified Public Accountants Financial Executives International Institute of Management Accountants The Institute of Internal Auditors

4 Enterprise Risk Management Current COSO 2004 Enterprise Risk Management Integrated Framework Proposed COSO Enterprise Risk Management Aligning Risk with Strategy and Performance Exposure Draft Updated version expected to be released in mid-2017 Unchanged: COSO 2013 Internal Control Integrated Framework

5 COSO 2004 ERM Integrated Framework s

6 COSO 2004 ERM Why Update? Obtain Better Value from Enterprise Risk Management s Provide Greater Insight into Strategy and the Role of ERM in the Setting and Execution of Strategy Enhances the Alignment Between Organizational Performance and ERM

7 ERM Framework Key Changes Emphasizes the relationship between risk and value s Renews the focus on the integration of ERM Examines the role of culture Elevates discussion of strategy Enhances the alignment between performance and ERM Links ERM into decision-making more explicitly Refines risk appetite and acceptable variation in performance (risk tolerance)

8 ERM Framework Update 5 Components s Risk Governance and Culture Risk, Strategy and Objective Setting Risk in Execution Risk Information, Communication and Reporting Monitoring ERM Performance

9 ERM Aligning Risk with Strategy and Performance Exposure Draft

10 Risk Management Principles S Risk Governance and Culture 1. Exercises Board Risk Oversight 2. Establishes Governance and Operating Model 3. Defines Organizational Behaviors 4. Demonstrates Commitment to Integrity and Ethics 5. Enforces Accountability 6. Attracts, Develops and Retains Talented Individuals

11 Risk Management Principles S Risk, Strategy and Objective Setting 7. Considers Risk and Business Context 8. Defines Risk Appetite 9. Evaluates Alternative Strategies 10. Considers Risk while Establishing Business Objectives 11. Acceptable Variation from Performance

12 Risk Management Principles S Risk in Execution 12. Identifies Risk in Execution 13. Assesses Severity of Risk 14. Prioritizes Risks 15. Identifies and Selects Risk Responses 16. Assesses Risk in Execution 17. Develops Portfolio View

13 Risk Management Principles S Risk Information, Communication and Reporting 18. Uses Relevant Information 19. Leverages Information Systems 20. Communicates Risk Information 21. Reports on Risk, Culture and Performance

14 Risk Management Principles S Monitoring Risk Management Performance 22. Monitors Substantial Change 23. Monitors Enterprise Risk Management

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16 Bank Strategic Planning Mission, Values and Vision S Generally use SWOT (Strengths, Weaknesses, Opportunities, Threats) Methodology Establishes Goals Financial, Products and Services, Operations Identifies Tactics and Strategies Defines Responsibilities Review Process in Place

17 Bankers are Experienced Risk Managers s Defined Policies Risk Tolerances Defined Responsibilities Robust Internal Controls Robust Reporting Requirements Monitoring Processes Stress Testing Oversight Board Committees

18 Traditional Risk Silos S Credit Risk Interest Rate Risk Liquidity Risk Regulatory Risk Transaction Risk Reputational Risk Market/Demographic Risk Strategic Risk

19 Aligning Risk with Strategy & Performance s Traditional Risks Economic Risk National Economic Risk Local Market/Competition Risk Demographic Risk Technology Risk Personnel Risk Strategic Risk

20 Strategic Planning Breaking Down the Silos S Credit Risk Demographic Risk Interest Rate Risk Market/Competition Risk Personnel Risk Economic Risk National Strategic Risk Liquidity Risk Transaction Risk Reputational Risk Regulatory Risk Technology Risk Economic Risk Local

21 Aligning Risk with Strategy & Performance s Risk Recession GDP Growth Decreasing Increasing Unemployment Decreasing Asset Values Root Cause Increasing Inflation, FRB Increases Rates Impact Strategy & Performance Performance Objective 9% ROE Texas Ratio Objective less than 10% Past due and non-performing loans increase Increased provision for loan losses Reduced loan growth/reduced revenue growth Result Bank does not meet performance objectives

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25 THANK YOU! Enterprise Risk Management: Aligning Risk with Strategy & Performance Questions? Marc Winkler Director P&G Associates 646 Highway 18 East Brunswick, NJ P: E: