one report

Australian School of Business Australian School of Business

Business Risk Management

Australian School of Business

• Overview of the course

• Expectations of you

• Introduction to Risk Management and its importance

• Definition of risk and risk management

• Examine the nature of value creation

• Examine how organisations process environmental risk

• Examine the significance of culture in risk frameworks

Outline of Week 1 - Presentation

Australian School of Business

Approach

• Blend of academic theory and real experience – Readings – extracts from academic papers and published articles – Case studies – real companies

• Develop understanding of concepts • Deepen understanding of concepts by analysing actual

company case studies • Classes – discussion – your contribution – need to

prepare • Individual assignment – in depth analysis

Practical understanding Demonstrate critical thinking – ask why and how

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Activities

• Weekly preparation – 2.5 hours – Watch pre-recorded presentation – Read texts and case study – Prepare and submit answers to questions in advance of class

(except weeks 1 and 6)

• Weekly class – 2 hours – Discuss questions on selected readings – text book – Discuss questions on case studies – real companies

• Individual assignment – week 7 – Major real company crisis

• Class quiz – 2 quizzes - Week 5 and 9 • Exam

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Assessment

Australian School of Business

Administration

• Readings and case studies for each lecture will be available on Moodle

• Course resources – all on Moodle • Quizzes on Moodle • Weekly Q&A – submit through Turnitin • Assignment – submit through Turnitin

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Assignment Tips

• Instructions - each section content and length • Context – employee business report (not university

student assignment) - concepts and definitions not needed - reference

• Executive summary – not an introduction – summary of learnings for your company

• Facts – brief and non-technical – risk management focus

• Analysis – key focus – ask “why why why” - underlying issues for governance, risk and crisis management

• Recommendations – specific – how do better

Australian School of Business

Expectations of You

• Do the weekly preparation • Analyse – critically evaluate – why and how • Attempt all activities – contribute in class • Ask questions – often not one correct answer

Australian School of Business Introduction to Risk Management - Objectives

• Define risk and risk management • Examine how organisations respond to the

risks in their environment/context • Identify how risks can imperil the value

creation process of organisations • Examine the role of risk as a source of

organisation renewal

Australian School of Business What is Risk?

“ The effect of uncertainty on objectives - effect is a deviation from the expected - may be positive and/or

negative – can address, create or result in opportunities and threats; objectives can have

different aspects and categories and can be applied at different levels, usually expressed in terms of risk

sources, potential events, their consequences and their likelihood”

Source:AS/NZS ISO 31000:2018

Risk:

Australian School of Business What is Risk Management and its importance?

Risk Management: • The activities to identify and address the potential effects

of uncertainty to ensure the organisation is sustainable - efficiently meets or exceeds its purpose and objectives in the long term

• Activities are defined as a Risk Management Framework (RMF)

• RMF needs to operate with and in the context of two other major frameworks: • Strategy • Governance

Risk Management = Business Management

Australian School of Business All organisations take and are subject to risk

“All organisations take risks in the pursuit of their purpose and objectives. On the one hand, an organisation cannot be so obsessed with negative risk that opportunities are missed and growth is stymied. On the other hand, an organisation cannot be so ignorant or apathetic about risks that an organisation may be imperilled to failure.”

Balancing opportunities and threats

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• Some organisations only address negative effects (historical view)

• Some organisations manage risk in a passive manner through reacting to events and remedying the consequences

• An effective risk management approach aims to prevent or actively manage negative events AND help achieve or exceed objectives in a consistent, efficient and coherent way

What is good risk management?

Australian School of Business Course Content – risk management and related activities

Risk Management Framework • Context

• Assessment • Measurement

• Treatment • Monitoring • Reporting

Fraud Environmental

Crisis Management

Governance and Operating Model

Strategy setting and implementation

Australian School of Business Cornerstones for Integrated Risk Management

• Data governance • Data management

• Risk information systems • Risk infrastructure

• Risk tracking • Risk analytics

• Three lines of defence • Processes & Controls • Delivery model • Roles & responsibilities • Policies

• Governance model and culture • Communication & awareness

• Reporting and monitoring • Performance management

• People capability • Training

• Business objective • Capital allocation • Risk management strategy • Risk management framework • Risk appetite

Strategy People & Culture

Technology &

Information

Process & Operating

model

Australian School of Business Classifications of Risk

• Common use of term “risk” – a financial loss – “balance risks and returns” (chance of profits and losses)

• ISO - risk defined by source and impact (likelihood and consequence) - use categories or classifications for both

