Risk Scorecard Making risk visible and actionable…. Brett Knowles CMA Foundation Thought Leader...

Risk ScorecardMaking risk visible and actionable….

Brett KnowlesCMA Foundation Thought Leader forPerformance MeasurementPerformance [email protected]

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Our clients have been profiled by the Thought-Leaders

Over the last 10 years, every book written by the founders of the Balanced Scorecard, Drs Kaplan and Norton have profiles our clients.

Four Clients have become Kaplan-Norton Hall of Fame Winners!

Hall of fame Winner – 1999. Quadrupling of share price, Growth 30% above industry, exceptional customer and employee satisfaction.

Hall of fame Winner – 2001. 8-Fold increase in share price, ground-breaking development of intangible asset measurement, exceptional stakeholder satisfaction.

Drs Kaplan and Norton’s prestigious Hall of Fame award, presented by Kaplan & Norton to the best scorecards in the world.

Hall of Fame Winner – 2004. Breakthrough performance results including average annual revenue growth of 20 percent, net income improvement from $19.4 million to $100.9 million.

Hall of fame Winner – 2011. In three years revenues grew 8%, productivity 8.5%, and profit 27%. Customer satisfaction is up 13% and employee engagement is up 12%.

Datacraft

9) Strategic Management Practices

Risk Scorecard’s Location in the e-MAGs

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Strategy

1) Strategy Model Performance Metrics

2) Balanced Scorecard

Core Processes

Process Improvement

Initiatives

5) Initiative Strategic Performance Analysis

4) Strategic –Organization

Design

6) Performance Dashboards

7) Process Improvement Management

8) Accountability & Compensation

3) Process Strategic Performance Analysis

Risk Ledger 10) Risk Scorecard

The Risk Scorecard

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RISK ELEMENTS

1 2 3 4 5 6 7 8

A

B

C

D

STRATEGICGOALS &

PRIORITIES

The Risk Scorecard


RISK ELEMENTS

1 2 3 4 5 6 7 8

A

B

C

D

STRATEGICGOALS &

PRIORITIES

The Risk Scorecard


RISK ELEMENTS

1 2 3 4 5 6 7 8

A 10%

B 50%

C 20%

D 20%

STRATEGICGOALS &

PRIORITIES

The Risk Scorecard


What benefit would this offer your leadership team?

Benefits to the Leadership Team

Visibility of the risks Alignment around criticality of each

risk Ability to focus on the few Actionable information


The Risk Scorecard


What benefit would this offer your Board?

Benefits to the Board of Directors

Confidence in the Leadership Team Visibility of risks Alignment and support with the

Leadership Team Ability to focus on the few


The Risk Scorecard


What benefit would this offer your Investors?

Benefits to Investors

Confidence in the Leadership Team Visibility of risks Ability to take risks into account

when determining risk tolerance


The Risk Scorecard


If you could build this next week, would you?

USE CASE EXAMPLE


STRATEGY


The Overall Process


STRATEGY RISKS

STRATEGIC RISK REGISTER

RISK SCORECARD

20

Frederick Industries Story

Frederick

CU

STO

MER

SIN

TER

NA

LEN

AB

LER

SFI

NA

NC

IAL

v1

F1: Profitable Growth

C1: Build Loyalty

C3: Quality ProductC2: Low Price

E2: Embrace Change

I1: Continuous Improvement

E3:Promote a Safe Work Place

E1: Invest in Our People E4: Leverage Technology

I2: Develop New Products

I3: Improve Inventory Management

F2: Low Cost Producer

I4: Anticipate Customer Needs

C4: Great Service

5% 5%

3%

15% 4% 4%

16%

5% 10% 15%

6% 6%4% 4%

To be our customers’ supplier of choice by providing a quality product with exceptional service at a competitive price. Frederick

The Overall Process


STRATEGY RISKS


RISK SCORECARD

RISK CATEGORIES


There are countless Frameworks…


STRATEGIC RISK ASSESSMENT


Your Strategic Risk Assessment


STRATEGY RISKS


RISK SCORECARD

Strategic Risk Analysis


Strategic Risk Matrix


Low impact/Low probability – Risks in the bottom left corner are low level, and can often be ignored.Low impact/High probability – Risks in the top left corner are of moderate importance – if these things happen, you can cope with them and move on. However, you should try to reduce the likelihood that they'll occur.High impact/Low probability – Risks in the bottom right corner are of high importance if they do occur, but they're very unlikely to happen. For these, however, you should do what you can to reduce the impact they'll have if they do occur, and you should have contingency plans in place just in case they do.High impact/High probability – Risks towards the top right corner are of critical importance. These are your top priorities, and are risks that you must pay close attention to.

RISK SCORECARD


The Risk Scorecard


STRATEGY RISKS


RISK SCORECARD

Building the Risk Scorecard


Pulling in the Impact Estimates


Finding Leading Indicators


Leading indicator of that aspect of risk occurring.

In this example, a leading indicator of the ERP Implementation Failing on the Strategic Objective Profitable Growth might be:• ERP Customer Profitability Roll-up vs. non-ERP roll-up• ERP Revenue growth projections based on ERP numbers

Graphing the Impact


Graphical representation of the leading-indicator’s projection of risk that is occurring with respect to that strategic objective.

(Strategic Weighting) * (Impact) * (Leading Indicator Performance)

Understanding the Graphs


Even though they both have a risk-impact of four and a poorly performing risk indicator, because C4 has a weighting of 4% it has a shorter bar-graph than I1 with a weighting of 16%

Looking at Each Risk


Providing the Predictive Indicator for each risk is the sum of:

(Strategic Weighting) * (Impact) * (Leading Indicator Performance) across all strategic objectives.

The Impact of Strategic Weighting


Key Risk Points


NEXT STEPS


Next Steps


1. CMA Risk Scorecard

2. RiskScorecard.net

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Risk Scorecard Making risk visible and actionable…. Brett Knowles CMA Foundation Thought Leader...

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