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Excellence in Risk Management

by: Melissa Wadman

Excellence in Risk Management MET AD 641

Marketplace > Boston University > Administrative Sciences > MET AD 641 > Excellence in Risk Management
Melissa Wadman
GPA 3.78

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About this Document

Reading notes -- Week 1
Enterprise Risk Management
Class Notes
TCOR, Risk, Strategic
25 ?




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This 2 page Class Notes was uploaded by Melissa Wadman on Wednesday September 14, 2016. The Class Notes belongs to MET AD 641 at Boston University taught by Banasiewicz in Fall 2016. Since its upload, it has received 15 views. For similar materials see Enterprise Risk Management in Administrative Sciences at Boston University.


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Date Created: 09/14/16
  Enterprise Risk Management ­ MET AD 610  Week 1 Reading: Excellence in Risk Management  EXCELLENCE IN RISK MANAGEMENT: Greater Expectations, Greater Opportunities    ★ Economic downturn in 2008 changed the way many companies view their risk management  departments  ○ Senior leadership now demands more from risk managers  ○ Risk management needs to become better integrated with operations  ■ Transforming the organization’s perception of risk management from a tactical,  risk­averse function to a valued partner  ■ RMs need to reach out to ops personnel and articulate how risk management can help  the organization meet its strategic objectives  ○ RMs need to create value for the organization through effective execution and the efficient  use of time  ■ ERM can create efficiencies by reducing expenses   ■ Ex. not increasing headcount, but purchase technologies to automate tasks and free  up time to work more closely with other departments  ○ There is also a need for better quantification and analysis related to ERM    ★ Key Performance Indicators ​(KPIs)​: business metric used to evaluate factors that are crucial to the  success of an organization; define expectations.   ○ Top KPIs that leadership holds RMs accountable for managing and communicating risk  management value through ​total cost of risk ​ (TCOR)  ■ Organizations define TCOR very differently and and execute varying levels of analysis  and management around TCOR  ■ Strong relationships with KPIs ­­ “alignment with company risk tolerance” would  involve system­wide ERM results and performance against loss forecasts  ○ Top 10 “buckets” of KPIS  ■ Maintain stability in TCOR  ■ Deliver insurance renewals within budget  ■ Engage senior leadership in the management of strategic risks  ■ Being aware of risks and then developing pro­active controls  ■ Claims compared to exposures  ■ Decrease TCOR  ■ scenario ­based resiliency testing of key strategies  ■ Settlement time of claims  ■ Understanding non­insurable risks    ★ Integrating risk management across the firm; Survey respondents’ most commonly cited focus area  for developing risk management:  ○ Strengthening ERM/​strategic risk management   ○ Training/education ­ companies may not be willing to make permanent budget increases (new  hires) but may be willing to improve upon the skills/knowledge of in­house staff   ○ Technology upgrades ­ ease the time spent on mundane tasks and open the door to  developing the deeper integration of RM with other departments  ○ Current employees ­ continue emphasis on efficiency  ○ Restructure insurance programs    Enterprise Risk Management ­ MET AD 610  Week 1 Reading: Excellence in Risk Management  ★ Number of cross­functional risk committees on the rise ­­ easier and less expensive than many of the  other challenges to developing an ERM program  ○ How risk issues can be better integrated with the short and long term strategic planning goals  of the org:  ■ Involve risk management early  ■ Adopt a formal strategic risk management process  ■ Increase senior management’s support of risk management function  ■ Improve ability to measure risk management ROI  ■ Improve communication between risk management and senior management  ○ Focus of organizations’ cross­functional committees  ■ Operational risk (85%)  ■ Strategic risk (64%)  ■ Hazard/event risk (63%)  ■ Financial risk (62%)    ★ Data and Analytics: new tools available; use varies  ○ internal/external subject matter experts  ○ Industry benchmarks/loss experience  ○ internally/externally generated/tracked risk indicators  ○ Individual or facilitated group self­assessments to determine impact and probability   ○ Scenario analysis  ○ Total cost of risk (TCOR)    ★ TCOR measures lack consistency because there is a wide range of methodology in use  ○ 64% of respondents pay more attention to TCOR expected amounts  ○ 36% pay more attention to volatility of TCOR    ★ Portfolio analysis not measuring up ­­ companies that want to integrate risk management deeper into  setting the business strategy, looking at risks individually will not get them to where they want to be    ★ Responsibility for risk approach  ○ CFO/Treasurer (28%)  ○ CEO (24%)  ○ Risk Manager (13%)  ○ Board of Directors (10%)  ○ Chief Risk Officer (10%)  ○ COO (5%)  ○ Chief Counsel (4%)  ○ Other (6%) 


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