Discussion

School of Computer & Information Sciences

ITS 835

Chapter 6, “Strategic Risk Management at the LEGO Group: Integrating

Strategy and Risk Management”

This is a narrated presentation.

Overview

• Organizational Background

• Strategy

• Strategic Risk Management – Enterprise Risk Management

– Monte Carlo Simulation

– AROP: Active Risk Assessment of Business Project

• The PAPA Model – Park

– Adapt

– Prepare

– Act

• Conclusion

Organizational Background

• Family owned business headquartered in Billund, Denmark, LEGO Group has 12,500 employees

worldwide and is the second-largest toy manufacturer in the world.

• The company’s portfolio, focuses on LEGO bricks which includes 25 products line sold across

130 countries.

• Company began in 1932, when Ole Kirk Kristiansen founded the small company to make

wooden toys.

• In 1947, he discovered that plastic was a more suitable material to develop its products.

• Throughout the years the company has made adjustments to its shape, color, and design, but

the current LEGO bricks were built so that they can still be connected to 1958 pieces.

• As the company as transformed, today there are over 900 million different ways to combine six

eight-stud bricks of the same color.

Strategy

• Understanding how LEGO operates, one must understand its strategy. The first step in

developing strategic risk management is to understand the business strategy and the related

risks that are outlined in the strategic risk assessment process.

• Growth Strategy – Increase market share in the United States, Eastern Europe.

• US consumers only buy a third of German customers

• Eastern Europe the toy market is rapidly expanding

• Innovative Strategy

• Creating innovative new products

• Expanding LEGO education

Strategic Risk Management

• LEGO four step risk management plan

• Step 1. Enterprise risk management – traditional ERM where financial, operational, hazard, and other

risks are supplemented by explicit handling of strategic risks

• Step 2. Monte Carlo simulation – used to understand financial performance volatility and drivers

behind it to integrate risk management into the budgeting and reporting process

• Step 3. Active risk and opportunity planning (AROP) – systematic risk and opportunity process to

prepare the business care before project final decisions are made

• Step 4. Preparing for uncertainty – long-term strategies relevant for and resilient to future changes

4

Preparing for Uncertainty

3

Active Risks & Opportunity

Planning (AROP)

1

Enterprise Risk Management

2

Monte Carlo Simulations

Enterprise Risk Management

• Operational Risk – minor disruptions

• Employee health and safety – OHSAS 18001 certified

• Hazards – managed with insurance programs

• Information technology (IT) security risks – functional

areas

• Financial risks – currencies and credit risks

• Legal – trademark violations and contract management

• Strategic risks – previously was not addressed so added

in 2006

Monte Carlo Simulation

• Used in risk management within three functional areas:

• Budget simulation – uses business controllers input about volatility that is combined with

past performance of budget accuracy

• Management has expressed that this method has assisted them with understanding

financial volatility

• Credit risk portfolio – used to facilitate the conversation with credit risk insurance partners

• Consolidation of risk exposure – multiples the probability and impact of each risk and

comprises the total.

AROP: Active Risk Assessment of Business Project

The PAPA Model

Prepare Act

Park Adapt

Overall Strategic Response

S p

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d o

f C

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Low High

S lo

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Likelihood

Thank you