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ISO 31000 and Risk Management

August 19, 2010


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What is risk?

All management is risk management!

Copyright 2010 Assura, Inc. All rights reserved.


Ri k M
Risk Managementt
“Boot camp”

Threat + Vulnerability = Risk

Risk – Controls = Residual Risk

Residual Risk Probability + Residual Risk Impact


= Risk Rating

Copyright 2010 Assura, Inc. All rights reserved.


Ri k T
Risk Types

• Strategic Risks – Inherent


risks of doing business,
going after new markets,
regulatory
• Finance Risks – Treasury
risks, credit risks, trading
risks
• Operations Risks –
People, compliance,
process
• Information Risks –
Operational and
Technological risks

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About controls…

Control Types Control Categories


• Preventive • Administrative
• Detective • Technical
• Corrective • Personnel
• Physical

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How do you manage and track risks?

• Enterprise Risk Management


– What is it?
ERM is establishes the oversight, control and
discipline to drive continuous improvement of an
entity’s
entity s risk management capabilities in a changing
operating environment.
– Who is involved?
Everyone in the organization and the Board

Copyright 2010 Assura, Inc. All rights reserved.


And you should care because…
because

Copyright 2010 Assura, Inc. All rights reserved.


Recent History of ERM
• Cadbury Committee (UK) (1992)
• Chief Risk Officer created at GE
(1992)
• AS/NZS 4360:1995 (revised 1999,
2004) released – first ever ERM
standard
• 9/11 and collapse of Enron
resulting in Sarbanes-Oxley Act
(2000)
• International Standards
Organization (ISO) forms an
international working group to
write a global guideline of
managing risk – released 2009
2009.

Copyright 2010 Assura, Inc. All rights reserved.


Global Corporate Governance Models
INTERNATIONAL - Basel I & II; ISO 31000 & 31010

France UK All EU Countries Germany Netherlands Italy


• Vienot Com. • Cadbury • Directives on • Bill on The Control • Code Tabaksblatt • Draghi
• Mrini Report
p • Turnbull Governance and Transparency
p y Commission
• Greenbury
G b Rpt
R t
• Levy-Long Com. • BS 31100 RM
of organizations
• Kon TraG Bill

Japan
Canada • Corporate
• Toronto Stock Governance
Exchange Committee Forum of Japan
• Canadian Securities • J-SOX
Committee
• Allen committee Australia/New Zeal
Report • AS/NZS
• COCO 4360:2004
US • Stock Exchange
• Business Round Table Listing
• NYSE listing • New Accounting
Requirements Standards
• Blue Ribbon • Best Practice
Commission Stmt Mgmt
• Sarbanes Oxley Act South Africa
• COSO ERM • Code of Best Practice
Framework • King Report I, II and III Source: RIMS.org
RIMS org
• Stakeholder Communication
• Public Finance Mgmt Act

Copyright 2010 Assura, Inc. All rights reserved.


Risk Management
g Frameworks
Which one is best for your organization?
• Organizational • Information Technology Focused (supports
– Committee of Sponsoring Organizational)
Organizations of the Treadway – Control Objectives for Information and
Commission (COSO) Enterprise Risk related Technology (COBIT from
Management Internal Framework ISACA)
(ERM IF)
(ERM-IF) – Guide
G id tto AAssessmentt off IT Risk
Ri k (GAIT
– Risk and Insurance Management from IIA)
Society (RIMS) Risk Maturity Model
(RMM) for Enterprise Risk
Management
g
– Australian/New Zealand Standard
(AZ/NZA 4360:2004)
– ISO 31000:2009 (Replaced AZ/NZA
4360:2004)
• Risk Management Publications
• BS 31100:2008 and ISO 31000:2009
• ISO guide 73 risk management – vocabulary
• ISO 31010 risk assessment techniques

Copyright 2010 Assura, Inc. All rights reserved.


ISO 31000 Risk Management
g –
Principles and Guidelines
• Provides a very general and
flexible framework for best
practices in ERM
• Incorporates
I t COSO,
COSO PMI
(Project Management
Institute, and
AS/NZS4360:2004
• Built on the premise that
risk management is fully
integrated into the
organization
i ti and d partt off allll
decisions
• Allows for management of
negative and positive risk

Copyright 2010 Assura, Inc. All rights reserved.


ISO 31000 10 Basic Principles

1. Creates value – not


focused on loss
2. Integral part of the
organization
i ti – in i project
j t
management, strategic
planning, etc.
3
3. Decision making through
analysis and evaluation to
understand risk
4. Explicitly
p y addresses
uncertainty and how it can
be modified
5. Systematic, structured,
timely repeatable
timely,

Copyright 2010 Assura, Inc. All rights reserved.


10 Basic Principles (Cont.)
6. Based on available
information – historic data,
expert opinion.
7 Big or small – tailored to the
7.
organization
8. Includes human, cultural as
well as technical factors that
impact likelihood of
consequences
9. Transparent and inclusive –
communication and
consultation with
stakeholders
10. Incorporates continuous
p
improvement and responds
p
to changing environment

Copyright 2010 Assura, Inc. All rights reserved.


