CONFIDENTIAL AND PROPRIETARY

THE INSTITUTE OF COMPANY

SECRETARIES OF INDIA

THE INSTITUTE OF COST ACCOUNTANTS

OF INDIA

Half day Seminar on Enterprise

Risk Management

Presented by:

D. Sundaram Vice Chairman & Managing Director, TVS Capital Funds Limited

March 7, 2015

SOME BACKGROUND CONCEPTS AND THOUGHTS

• RISK vs UNCERTAINTYo Variation in outcome around an expectation versuso Doubts about ability to know / absence of information

• Sources of risk / exposure to risk

• Pure risk / speculative risk

• Insurable risk

• What do you know (A) vs what you do not know (B)o (A) – Degree of impacto (B) – Black Swan

2

RISK AND UNCERTAINTY

3

? Uncertainty (Randomness)

Risk Management

Oxymoron?

Can’t Do Anything

Can Do Something

Know Don’t Know

SOME BACKGROUND CONCEPTS AND THOUGHTS… Contd

• Enterprise risko Means looking at all risks to Balance Sheet or the ongoing

concern of an organization o Reputation Risk ?

• Strategic Risk Management o Leveraging opportunities vs mitigating risks o Performance gap vs Opportunity gap

• Targeting Behavioral risks key to improve loss controlo E.g. Safety and Security

• Every manager to have risk management thinking

• Risk Management Framework is only an enabler o Safety Health Environment o Policies Compliance o Control Assurance (Internal Audits)o Operating Control Assessment o Risk Management Framework 4

5

RISK AND UNCERTAINITY ARE INTEGRAL PART OF LIFE

Adventure without Risk is

-------------

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RISK AND UNCERTAINITY ARE INTEGRAL PART OF LIFE

Adventure without Risk is

Disneyland

(Dong Coupland,Canadian Author)

7

A ship in harbor is safe but is not what ships are built for

8

Warren Buffet on RISK

Don’t Measure the Depth of the river with both feet

Risk comes from not knowing what you are doing.

9

VUCA

VOLATILITYUNCERTAINTY

COMPLEXITYAMBIGUITY

Nature is never a straight Line = spirals everywhere

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THE SPIRAL IS CENTRAL TO LIFE – THE STRAIGHT LINE DOES NOT WORK QUITE OFTEN

A

B

A

B

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ORGANIZATIONAL (ENTERPRISE) RISK MANAGEMENT

Overall Mission and Purpose

Risk / Uncertainty Assessment

Risk Mitigation and Control

Risk Financing

Program Admin

Building Blocks

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RISK ASSESSMENT

Role of Organizational Management to indentify, not to externalize to a “risk manager”

Identification (RISK SOURCES)

Analysis

Measurement

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RISK SOURCES

Physical

Social

Political

Legal

Economic

Operational

Cognitive

HAZARDS

Environmental conditions that elevate likelihood and/or severity

EXPOSURE

PERILS / OPPORTUNITIES

Actual causes of loss or gain

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WIDE SCOPE OF CORPORATE RISK EXPOSURE

Economic PoliciesDemand Conditions

New Product Introductions

Consumer Taste

Competitive Structure

Sales and distribution

Marketing approaches

Commodity prices

Energy prices

Technology developmentProcess Improvements

Logic systems

Input supply lines

Hazards

Natural catastrophes

Terrorist events

Financial market prices

Inflation rate

CORPORATION

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PROCESSES / WAYS FOR IDENTIFICATION

Environmental Scan

Financial / Legal Documentation

COCA: Contracts, Obligations, Commitments, Agreements

Onsite inspections

Interviews

Statistical Analysis

Benchmarking

ALERT

VIGILANT

INSIGHTFUL

PROACTIVE

MANAGEMENT

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RISK ANALYSIS

SourceRisk / Hazard

FactorExposure

Consequence OutcomePerils /

Opportunities

Judgment

Decisions

Actions

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RISK MEASUREMENT

Be aware of Direct & Indirect Costs and Consequences

Learn to separate important from unimportant

Likelihood / Severity

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MEASUREMENT: RISK MATRIX

High

Low

Low High Medium

SEVERITY

LIKELIHOOD

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ASSESSING THE MATERIALITY OF RISK

Pg 115, CFO: Architect Of The Corporation’s Future, Wiley/PriceWaterhouse

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RISK ASSESSMENT PROCESS

PhysicalEnvironment

SocialEnvironment

PoliticalEnvironment

LegalEnvironment

EconomicEnvironment

OperationalEnvironment

CognitiveEnvironment

Physical Assets

Financial Assets

Human

Assets

Legal

Assets

Moral

Assets

HAZARDS/RISK

FACTORS

PERILS/OPPORTUNITIES

OUTCOMES

CONSEQUENCES

The Risk Field

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RISK MITIGATION (CONTROL)

MEASURES AND PROCESSES

AVOIDANCE TRANSFER / DISTRIBUTION REDUCTION PREVENTION NEUTRALISATION

Prevent Eliminate Reduce

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RISK MITIGATION (CONTROL)

REDUCTION

INCREASE IN KNOWLEDGE AND INFO REDUCES THE RISK

IMPROVED INFORMATION

Barriers and Counter measures

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RISK MITIGATION (CONTROL)

PREVENTION

Eliminate likelihood of loss occurring • E.g. Location of facilities• Legal screening of contracts• Concurrent Audit• IPR registration• Policies / Procedures

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RISK MITIGATION (CONTROL)

NEURALISATION

Measures to reduce effects of risk to near zero by arranging to offset one risk with another action.

e.g. Helpers 3P Sourcing for IR reasons

BCP

Succession Planning

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ASSET EXPLOSURES TO RISK

Physical Assets

Property Asset Type

Cause of Loss Natural Hazard Behavioural

Type of Loss Direct Indirect

Financial Assets

Human Assets. Key man risk

Reputation Asset.

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REPUTATION ASSETContext : Societal Themes / Pressures

Investigative reporting Threats of litigation Global Standards Political / Special Interest Groups

- Neglect of warning signals

- Poor implementation of Processes / Procedures / Policies

- Many instancesPast RecentSara Lee TOYOTA RECALLNike B.PCoca Cola Satyam

Short Title:

Risk Definition:

Current Safeguards:

New/Improved Safeguards Needed:

Actions Required: Action Responsible Deadline 20XX SiA Ref.

Assessment of:

Impact? Likelihood? Level of Acceptability?

With the implementation of the above actions, when will the level of risk become acceptable?

Other Notes:

SAMPLE RISK MITIGATION TEMPLATE

Focusing on the upside

“Enterprise is about being prepared to go for it - its about having a real passion for what you’re doing and wanting to win. It’s about being courageous and taking risks. Accepting that when you take

risks you can make mistakes, but that these can provide a rich learning opportunity”

- Niall Fitzgerald -Ex Unilever Chairman

INFORMATION – A POWERFUL INPUT TO RISK MANAGEMENT

Transparency of information

Provided by an unbiased source

Tells you whatyou are going

in for

Facilitates mid-course correction

Helps guage `stop loss’ limit

Helps keep exposure withinthe organisation

`risk appetite’

Distils learningsfrom past

experiences

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A Quote

“Trying to enclose risk is a bit like trying to embrace water – it seeps into just about everything.. Pervasiveness is daunting, yet most risk can be channeled and directed in less threatening ways.

Those that pose little hazard can be mopped up and disposed, those that present serious danger can be dammed up and contained, and others with thought and ingenuity can be captured and transformed into new sources of value”

In conclusion :

“ It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change……” Charles Darwin

SEE THIS VIDEO AND THINK ABOUT IT

THANK YOU!