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Additional Praise for
Implementing Enterprise Risk Management
“Educators the world over seeking to make the management of risk an integral part
of management degrees have had great difficulties in providing their students with
a definitive ERM text for their course. The Standards and associated Handbooks
helped, but until the arrival of Implementing Enterprise Risk Management: Case Studies and Best Practices, there has been no text to enlighten students on the application
of an effective program to manage risk across an enterprise so that objectives are
maximized and threats minimized. Fraser, Simkins, and Narvaez have combined
with a group of contributors that represent the cream of risk practitioners, to provide the reader with a clear and concise journey through the management of risk
within a wide range of organizations and industries. The knowledge, skills, and
experience in the management of risk contained within the covers of this book are
second to none. It will provide a much needed resource to students and practitioners for many years to come and should become a well-used reference on the desk
of every manager of risk.”
—Kevin W. Knight AM, chairman, ISO/TC 262—Risk Management
“The authors—Fraser, Simkins, and Narvaez—have done an invaluable service to
advance the science of enterprise risk management by collecting an extensive number of wonderful case studies that describe innovative risk management practices
in a diverse set of companies around the world. This book should be an extremely
valuable source of knowledge for anyone interested in the emerging and evolving
field of risk management.”
—Robert S. Kaplan, senior fellow, Marvin Bower Professor of Leadership
Development, emeritus, Harvard University
“Lessons learned from case studies and best practices represent an efficient way
to gain practical insights on the implementation of ERM. Implementing Enterprise
Risk Management provides such insights from a robust collection of ERM programs across public companies and private organizations. I commend the editors
and contributors for making a significant contribution to ERM by sharing their
experiences.”
—James Lam, president, James Lam & Associates; director and Risk Oversight
Committee chairman, E∗ TRADE Financial Corporation;
author, Enterprise Risk Management—From Incentives to Controls
“For those who still think that enterprise risk management is just a fad, the varied
examples of practical value-generating uses contained in this book should dispel
any doubt that the discipline is here to stay! The broad collection of practices is
insightful for students, academics, and executives, as well as seasoned risk management professionals.”
—Carol Fox, ARM, director of Strategic and Enterprise Risk Practice, RIMS
“Managing risk across the enterprise is the new frontier of business management.
Doing so effectively, in my view, will be the single most important differentiating
factor for many enterprises in the twenty-first century. Implementing Enterprise Risk
Management: Case Studies and Best Practices is an innovative and important addition
to the literature and contains a wealth of insight in this critical area. This book’s
integration of theory with hands-on, real-world lessons in managing enterprise
risk provides an opportunity for its readers to gain insight and understanding that
could otherwise be acquired only through many years of hard-earned experience.
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I highly recommend this book for use by executives, line managers, risk managers,
and business students alike.”
—Douglas F. Prawitt, professor of Accounting at Brigham Young University,
and Committee of Sponsoring Organizations (COSO)
Executive Board member
“The real beauty of and value in this book is its case study focus and the wide
variety of firms profiled and writers’ perspectives shared. This will provide readers
with a wealth of details and views that will help them chart an ERM journey of their
own that is more likely to fit the specific and typically customized ERM needs of
the firms for whom they toil.”
—Chris Mandel, senior vice president, Strategic Solutions for Sedgwick;
former president of the Risk Management Society
and the 2004 Risk Manager of the Year
“Implementing Enterprise Risk Management looks at many industries through excellent case studies, providing a real-world base for its recommendations and an
important reminder that ERM is valuable in many industries. I highly recommend
this text.”
—Russell Walker, Clinical associate professor, Kellogg School of Management;
author of Winning with Risk Management
“The body of knowledge in Implementing Enterprise Risk Management continues to
develop as business educators and leaders confront a complex and rapidly changing environment. This book provides a valuable resource for academics and practitioners in this dynamic area.”
