Enterprise risk management subject
week 2/chapter 6.pdf
ITS 835 Chapter 6
Strategic Risk Management at the LEGO Group Enterprise Risk Management
Dr. Les Stovall
Introduction
• LEGO Group history • Strategy • Legacy risk management • Enterprise risk management at LEGO
• Initial ERM • Monte Carlo simulation • Active Risk Assessment of Business Projects (AROP) • Preparing for Uncertainty
• The PAPA model • Risk management ROI
LEGO Group History
• Headquarters in Billund, Denmark • Family owned • Second largest toy manufacturer (globally) • Founded in 1932
• Iconic bricks first introduced
• Bricks manufactured since 1958 fit with one another
• 2400 different brick shapes • Manufactured in plants across four countries
LEGO Strategy
• LEGO mission • “Inspire and develop the builders of tomorrow”
• LEGO vision • “Inventing the future of play”
• Growth strategy • Innovation strategy
ERM at LEGO • Risk management developed in 4 stages
• Step 1: Enterprise risk management • Step 2: Monte Carlo simulations • Step 3: Active Risk & Opportunity Planning (AROP) • Step 4: Preparing for Uncertainty
• Order is by initiation sequence • Steps 1 & 2 are damage control • Steps 3 & 4 are proactive
ERM Step 1: Enterprise Risk Mgmt
ERM Step 2: Monte Carlo Simulations
• Monte Carlo simulation • Method of evaluating the effect of input variances on a model of
a complex system
• In short, it helps to see how input variances affect outcomes
• Helps to define risk tolerance • Implemented in three areas
• Budget simulation
• Credit risk portfolio
• Consolidation of risk exposure
ERM Step 3: AROP
• Active Risk Assessment of Business Projects (AROP) • Formal approach to defining and handling project risk • Includes multiple steps
• Identification
• Assessment
• Handling
• Reassessment
• Follow-up
• Reporting
ERM Step 4: Preparing for Uncertainty
• Preparing for Uncertainty • Defining and Testing Strategies
• Workshops precede strategic planning sessions • Four scenarios
• Agree on two key drivers of uncertainty
• Describe each of four quadrants of 2×2 matrix
• Define strategic issues
• Actions to take • “who is doing what by when?”
The PAPA Model
• Park, Adapt, Prepare, Act: PAPA • Park
• Adapt
• Prepare
• Act
Risk Management ROI
• Strong support from upper management • Efforts have resulted in value • Many LEGO key planning processes now include risk
management
• More visibility of enterprise risk • More opportunity to address risk
Summary
• Risk management is not risk aversion • ERM allows LEGO to take risks when appropriate
• Grow
• Create value
• LEGO strategic risk management mission • “Drive conscious choices”
week 2/chapter 9.pdf
ITS 835 Chapter 9
Lessons from the Academy: ERM Implementation in the University Setting
Enterprise Risk Management
Dr. Les Stovall
Introduction
• Higher education environment • ERM in higher education • Adopting ERM in Colleges and Universities • The University of Washington case study • Summary
Higher Education Environment
• Generally considered “different” from enterprises • Historically separate from targets of legislation • Often, success may lead to lack of risk management • Multiple high-visibility scandals have shed light on HE • Many HEIs have migrated to more corporate ERM • Different HE cultures demand different ERM solutions
ERM in Higher Education
• Recognition of institutional areas • Each encounters unique risks
• Risks can include • Litigation settlements
• Loss • Assets
• Enrollment
• Donors
• Reputation damage
Adopting ERM in Colleges and Universities
• Think tank of HE to discuss ERM in HE • 2001 • PricewaterhousCoopers • National Assoc of College and Univ Bus Officers (NAUCUBO)
• Focus • Definition of risk • Risk drivers in HE • Implementation of risk management to assess, manage, monitor
risk
• Proactively engage the campus community
University of Washington
• Sentinel event • $35 million fine for Medicare and Medicaid overbilling
• Push to implement ERM to improve compliance • UW is built on a decentralized governance model • Started with
• Strategic Risk Initiative Review Committee (SRIRC) • Each initiative asked
• Does this proposal add value? • What obstacles are apparent and how can they be addressed? • How can this proposal be improved?
University of Washington, cont’d.
• Committee recommendation • Create a Culture-Specific ERM
• Examined other HEIs
UW Evolution of ERM
UW ERM Structure
UW’s ERM Integrated Framework
UW’s ERM Process
UW’s Risk Assessment: Likelihood and Impact
Summary
• Outcomes are consistent with guidance offered by • National Association of College and University Attorneys (NACUA)
• NACUA eight critical factors • Establish the right vision and realistic plan • Obtain senior leadership buy0in and direction • Align with mission and strategic direction • Attack silos at the outset • Set objectives and performance indicators • Stay focused on results • Communicate vision and key outcomes • Develop a sustainable process versus a one-time project
week 2/Instructions.docx
Chapter 6 presented the approach the LEGO Group used to implement ERM, and chapter 9 presented a discussion and case study on implementing ERM in a higher education environment. Please explain how ERM adoption and implementation in the higher education (HE) environment differs from the for-profit environment. Cite specific examples from this week’s readings.
To complete this assignment, you must do the following:
A) As indicated above, explain how ERM adoption and implementation in the higher education (HE) environment differs from the for-profit environment. Cite specific examples from this week’s readings. In your explanation, discuss at least three points or aspects in which the implementing ERM in the two environments differ.
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