Subject Name: Enterprise Risk Management

Enterprise Risk Management ITS 835

Dr. Ronald Menold [email protected]

Chapter 6 Strategic Risk Management at the LEGO Group

ITS 835

Introduction

▪ LEGO Group history

▪ Strategy

▪ Legacy risk management

▪ Enterprise risk management at LEGO

▪ The PAPA model

▪ Risk management ROI

LEGO Group History

▪ Headquarters in Billund, Denmark

▪ 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 Testing Strategies

▪ 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

▪ Many LEGO key planning processes now include risk management

▪ More visibility of enterprise risk – More opportunity to address risk

Summary

▪ Risk management is not risk aversion

▪ ERM allows LEGO to take risks when appropriate – Grow – Create value

▪ LEGO strategic risk management mission – “Drive conscious choices”

Chapter 6 Strategic Risk Management at the LEGO Group

ITS 835