—Mark L. Frigo, director, Strategic Risk Management Lab,
Kellstadt Graduate School of Business, DePaul University
“The management of enterprise risk is one of the most vexatious problems confronting boards and executives worldwide. This is why this latest book by Fraser,
Simkins, and Narvaez is a much needed and highly refreshing approach to the subject. The editors have managed to assemble an impressive list of contributors who,
through a series of fascinating real-life case studies, adroitly help educate readers
to better understand and deal with the myriad of risks that can assault, seriously
maim, and/or kill an organization. This is a ‘how to’ book written with the ‘risk
management problem solver’ in mind. It provides the link that has been missing
for effectively teaching ERM at the university and executive education levels and
it is an exceptional achievement by true risk management advocates.”
—Dr. Chris Bart, FCPA, founder and lead faculty,
The Directors College of Canada
“The Institute of Risk Management welcomes the publication of this highly practical text which should be of great interest to our students and members around the
world. Implementing Enterprise Risk Management brings together a fine collection of
detailed case studies from organizations of varying sizes and working in different sectors, all seeking to enhance their business performance by managing their
risks more effectively, from the boardroom to the shop floor. This book makes a
valuable contribution to the body of knowledge of what works that will benefit the
development of the risk profession.”
—Carolyn Williams, technical director, Institute of Risk Management
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IMPLEMENTING
ENTERPRISE RISK
MANAGEMENT
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The Robert W. Kolb Series in Finance provides a comprehensive view of the field
of finance in all of its variety and complexity. The series is projected to include
approximately 65 volumes covering all major topics and specializations in finance,
ranging from investments, to corporate finance, to financial institutions. Each volume in the Kolb Series in Finance consists of new articles especially written for
the volume.
Each volume is edited by a specialist in a particular area of finance, who develops
the volume outline and commissions articles by the world’s experts in that particular field of finance. Each volume includes an editor’s introduction and approximately thirty articles to fully describe the current state of financial research and
practice in a particular area of finance.
The essays in each volume are intended for practicing finance professionals, graduate students, and advanced undergraduate students. The goal of each volume is
to encapsulate the current state of knowledge in a particular area of finance so that
the reader can quickly achieve a mastery of that special area of finance.
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IMPLEMENTING
ENTERPRISE RISK
MANAGEMENT
Case Studies and Best Practices
Editors
John R.S. Fraser
Betty J. Simkins
Kristina Narvaez
The Robert W. Kolb Series in Finance
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Cover Design: Wiley
Cover Image: © iStock.com/clauiad
Copyright © 2015 by John R.S. Fraser, Betty J. Simkins, Kristina Narvaev. All rights
reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted
in any form or by any means, electronic, mechanical, photocopying, recording, scanning,
or otherwise, except as permitted under Section 107 or 108 of the 1976 United States
Copyright Act, without either the prior written permission of the Publisher, or
authorization through payment of the appropriate per-copy fee to the Copyright
Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978)
646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission
should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River
Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at
http://www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their
best efforts in preparing this book, they make no representations or warranties with
respect to the accuracy or completeness of the contents of this book and specifically
disclaim any implied warranties of merchantability or fitness for a particular purpose. No
warranty may be created or extended by sales representatives or written sales materials.
The advice and strategies contained herein may not be suitable for your situation. You
should consult with a professional where appropriate. Neither the publisher nor author
shall be liable for any loss of profit or any other commercial damages, including but not
limited to special, incidental, consequential, or other damages.
For general information on our other products and services or for technical support, please
contact our Customer Care Department within the United States at (800) 762-2974, outside
the United States at (317) 572-3993 or fax (317) 572-4002.
Wiley publishes in a variety of print and electronic formats and by print-on-demand.
Some material included with standard print versions of this book may not be included in
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not included in the version you purchased, you may download this material at
http://booksupport.wiley.com. For more information about Wiley products, visit
www.wiley.com.
Library of Congress Cataloging-in-Publication Data:
ISBN 978-1-118-69196-0 (Hardcover)
ISBN 978-1-118-74576-2 (ePDF)
ISBN 978-1-118-74618-9 (ePub)
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
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To Wendy, my wonderful wife and my inspiration, and to my
parents who instilled in me a lifelong thirst for learning.
—John Fraser
To my husband (Russell) and our family: sons and daughtersin-law (Luke & Stephanie and Walt & Lauren), daughter and
son-in-law (Susan & Jason), and our youngest daughter (April).
Thank you for your love, support, and encouragement!
