Risk Management at Corporate Level and Strategic Business Level

Transcription

1 Risk Management at Corporate Level and Strategic Business Level

2 Enterprise Risk Management (ERM) Model Measuring & Monitoring Business Strategy Risk Strategy Risk Structure Aligning ERM Resources and actions with the business strategy is necessary to maximize organizational effectiveness

3 Corporate Structure Corporate Entity Legal Financial Marketing Personnel SBU (A) SBU (B) SBU (C) SBU (D) SBU (E) Projects Projects Projects Projects Projects

4 Corporate Strategy Plan (CSP) Johnson and Scholes (1999) believe that the plan is produced within the following objectives: Create and maintain a strategy that achieves the corporate intent, corporate commitments and expectations of the customers, shareholders, and other stakeholders Incorporate and maintain the commitments and the requirements of business sectors, specially SBUs and process owners that support the strategic direction Communicate the strategic direction and relevant objectives and target to each SBU Manage strategic change to maintain or gain competitive advantage

5 Corporate strategy is a portfolio of integrated business strategies that will deliver the corporate intent and are consistent with the financial investments or constraints facing the group Increasing diversification within corporations gives the new problems to the senior manager: 1. How to manage a wide spread of businesses? 2. How to organize the corporation? 3. How much power should the organization delegate? 4. How is the scarce capital allocated between the diverse business? 5. The risk associated with each business and its management?

6 Board main roles Houlden (1990): 1. To direct the company 2. to appoint the managing director/chief executive 3. To delegate the appropriate powers for running the company 4. To monitor the performance of the company 5. To take corrective action where necessary

7 Roles of Corporate Mission Direction Point the organization in certain direction Legitimization Convey to all stakeholders, on each level and outside the company, what the organization is pursuing, and that these goals and objectives will add value to the company Motivation Inspiring individuals and different levels of the organization to work together in a particular way

8 Three important functions of addressed to corporate level Forming Function To influence the forming of the corporate mission Performance Function To contribute to the strategy process with the intention of improving the future performance of the corporation Conformance Function To ensure corporate conformance to the stated mission and strategy

9 Key Corporate Strategy Components Organizational Scope Corporate Added Value Corporate Parenting Corporate Strategy

10 Three styles of corporate management 1. Strategic Planning 2. Strategic Control 3. Financial Control

11 Risk at Corporate Level (1) Harley (1999) states that: Risk is now beginning to be consolidated as a fundamental threat that runs through an organization s entire structure and a companies approach to risk is coming to be seen as just as important as its approach to operations, finance, or any other basic corporate function. The way a company engineers its risk structure is a fundamental part of corporate strategy

12 Risk at Corporate Level (2) Managing corporate risk is a continuous process in which the main principle in risk management is used as identified by Thompson and Perry (1992): 1. Identification of risk/uncertainty 2. Analysis of implication 3. Response to minimum risk 4. Allocation of appropriate contingencies

13 Chapman and Ward (1997) Risk Avoidance Cancel a project, move out of a market, sell off part of the corporation Risk Reduction Acquisitions or mergers, move to the new market, develop a new product/technology in existing market, business process reengineering, corporate risk management policy Risk Transfer Partnership, corporate policy on insurance Risk Retention A positive decision to accept the risk due to the potential gain it allows

14 GAP Analysis GAP analysis involves identifying ways of closing the gap between the actual and the projected levels of performance, by: 1. Change the strategy 2. Add businesses to or delete them from the corporate portfolio 3. Change SBU political strategies 4. Change objectives

15 Business - Introduction French and Saward (1983): Business is the activities of buying and selling goods, manufacturing goods or producing services in order to make a profit Collins English Dictionary (1995) Business is a commercial or industrial environment

16 Three essentials requirements for starting a business 1. The financial resources needed to support a business 2. A product or service that is wanted outside the business, and can be sold and exploited by it 3. Sufficient people to operate the business

17 Strategic Business Unit (SBU) Johnson and Scholes (1999): SBU is a part of the organization for which there is a distinct external market for goods and services Langford and Male (2001): Large firms will normally set up a strategic business unit. It will have the authority to make its own strategic decisions within corporate guidelines that will cover a particular product, market, client, or geographic area

18 Strategic Linkages A corporation without strategy is like an aero plane weaving through stormy skies, hurling up and down, slammed by the wind, and lost in the thunderheads. If lightning or crushing winds do not destroy it, it will simply run out of fuel (Toffler, 1985)

19 Verway and Comninos (2002) Strategic planning at the organizational level results in a set of organizational imperatives. The business managers convert these into business strategies Business strategies are in turn carried out through projects whose strategy is the project approach or plan

20 Business Strategy Michael Porter believe an organization s strategy is normally defined by four components: 1. Business scope 2. Resources utilization 3. Business synergy 4. Competitive advantage

21 Three fundamental characteristics of SBU s strategic position McNamee (1985): 1. Its market growth rate 2. Its relative market share in comparison with the market leader 3. The revenues generated from the product s sales of the SBU s activities

22 Programme Management Central Computer and Telecommunication Agency (CCTA) (1994): selection and planning of a portfolio of projects to achieve a set of business objectives; and the efficient execution of these projects within a controlled environment such that the realize maximum benefit for the resulting business operation Reiss (2000) The effective implementation of change through multiple projects to realize distinct and measurable benefits for an organization Lockitt (2000) Set of management activities and processes which facilitate the translation, conversion, prioritization, balancing and integration of new strategic initiatives within the context of the current organization and planned time and cost constraints, thereby minimizing risk and maximizing benefit to the organization

23 Key components of programme management (1) Performance Analysis & Reporting Organizational Arrangements Quality Management Requirements Management Timeline Management PROJECTS Financial Management Procurement Management Resource Management Contract Management Risk Management

24 Key components of programme management (2) Organizational arrangements defining and maintaining the programme management environment Requirements management keeping track of the requirements and changes to the requirements Financial management the policies, procedures, practices, techniques and tools necessary to establish and maintain effective financial planning and reporting Resource management The direction and co-ordination of all resources throughout the programme s life cycle

25 Key components of programme management (3) Risk management systematic identification of, analysis of and proactive response to risks, issues and problems, both real and anticipated, throughout the programme s life cycle Contract management the organizational, procedural and functional tasks, policies and practices for the day-to-day handling of commercial, legal, administrative and monetary considerations of the contracts between the programme and its suppliers Procurement management acquisition of purchased services and labor, goods, physical plant and equipment, operational equipment, raw material, component finished parts and equipment, and software for the programme

26 Key components of programme management (4) Timeline management the guidelines, techniques, knowledge and tools required to develop and maintain appropriate allocations of time and effort throughout all phases of the programme s life cycle Quality management the composite of technical and managerial standards, procedures, processes and practices necessary to empower and provision each person fully to accomplish and exceed the mission, objectives, needs, requirements and expectations for which the programme was establish Performance analysis and reporting disciplines, techniques, tools, and systems necessary and adequate to establish and maintain programme performance analysis and reporting throughout the life cycle of the programme