Determining Where Resources Are Most Needed The Concept
Determining Where Resources Are Most Needed The Concept of Risk Achieving Impact in Auditing The Concept of Risk My early audits: Park chair audit. Book of remembrance entries. Car park income. What Is Risk? Does It Really Matter?
WHY DOES IT MATTER? When anyone asks me how I can describe my experience of nearly forty years at sea, I merely say uneventful. Of course there have been winter gales and storms and fog and the like, but in all my experience, I have never been in an accident in any sort worth speaking about. I have seen but one vessel in distress in all my years at sea... I never saw a wreck and have never been wrecked, nor was I ever in any predicament that threatened to end in disaster of any sort from a paper presented by EJ Smith, 1907
IT MATTERS! On 14 April 1912, HMS Titanic sank with the loss of 1500 lives..... One of which was its captain E J SMITH But does any of this really matter NOW? Risk Management Casualties.
Barings BCCI Hoover Sumitomo Bank Enron World Com. Parmalat
Pressures Greater transparency Better governance Better ethical standards Need for early warning systems
Demands for higher quality services New legislation Systems reform/project management What Is Risk? Definition of Risk. The threat that an event or action will adversely affect an organisations ability to achieve its business objectives and execute its strategies successfully Source :- The Economist
Intelligence Unit Business Risk Definition 2 The chance of something happening that will have an impact on business objectives Source :-Aus/NZ Risk Mgt Standard
Surprises Any organization that has encountered unwelcome surprises or unexpected losses will realize that most were preventable. Such events will almost certainly have been caused by risks that were not fully understood, or the processes to mitigate those events being inadequate. Wrong assumptions about risk Risk is just something for finance and insurance to worry about Risk comes up on the agenda once a year
Risk management is just another layer of unnecessary bureaucracy Risk management is about downside not creation of value Risk is a compliance issue Risk Management International expectations are now that all organisations should: Identify, evaluate and manage their key risks and assess how they are controlled Ensure that all aspects of internal control and risk management are regularly reviewed on an appropriate cyclical basis Have regular board level reviews of reports on risk
management and internal control Risk Management And that: Risk management and internal control should be: Embedded in the operations of an organisation Capable of responding to the changing risks it faces Include procedures for reporting major weaknesses immediately to appropriate levels of management Risk Management In the UK all public bodies have been told: it is important that authorities have arrangements in place for reviewing both
the nature and severity of riskssuch a review should not just be to obvious tangible risks such as arson,vandalism and other damage to property..risk management should be an integral part of an authoritys overall management arrangements. Risk Management It went on to add: In order to be successful it is likely that the approach will be cross-departmental and inter-disciplinary and that senior management will demonstrate commitment.
The AUS/NZ Risk Management Process Establish the context Identify risks Analyse
Evaluate Treat Communicate Monitor and Review Risk Identification and evaluation Types of Risk
Strategic Operational Reputation Information Financial People Regulatory Strategic Risks Risks that relate to doing the wrong things Operational Risks
Risks that relate to doing the right things in the wrong way Information Risks Risks that relate to loss or inaccuracy of data ,systems or reported information Financial Risks Risks that relate to losing monetary resources or incurring unacceptable liabilities People Risks The risks associated with Employees and
Management Regulatory Risk The Risks related to the regulatory environment Reputation Risk Risks that relate to the organizations brand or image Inherent and Residual Risk Inherent risk = Gross risk before controls/ mitigation Residual risk = Risk remaining after
applying controls Evaluation and Measurement of Risk Risk is measured in terms of consequences (or impact) and likelihood (or probability) Consequences Monetary (% of income or budget) Reputation Ability to recover Effect on Organisation
Insignificant,Minor, Moderate,Major Catastrophic Likelihood Rare (less than once in 20 years) Unlikely (once in 1020 years) Possible (once in 10 years) Likely (once in 3 years) Almost Certain (once a year)
Questions you need to answer What are the worst things that could happen to us? How likely are they to happen? Are we taking sufficient steps to prevent them? Risk Matrix Likelihood I
m p a c t Most Severe Major Moderate Minor Insignifica nt Rare
Unlikely Possible Likely Almost Certain Measurement of Risk:Risk Matrix HIGH 6
8 9 3 5 7 1 2
4 Impact Of Risk LOW Unlikely Likelihood of Occurrence Likely
RISK MATRIX High 18 19 20 28 16 17
21 25 IMPACT 15 1 2 3
4 5 22 26 23 27 6
7 8 9 10 11 12 13
14 24 Low LOW LIKELIHOOD HIGH Risk Matrix Over 5 million OR
Questions raised in Parliament Important risks might potentially affect provision of key services or duties Key risk- may potentially affect provision of key services or duties Immediate action
needed - serious threat to provision and/or achievement of key services or duties Monitor as necessary less important but still could have a serious effect on the provision of key services or duties Monitor as necessary - less
important but still could have a serious effect on the provision of key services or duties Key risks - may potentially affect provision of key services or duties Monitor as necessary - ensure being properly
managed Monitor as necessary - less important but still could have a serious effect on the provision of key services or duties 2million-5 million OR Reported in National Press 500,000 - 2 Million
OR Reported in Local Paper 100,000 - 500,000 OR Unacceptable levels of Complaints Under 100,000 OR No action necessary Some complaints from individuals. Rare- once in 20 years
UnlikelyOnce in 1020 years PossibleOnce in 10 years LikelyOnce in 3years CertainOnce a year Treatment of Risks How are we going to manage the risks that we
have identified down to a level that we can live with. Risk Treatment Risk Transfer Insure Exposure Outsource Determine Evaluate
Recover Reduce Control Loss reduction Contingency Plans BCP Measure, Manage, Monitor, Report
Action Plans Cost RISK MAP High 18 19 20 28
16 17 21 25 IMPACT 15 1
2 3 4 5 22 26 23
27 6 7 8 9 10 11
12 13 14 24 Low LOW LIKELIHOOD HIGH
The Risk Management Process Risk Management Framework Embrace the issue of risk Manage not tolerate Make it a top down process Ensure a positive slant Make it the pulse of your organisation The Risk Management Cycle
Risk Identification Monitoring & Review Risk Analysis Risk Control Risk Identification Process Clarification of Strategic Business Objectives Consideration of threats to achievement
Identification of key risks and opportunities Sifting and clustering of output Evaluation of risks (by impact and likelihood of occurrence) Use of Workshops Use of Workshops Workshop Ingredients FACILITATOR ACCURATE ASSESSMENT
FRAMEWORK And CONTROL CHALLENGER RISK And CONTROL EXPERTISE PARTICIPANTS BUSINESS And PRACTICAL EXPERIENCE Typical Agenda for a Workshop
Introduction Discussion of objectives/processes Brainstorming of risks Categorisation Assessment of risks Risk Mitigation Process Evaluation of actions in place to reduce
risks Identification of risk exposures and latent opportunities Assessment of the effect of mitigation Development of focussed action plans Preparation of a Risk Register RISK REGISTER Area of Risk Inherent Risk Mitigation Residual Risk per Procedures/Controls Risk per
matrix in place matrix (1-9) Exposures / Opportunities identified Actions Planned KRI
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