—Betty Simkins
I would like to thank my husband and four children for supporting me on my journey of writing two chapters and co-editing this
book. I would also like to thank the Risk and Insurance Management Society for supporting me during my educational years
and providing great workshops and conferences on enterprise
risk management.
—Kristina Narvaez
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Contents
Foreword
1
xiii
Enterprise Risk Management Case Studies:
An Introduction and Overview
1
John R.S. Fraser, Betty J. Simkins, and Kristina Narvaez
PART I Overview and Insights for Teaching ERM
2
An Innovative Method to Teaching Enterprise Risk
Management: A Learner-Centered Teaching Approach
17
19
David R. Lange and Betty J. Simkins
PART II ERM Implementation at Leading Organizations
3
ERM at Mars, Incorporated: ERM for Strategy
and Operations
37
39
Larry Warner
4
Value and Risk: Enterprise Risk Management at Statoil
59
Alf Alviniussen and Håkan Jankensgård
5
ERM in Practice at the University of California
Health System
75
Grace Crickette
6
Strategic Risk Management at the LEGO Group:
Integrating Strategy and Risk Management
93
Mark L. Frigo and Hans Læssøe
7
Turning the Organizational Pyramid Upside Down:
Ten Years of Evolution in Enterprise Risk Management
at United Grain Growers
107
John Bugalla
ix
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x
8
Contents
Housing Association Case Study of ERM in a
Changing Marketplace
119
John Hargreaves
9
Lessons from the Academy: ERM Implementation in
the University Setting
143
Anne E. Lundquist
10
Developing Accountability in Risk Management: The
British Columbia Lottery Corporation Case Study
179
Jacquetta C. M. Goy
11
Starting from Scratch: The Evolution of ERM at the
Workers’ Compensation Fund
207
Dan M. Hair
12
Measuring Performance at Intuit: A Value-Added
Component in ERM Programs
227
Janet Nasburg
13
TD Bank’s Approach to an Enterprise Risk
Management Program
241
Paul Cunha and Kristina Narvaez
PART III Linking ERM to Strategy and Strategic
Risk Management
14
A Strategic Approach to Enterprise Risk Management
at Zurich Insurance Group
251
253
Linda Conrad and Kristina Narvaez
15
Embedding ERM into Strategic Planning at the City
of Edmonton
281
Ken Baker
16
Leveraging ERM to Practice Strategic Risk Management
305
John Bugalla and James Kallman
PART IV
17
Specialized Aspects of Risk Management
Developing a Strategic Risk Plan for the Hope City
Police Service
319
321
Andrew Graham
18
Blue Wood Chocolates
Stephen McPhie and Rick Nason
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335
CONTENTS
19 Kilgore Custom Milling
xi
363
Rick Nason and Stephen McPhie
20
Implementing Risk Management within Middle
Eastern Oil and Gas Companies
377
Alexander Larsen
21
The Role of Root Cause Analysis in Public Safety
ERM Programs
397
Andrew Bent
22
JAA Inc.—A Case Study in Creating Value from
Uncertainty: Best Practices in Managing Risk
427
Julian du Plessis, Arnold Schanfield, and Alpaslan Menevse
23
Control Complacency: Rogue Trading
at Société Générale
461
Steve Lindo
24
The Role of VaR in Enterprise Risk Management:
Calculating Value at Risk for Portfolios Held by the
Vane Mallory Investment Bank
489
Allissa A. Lee and Betty J. Simkins
25
Uses of Efficient Frontier Analysis in Strategic Risk
Management: A Technical Examination
501
Ward Ching and Loren Nickel
PART V Mini-Cases on ERM and Risk
523
26
525
Bim Consultants Inc.
