organization theory and ISI

ITS 835 Chapter 6

Strategic Risk Management at the LEGO Group Enterprise Risk Management

Professor Miguel Buleje

Introduction

• LEGO Group history • Strategy • Legacy risk management • Enterprise risk management at LEGO

• Initial ERM • Monte Carlo simulation • Active Risk Assessment of Business Projects (AROP) • Preparing for Uncertainty

• The PAPA model • Risk management ROI

LEGO Group History

• Headquarters in Billund, Denmark • Family owned • Second largest toy manufacturer (globally) • Founded in 1932

• Iconic bricks first introduced • Bricks manufactured since 1958 fit with one another

• 2400 different brick shapes • Manufactured in plants across four countries

LEGO Strategy

• LEGO mission • “Inspire and develop the builders of tomorrow”

• LEGO vision • “Inventing the future of play”

• Growth strategy • Innovation strategy

ERM at LEGO • Risk management developed in 4 stages

• Step 1: Enterprise risk management • Step 2: Monte Carlo simulations • Step 3: Active Risk & Opportunity Planning (AROP) • Step 4: Preparing for Uncertainty

• Order is by initiation sequence • Steps 1 & 2 are damage control • Steps 3 & 4 are proactive

ERM Step 1: Enterprise Risk Mgmt

ERM Step 2: Monte Carlo Simulations

• Monte Carlo simulation • Method of evaluating the effect of input variances on a model of

a complex system

• In short, it helps to see how input variances affect outcomes • Helps to define risk tolerance • Implemented in three areas

• Budget simulation • Credit risk portfolio • Consolidation of risk exposure

ERM Step 3: AROP

• Active Risk Assessment of Business Projects (AROP) • Formal approach to defining and handling project

risk

• Includes multiple steps • Identification • Assessment • Handling • Reassessment • Follow-up • Reporting

ERM Step 4: Preparing for Uncertainty

• Preparing for Uncertainty • Defining and TestingStrategies

• Workshops precede strategic planning sessions • Four scenarios

• Agree on two key drivers of uncertainty • Describe each of four quadrants of 2x2 matrix • Define strategic issues • Actions to take

• “who is doing what by when?”

The PAPA Model

• Park, Adapt, Prepare, Act: PAPA • Park • Adapt • Prepare • Act

Risk Management ROI

• Strong support from upper management • Efforts have resulted in value as a result of

implemented Risk Management.

• Many LEGO key planning processes now include risk management

• More visibility of enterprise risk • More opportunity to address risk with positive outcomes.

Summary

• Risk management is not risk aversion. But capitalizes on identifying & managing any risk.

• ERM allows LEGO to take risks when appropriate • Grow • Create value

• LEGO strategic risk management mission • “Drive conscious choices”