Risk Management at Corporate Level and

Strategic Business Level

Enterprise Risk Management (ERM) Model

Business Strategy

Risk Strategy

Measuring & Monitoring

Risk Structure

Aligning ERM Resources and

actions with the business strategy is

necessary to maximize

organizational effectiveness

Corporate Structure

Corporate Entity

Legal Financial

Marketing Personnel

SBU (A) SBU (B) SBU (C) SBU (E) SBU (D)

Projects Projects Projects Projects Projects

Corporate Strategy Plan (CSP)

Johnson and Scholes (1999) believe that the plan is produced within the following objectives:

Create and maintain a strategy that achieves the corporate intent, corporate commitments and expectations of the customers, shareholders, and other stakeholders

Incorporate and maintain the commitments and the requirements of business sectors, specially SBUs and process owners that support the strategic direction

Communicate the strategic direction and relevant objectives and target to each SBU

Manage strategic change to maintain or gain competitive advantage

Corporate strategy is a portfolio of integrated business strategies that will deliver the corporate intent and are consistent with the financial investments or constraints facing the group

Increasing diversification within corporations gives the new problems to the senior manager:

1. How to manage a wide spread of businesses?

2. How to organize the corporation?

3. How much power should the organization delegate?

4. How is the scarce capital allocated between the diverse business?

5. The risk associated with each business and its management?

Board main roles

Houlden (1990):

1. To direct the company

2. to appoint the managing director/chief executive

3. To delegate the appropriate powers for running the company

4. To monitor the performance of the company

5. To take corrective action where necessary

Roles of Corporate Mission

Direction Point the organization in certain direction

Legitimization Convey to all stakeholders, on each level and outside the

company, what the organization is pursuing, and that these goals and objectives will add value to the company

Motivation Inspiring individuals and different levels of the organization to

work together in a particular way

Three important functions of addressed to corporate level

Forming Function To influence the forming of the corporate mission

Performance Function To contribute to the strategy process with the intention of

improving the future performance of the corporation

Conformance Function To ensure corporate conformance to the stated mission and

strategy

Key Corporate Strategy Components

Corporate Added Value Organizational

Scope

Corporate Parenting

Corporate Strategy

Three styles of corporate management

1. Strategic Planning

2. Strategic Control

3. Financial Control

Risk at Corporate Level (1)

Harley (1999) states that:

Risk is now beginning to be consolidated as a fundamental threat that runs through an organization’s entire

structure and a companies approach to risk is coming to be seen as just as important as its approach to

operations, finance, or any other basic corporate function. The way a company engineers its risk structure

is a fundamental part of corporate strategy

Risk at Corporate Level (2)

Managing corporate risk is a continuous process in which the main principle in risk management is used as identified by Thompson and Perry (1992):

1. Identification of risk/uncertainty

2. Analysis of implication

3. Response to minimum risk

4. Allocation of appropriate contingencies

Chapman and Ward (1997)

Risk Avoidance Cancel a project, move out of a market, sell off part of the corporation

Risk Reduction Acquisitions or mergers, move to the new market, develop a new

product/technology in existing market, business process re-engineering, corporate risk management policy

Risk Transfer Partnership, corporate policy on insurance

Risk Retention A positive decision to accept the risk due to the potential gain it

allows

GAP Analysis

GAP analysis involves identifying ways of closing the gap between the actual and the projected levels of performance, by:

1. Change the strategy

2. Add businesses to or delete them from the corporate portfolio

3. Change SBU political strategies

4. Change objectives

Business - Introduction

French and Saward (1983): Business is the activities of buying and selling goods,

manufacturing goods or producing services in order to make a profit

Collins English Dictionary (1995) Business is a commercial or industrial environment

Three essentials requirements for starting a business

1. The financial resources needed to support a business

2. A product or service that is wanted outside the business, and can be sold and

exploited by it

3. Sufficient people to operate the business

Strategic Business Unit (SBU)

Johnson and Scholes (1999):

SBU is a part of the organization for which there is a

distinct external market for goods and services

Langford and Male (2001):

Large firms will normally set up a strategic business unit.

It will have the authority to make its own strategic decisions within corporate guidelines that will cover a particular product, market, client, or geographic area

Strategic Linkages

A corporation without strategy is like an aero plane weaving through stormy skies,

hurling up and down, slammed by the wind, and lost in the thunderheads. If

lightning or crushing winds do not destroy it, it will simply run out of fuel

(Toffler, 1985)

Verway and Comninos (2002)

Strategic planning at the organizational level results in a set of ‘organizational imperatives’.

The business managers convert these into business strategies

Business strategies are in turn carried out through projects whose strategy is the ‘project approach or plan’

Business Strategy

Michael Porter believe an organization’s strategy is normally defined by four components:

1. Business scope

2. Resources utilization

3. Business synergy

4. Competitive advantage

Three fundamental characteristics of SBU’s strategic position

McNamee (1985):

1. Its market growth rate

2. Its relative market share in comparison with the market leader

3. The revenues generated from the product’s sales of the SBU’s activities

Programme Management

Central Computer and Telecommunication Agency (CCTA) (1994):

selection and planning of a portfolio of projects to achieve a set of business objectives; and the efficient execution of these projects within a

controlled environment such that the realize maximum benefit for the resulting business operation

Reiss (2000)

The effective implementation of change through multiple projects to realize distinct and measurable benefits for an organization

Lockitt (2000)

Set of management activities and processes which facilitate the translation, conversion, prioritization, balancing and integration of new strategic

initiatives within the context of the current organization and planned time and cost constraints, thereby minimizing risk and maximizing benefit to

the organization

Key components of programme management (1)

PROJECTS

Performance Analysis & Reporting

Organizational Arrangements

Requirements Management

Financial Management

Resource Management

Risk Management

Contract Management

Quality Management

Timeline Management

Procurement Management

Key components of programme management (2)

Organizational arrangements

defining and maintaining the programme management environment

Requirements management

keeping track of the requirements and changes to the requirements

Financial management

the policies, procedures, practices, techniques and tools necessary to establish and maintain effective financial planning and reporting

Resource management

The direction and co-ordination of all resources throughout the programme’s life cycle

Key components of programme management (3)

Risk management

systematic identification of, analysis of and proactive response to risks, issues and problems, both real and anticipated, throughout the programme’s life cycle

Contract management

the organizational, procedural and functional tasks, policies and practices for the day-to-day handling of commercial, legal, administrative and monetary considerations of the contracts between the programme and its suppliers

Procurement management

acquisition of purchased services and labor, goods, physical plant and equipment, operational equipment, raw material, component finished parts and equipment, and software for the programme

Key components of programme management (4)

Timeline management

the guidelines, techniques, knowledge and tools required to develop and maintain appropriate allocations of time and effort throughout all phases of the programme’s life cycle

Quality management

the composite of technical and managerial standards, procedures, processes and practices necessary to empower and provision each person fully to accomplish and exceed the mission, objectives, needs, requirements and expectations for which the programme was establish

Performance analysis and reporting

disciplines, techniques, tools, and systems necessary and adequate to establish and maintain programme performance analysis and reporting throughout the life cycle of the programme