John R.S. Fraser
27
Nerds Galore
529
Rob Quail
28
The Reluctant General Counsel
535
Norman D. Marks
29
Transforming Risk Management at Akawini Copper
539
Grant Purdy
30
Alleged Corruption at Chessfield: Corporate
Governance and the Risk Oversight Role of the Board
of Directors
Richard Leblanc
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547
xii
31
Contents
Operational Risk Management Case Study:
Bon Boulangerie
555
Diana Del Bel Belluz
PART VI
32
Other Case Studies
Constructive Dialogue and ERM: Lessons from the
Financial Crisis
559
561
Thomas H. Stanton
33
Challenges and Obstacles of ERM Implementation
in Poland
577
Zbigniew Krysiak and Slawomir
Pijanowski
¯
34
Turning Crisis into Opportunity: Building an ERM
Program at General Motors
607
Marc S. Robinson, Lisa M. Smith, and Brian D. Thelen
35
ERM at Malaysia’s Media Company Astro: Quickly
Implementing ERM and Using It to Assess the
Risk-Adjusted Performance of a Portfolio of Acquired
Foreign Companies
623
Patrick Adam K. Abdullah and Ghislain Giroux Dufort
About the Editors
649
Index
651
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Foreword
E
nterprise Risk Management is an evolving discipline focused on a complex and still imperfectly-understood subject. In such a situation, science is
advanced best by collecting data from multiple, independent sites. A rich
set of observations educates the field’s scholars and practitioners and provides the
foundation for them to develop descriptive and normative theories as well as codified best practices about the subject.
The authors—Fraser, Simkins, and Narvaez—have done an invaluable service
to advance the science of enterprise risk management by collecting an extensive
number of wonderful case studies that describe innovative risk management practices in a diverse set of companies around the world. This book should be an
extremely valuable source of knowledge for anyone interested in the emerging
and evolving field of risk management. We should be grateful to the editors and
to each chapter author for expanding the body of knowledge for risk management
professionals and academics.
Robert S. Kaplan
Senior Fellow, Marvin Bower Professor
of Leadership Development, Emeritus
Harvard University
xiii
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CHAPTER 1
Enterprise Risk Management
Case Studies
An Introduction and Overview
JOHN R.S. FRASER
Senior Vice President, Internal Audit, and former Chief Risk Officer, Hydro One
Networks Inc.
BETTY J. SIMKINS
Williams Companies Chair of Business and Professor of Finance, Oklahoma State
University
KRISTINA NARVAEZ
President and Owner of ERM Strategies, LLC
Businesses, business schools, regulators, and the public are now scrambling to
catch up with the emerging field of enterprise risk management.
—Robert Kaplan (quote from Foreword in Fraser and Simkins, 2010)
Most executives with MBA degrees were not taught ERM. In fact, there are only
a few universities that teach ERM. So some business school graduates are strong
in finance, marketing, and management theory, but they are limited in terms of
critical thinking, business acumen, and risk analysis skills.
—Paul Walker1
THE EVOLUTION OF ENTERPRISE
RISK MANAGEMENT
Over the past two decades enterprise risk management (ERM) has evolved
from concepts and visions of how risks should be addressed to a methodology that is becoming entrenched in modern management and is now
increasingly expected by those in oversight roles (e.g., governing bodies and
regulators). As Felix Kloman describes in his chapter “A Brief History of Risk Management,” published in Fraser and Simkins (2010), many of the concepts go back
a very long time and many of the so-called newly discovered techniques can be
1
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2
Implementing Enterprise Risk Management
referenced to the earlier writings and practices described by Kloman. However,
it is only from around the mid-1990s that the concept of giving a name to managing risks in a holistic way across the many operating silos of an enterprise started
to take hold. In the 1990s, terms such as integrated risk management and enterprisewide risk management were also used. Many thought leaders, for example, those
who created ISO 31000,2 believe that the term risk management is all that is needed
to describe good risk management; however, many others believe that the latter
term is often used to describe risk management at the lower levels of the organization and does not necessarily capture the concepts of enterprise-level approaches
to risk. As a result, the term ERM is used throughout this book.
As ERM continues to evolve there is still much discussion and confusion over
exactly what it is and how it should be achieved. It is important to realize that
it is still evolving and may take many more years before it is fully codified and
practiced in a consistent way. In fact, there is a grave danger now of believing
that there is only one way of doing ERM. This is probably a mistake by regulators who have too eagerly seized some of these concepts and are trying to impose
them when the methods are not fully understood, and in some cases the requirements are unlikely to produce the desired results. As Fraser and Simkins (2010)
noted in their first book on ERM: “While regulatory interest can force ERM into
companies, if not d …
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