Operational Risk Management

Managing operational risks in an Industrial Environment

Jo Willaert- Corporate Risk Manager PRMIA - BELRIM 18 September 2014

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Organisation

Parent Company

Corporate Centre

Agfa-Gevaert Group

Agfa Graphics

Agfa HealthCare

Agfa Specialty Products

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Agfa in the world

• Sales organisations in 40 countries• Representations in 100 countries• Manufacturing sites in 10 countries

Other

Prepress

No 1-2

HealthCare

No 1-2

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Flexo Plates

Software

Scanner

Proofing

Offset Press

Film setter Film Analog Plates

Computer-to-Film

Plate setter Digital PlatesThermal, Polymer & Silver

Computer-to-Plate

Digital Inkjet Print

Ink

Flexo CTP

Screen PressScreen exposure frame Screen

Industrial Inkjet Printing

Flexo Printing Flexo Press

PC

Agfa Graphics: product portfolio

Screen Printing

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ConventionalRadiography

Agfa HealthCare: product portfolio radiology

Conventional X-ray Film

X-ray Film

Processor

Hardcopy

Softcopy

DR

Scanners

CTMRI

USNM

PET

X-ray Table

DR-GenRad

CRPACS

Dry Film

Reusable Phosphor plate

CR Digitizer NX workstation

Dry Imager

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Agfa HealthCare: digital workflow in radiology

CR & DR on Musica

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Administration

Resource Management

Logistics

Catering

Accounting

Billing

Planning

Examining

Diagnosing

Treating

Reporting

The HealthCare CommunityReferring Physicians

Assisted LivingHome CarePharmacists

Payors

Electronic Patient Record

IntensiveCare

Emergency Room

Nursing

Surgery

LaboratoryCardiology

Intensive Care

Radiology

Agfa HealthCare: IT solution portfolio

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Agfa Specialty Products: product portfolio

• Classic Film

• Functional Foils

• Advanced Coatings and Chemicals

Enterprise Risk Management

Design of an ERM-Program in an Industrial Environment

Jo Willaert- Corporate Risk Manager PRMIA - BELRIM 18 September 2014

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Design of an ERM-Program in an Industrial Environment

• Why?To reduce the volatility of the performance of the group To safeguard business continuity

• When?Started in 2003Not regulated, so flexibility in set up the ERM-program Agfa’s ERM-Program design is not unique, is based on what was

available in the literature at that time but is adapted to the culture and goals of the group.

It’s how Agfa did it, there are many other ways to organize ERM.

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Design of an ERM-Program in an Industrial Environment

• Mission Statement of the ERM-Process

ERM (Enterprise Risk Management) is the process whereby the risks related to the group’s activities are methodically assessed in order to avoid the negative consequences of the events that might push the company’s performance below expectations

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Design of an ERM-Program in an Industrial Environment

• Responsibilities

Group’s ManagementRisk OwnerRisk ManagerInternal Auditor versus Risk Manager within the ERM-process

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Design of an ERM-Program in an Industrial Environment

• Responsibilities

Group’s Management defines and monitors risk policies in accordance with the company’s global strategy

Defining the company’s policy regarding Enterprise Risk ManagementDefining internal audit planning by allocating audit resources in accordance

with the risk management processDefining the goals end objectives within Enterprise Risk ManagementMonitoring the various ERM-programsSetting of priorities in rolling out the risk management initiative

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Design of an ERM-Program in an Industrial Environment

• Responsibilities

Risk Owner

Person with the authority to manage the risk, to make the necessary decisions to keep the risk within the agreed boundaries.

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Design of an ERM-Program in an Industrial Environment

• Responsibilities

Risk Manager overviews the ERM-process

Overview of risk management activities in all risksSupport, guidance and best practice to the risk ownersEvaluation of adequacy of risk management methods used by the risk ownersPreparing/endorsing periodical risk management reportingEnsuring adequate follow-up of the audit recommendationsLink between risk owners, Internal Audit and Management

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Design of an ERM-Program in an Industrial Environment

• Responsibilities

Internal Auditor versus Risk Manager within the ERM-process

Internal Auditor reviews that the internal contracts are operational and that they have the expected result

Risk Manager provides support and makes sure that all significant risks are identified and evaluated

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Design of an ERM-Program in an Industrial Environment

• What needs to be done?

Objective setting (objectives, indicators, opportunities, frame)Inventory (Identification of every significant risk and its respective owner)Determine the risk tolerance of the groupDetermine the risk appetite of the boardMeasure and prioritize each riskAction planSystematic and Formal Control and Follow Up

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Risk Evaluation (gross risk score)

Factor Score Description

 Probability 12345

Extremely rare: only in extreme circumstancesRare: every 10 – 25 yearsPeriodic: every couple of yearsRecurrent: yearlyOccurs frequently: can occur more than once 

Potential Severity12345

Less than € 10,000€ 10,001-€ 100,000€ 100,001-€1,000,000€ 1,000,001-€ 10,000,000 Over €10,000,000 

Time-to-Impact1

2

3

Occurs over a long period of time providing opportunity to adjust or reactOccurs quickly, limited advance warning (days / weeks) Occurs suddenly - no advanced warning - no time to react  

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RISK MINIMIZING MEASURES times gross risk score = NET RISK SCORE

Adequacy Factor Score Description

 Insurance

1

0,75

0,50

No insurance available Partial insurance available

Fully insured 

Preventive Measures(before event)

1

0,75

0,50

No preventive measures available Partially effective preventive measures available Fully effective preventive measures available 

Reductive Measures(after event)

1

0,75

0,50

No reducing measures available Partially effective reducing measures available Fully effective reducing measures available 

Audit Procedures1

0,750,50

No audit procedures available Partially effective audit procedures available Fully effective audit procedures available

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.

HAZARD RISKS

General / Public LiabilityProperty damageEmployee injury (WC, EB, EPL)Natural disastersBusiness interruption

OPERATIONAL RISKS

Information systemsAccounting / control system

Key managersRegulatory environment

Supply chain

FINANCIAL RISKS

Financial market risksCurrency / foreign exchange fluctuationsAsset valuesCredit defaultLiquidity cash flow issues

STRATEGIC RISKS

Market demandCustomer / industry changes

Intellectual capitalResearch & development

Image and reputationM&A / Joint Ventures

Channels and networks

Design of an ERM-Program in an Industrial Environment

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Design of an ERM-Program in an Industrial Environment

Core roles: Internal Audit Core Role: Risk Management Core Roles: Line Management

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Design of an ERM-Program in an Industrial Environment

• Threats & Pitfalls

Too much, too fast, too much detailsAccumulation of non-significant risks Risk Owner’s limited knowledge of consequences of risks in other

processesRisk Ownership (= decision making) often confused with execution

responsibility and/or hierarchical position.Lack of communication / co-operation between different departmentsLack of support / commitment of senior managementNot equal part of yearly objectives/personal targets

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Design of an ERM-Program in an Industrial Environment

• Conclusion

No entrepreneurship without risksRisks are opportunities, challenges versus threats, obstacles. ERM is a methodology, Risk Management is an attitude, a mind-setERM should focus on:

Economical realityBudget realityCulture of the groupCredibility

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Design of an ERM-Program in an Industrial Environment

• Advice based on own experience

Before starting ERM-project:be sure you have the full support of the boardbe sure you know company’s culturestart with the very high risks onlycommunication is listening in the first placepatience is a virtue