• Impacts – relate to objectives • Most business organisations express risk impact

in Financial terms – profits or organisational value – most relevant to shareholders

• Objectives can relate to other stakeholders

Australian School of Business Organisational Objectives - Value Creation

• What is Value Creation? – Depends on the Stakeholder’s perspective

• Who are the Principal Stakeholders? – Equity Financiers - shareholders – Debt Financiers – Customers – Suppliers – Employees – Regulators – Governments – Immediate community – General public

Australian School of Business Organisational Value Creation

• Why Create Value? – Organisations are dependent on resources – Organisations balance inducement and

contribution – Organisations compete for resources provided

by stakeholders within their operating environment

Australian School of Business Impact of Risk – Common Categories

Impact categories:

• Financial

• Regulatory / Legal

• Reputation & Image

• Health & Safety

• Environment & stakeholders

• People

The consequence/impact can be favourable or

adverse

Value at Risk

Australian School of Business The Most Important Business Risks 2019 - Asia Pacific

1. Business Interruption

2. Cyber Security 3. Natural Disasters 4. Changes in

Legislation and Regulation

5. New Technologies

Australian School of Business Classifications of Risk - Static vs Dynamic

• external operating environment, the economy, financial markets, competitors & consumers

• management decision making involves responding to and creating value from these risks

• leads to economic adjustments which prevent the misallocation of resources

Dynamic Risks

• Not related to the organisation's operating environment • eg Natural disasters, fraud

• Often have some degree of regularity • Well suited to insurance

Static Risks

Australian School of Business Organisations in Perspective - Context

Birkett argues that organisations are a product of their:

Cultural framework, and Institutional framework

Whilst organisations are subject to change, so too are:

Cultures, and Institutional frameworks The operating environment

Changes alter the inducement-contribution balance with stakeholders and so affect organisations value creation process and how they manage the change (environmental risk)

Australian School of Business Organisational Value Creation and Context

Australian School of Business

Hierarchy Market

Fiefs Clan

Explicit

Tacit

Action

Prescribed Non-prescribed

Thought

Risk and Culture

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Organisation goals Value Creation Risk Avoidance Admin. Control

Own goals Value Dissemination Risk Seeking Contractual Control

Accept goals Value Proclamation Risk Ignoring Subsumptive Control

Shared goals Value Conservation Risk Aversion Communal Control

Hierarchy

Fiefs

Attitudes (culture) to Value Creation and Risk

Market

Clan

Australian School of Business How Does Change Impact Organisations?

• Through shifts in stakeholder needs or demands • Leads to changes in one or more of:

– Strategy & Processes • These will be considered in the Risk Management

Systems Section of the course) – Values

• An organisation may re-evaluate what it stands for – Structure

• Donaldson argues via either – Growth – Adaptation

Australian School of Business Structural Change in an Organisation

• Donaldson identifies two types of structural change: • Adaptation

– An alteration to some attribute of the organisation to bring itself into better fit

– Eg Restructure, management change, divestment, strategic change

• Growth – Increases in size or scale – Eg new employees, new business development and acquisition, branches – Strategic diversification – Geographic spread – Technological implementation

Australian School of Business Donaldson - What Drives Change within an Organisation?

• Organisational performance drives change - reflects the extent to which the organisation is successful in creating value and its volatility of returns

• Performance is affected by the following: - Strategy - Human Resources - Production - Procurement - Marketing - Structure - Operating environment and competitors

Australian School of Business Low Performance

• What is low performance? – Performance below the “satisficing” level. – A concept developed by JK Galbraith in the New

Industrial State

• What causes low performance? – Changes in the environment which leaves the

organisation misfitted. – Resulting in an “inducement-contribution” imbalance.

• What is the result of Low performance? – Organisational adaptation - restructure etc.

Australian School of Business High Performance

• What are the effects of high performance? – Surplus resources

• Capital , retained earnings access to loans • Attract & pay for new staff • Technology • Acquisitions

• High performance leads to Growth

Australian School of Business Why then is Organisational Risk Important?

• According to Donaldson an organisation’s risk profile leads to fluctuations in performance – A higher risk profile will lead to greater fluctuations in

performance • Fluctuations in organisational performance in turn drive

organisational change – either growth or adaptation. • It therefore follows that the presence of risk is necessary

to drive organisational change, ie – If performance falls below “satisficing” level then the organisation

will adapt – If performance rises above the “satisficing” level the organisation

will grow – Both situations represent situations of organisational

change