ERM Framework
• 31000 focuses on the
framework that supports the
Risk Management
Process(es) or RMP
• Does not specify
components, but gives
conceptual
p g
guidance
• Aggregates information on
risks, risk management, and
performance of risk controls
• Must be practical and part
of existing processes

Copyright 2010 Assura, Inc. All rights reserved.


ERM Framework Components
“Th Lucky
“The L k 7”

1. Mandate and 5. Communications


commitment to the and reporting
ERM framework 6 Accountability
6. A t bilit
2. Risk management 7. Monitoring, review,
policy and continuous
3. Integration of ERM improvement (Plan,
in the organization Do Check,
Do, Check Act)
4. Risk Management
Process (RMP)

Copyright 2010 Assura, Inc. All rights reserved.


Source: RIMS.org
Copyright 2010 Assura, Inc. All rights reserved.
Risk Management Process
E t bli hi the
Establishing th Context
C t t
Risk Management Risk Appetite/Tolerance Internal and External
Risk Mgmt. Context
environment defined Should Be Defined Context

Risk Assessment
Risk Identification Risk Analysis Risk Evaluation

Treat Risk
Identify control option Select control option Implementation of control

Monitor and Review

Communicate and Consultation


Ongoing Tracking and Monitoring

Copyright 2010 Assura, Inc. All rights reserved.


How To Leverage BC in an
ERM Process
Enterprise
p Risk Management
g

Risk Management
ning

Tools to levera
ec.
Process

saster Re
OOP/Emerg. Plann

perations
Controls

Security
Risk Mgmt. Policy

curity/ Dis
siness Op
nancial C

age for inte


hysical S
Business Impact
Analysis

Ph
Fin

IT Sec
Bus

egration
BC/CO

Risk Assessment

Copyright 2010 Assura, Inc. All rights reserved.


Analyze Risk: Risk Mapping
(a k a Heat Map)
(a.k.a.
High
Secondary Risks Key Risks
•Lower likelihood, but could • Critical risks that potentially threaten
have significant adverse impact on the achievement of business
ance (Impact)

business objectives objectives

Low Priority Risks Secondary Risks


Significa

• Significant monitoring not necessary • Lesser significance, but more likely to


unless change in classification occur
• Periodically reassess • Consider cost/benefit trade
trade--off
• Reassess often to ensure changing
conditions
diti ((move tto hi
high
h significance)
i ifi )

Low High
g
Source: www.knowledgeleader.com
Likelihood (Probability)

Copyright 2010 Assura, Inc. All rights reserved.


Risk Ratings – Other types
RISK IMPACT
RISK IMPACT
FREQUENCY OF 
OCCURANCE/  IV III II I
PROBABILITY  (Catastrophic or  (Critical or High)  (Marginal or  (Negligible or 
Emergency)
Emergency)  Medium) 
) Low) 
)

4 (Frequent) 8 7 6 5

3 (Probable) 7 6 5 4

2 (Occasional)  6 5 4 3

1 (Remote) 5 4 3 2

0 (Improbable) 4 3 2 1

Copyright 2010 Assura, Inc. All rights reserved.


Evaluate Risks:
Types of Risk Decisions
• Avoidance - a decision not to
become involved in, or to
withdraw from, a risk
situation.
• Acceptance: acceptance of
the burden of loss, or benefit
of gain, from a particular risk.
• Reduction: actions taken to
lessen the likelihood,
negative, or both, associated
with a risk.
• Sharing
S off risk: sharing with
another party the burden of
loss, or benefit of gain from a
particular risk.

Copyright 2010 Assura, Inc. All rights reserved.


Monitor Risk: Tracking the Risk
• Risk Register (Keep
It Simple!)
– Id
Identified
tifi d Ri
Risk
k with
ith
Description
– Risk Category
g y ((Type
yp
of Risk)
– Risk Score (Residual
Risk Probability +
Residual Risk Impact)
– Risk Owner
– Risk
Ri k DDecision
i i

Copyright 2010 Assura, Inc. All rights reserved.


Perceived Deficiencies with ISO 31000
Risk management policies, roles and responsibilities
• Insufficient
I ffi i t detail
d t il off risk
i k architecture,
hit t strategy,
t t protocols
t l
Risk management principles
• Confusion between what risk management is and what it
delivers
Risk management specialist areas no included
• Project risk management and clinical risk management
Risk governance
• No mention of “risk appetite”
• Lack of detail for risk reporting and auditing controls

Source: RIMS.org
Copyright 2010 Assura, Inc. All rights reserved.
Final Thoughts…
g
• Start Small – Document and
obtain agreement on the
Risk Appetite –
“Establishing the Context”
• There are no “right” and
“wrong” answers to every
risk. Make the best
decision you can with the
most available data!
• Engage
E allll parts
t off the
th
organization!

Copyright 2010 Assura, Inc. All rights reserved.


K
Karen L
L. C
Cole,
l CBCP
CBCP, SBCI
Assura,, Inc.
804.672.8714
K
Karen.cole@assuraconsulting.com
l @ lti
www.assuraconsulting.com
g
Copyright 2010 Assura, Inc. All rights reserved.