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VII JORNADA ANUAL DE RIESGOSVII JORNADA ANUAL DE RIESGOSMadrid Madrid –– 25 January 200725 January 2007
Integrated Risk Management StrategyCurrent Status
Enterprise
Enterprise
RISKMANAGEMENT
Finance & ControlMarc Schaedeli / Head of Risk Management
Group Risk Services
Integrated Risk Management Strategy
2Finance & Control
Why do we have an integrated approach to risk management?
• It brings direct benefits to the business Experience and feedback within Nestlé shows– a high level of satisfaction with the immediate benefits– a growing demand
• It has the potential to provide competitive advantage• It is an impending legal requirement in Switzerland
Group Risk Services
Integrated Risk Management Strategy
3Finance & Control
The Growing Influence of Enterprise Risk Management (ERM)
Positivelydisposed
Preparing/Developing/Implementing
9%
35% 56%
Have rejected
A majority of companies are choosing ERM…
…and ERM is seen as an increasinglyimportant responsibility
50%
46%
39%
29%
30%
38%
29%
36%
19%
16%
32%
35%
Internal Audit
CFO
CEO
Board
Very high Significant Somewhat or lessDegree of Importance
Source: The Conference Board 'From Risk Management To Risk Strategy' (Results from survey of 271 executives)
'Advanced ERM' companies experience significantly greater benefits than those still adopting an ad-hoc approach. Improved benefits have been seen in each of the following areas:
• Better-informed decisions
• Greater management consensus
• Increased management accountability
• Smoother governance practices
• Ability to meet strategic goals
• Better communication to the board
• Reduced earnings volatility
• Increased profitability
• Use of risk as competitive tool
• Accurate risk-adjusted pricing
Clear benefits from an 'integrated' approach to ERM
Group Risk Services
Integrated Risk Management Strategy
4Finance & Control
ERM Process
Output
• •
•
•
•
•
•
• •
•
• •
• • •
negligible
Increasing RiskIncreasing Opportunity
Incr
easi
ng L
ikel
ihoo
d
A
B
C
D
E
F
moderate significant catastrophicnegligiblemoderatesignificantexceptional
• Identify risks to objectives and opportunities to exploit for competitive advantage
• Quantify impact and likelihood of occurrence• Prioritise actions to mitigate/avoid risks
and exploit/enhance opportunities• Support decision-making in the management process• Ultimately optimise allocation of resources
Current Application of the ERM Process
• Annual top-down risk assessments of Zones and Globally Managed Businesses
• Global Business Strategies (GBS)• M&A and divestiture projects• Major capital spending and restructuring projects
...and in other areas upon request*as defined by the Executive Board (Nov. 2002/Aug. 2006)
The process is mainly applied in the following areas*:
• Simple, flexible self-assessment process• Multi-functional team, typically in a workshop environment• Risks owned by line management• Challenges existing mindset• Requires no additional resources• Integrated into project/business management• Risk Management Advisors facilitate and are responsible
for methodology
It is a structured approach to:
It is applied in a practical way:
7. Action(ongoing)
6. Decision
5. Reporting(Moderator)
4. Evaluation(Team)
3. Description(Moderator)
2. Brain-storming
(Team)
1. Goals &Objectives
8. Monitoring(ongoing)
NestléRisk & Opportunity(R&O) Assessment
7. Action(ongoing)
6. Decision6. Decision
5. Reporting(Moderator)
5. Reporting(Moderator)
4. Evaluation(Team)
4. Evaluation(Team)
3. Description(Moderator)
3. Description(Moderator)
2. Brain-storming
(Team)
2. Brain-storming
(Team)
1. Goals &Objectives1. Goals &Objectives
8. Monitoring(ongoing)
8. Monitoring(ongoing)
NestléRisk & Opportunity(R&O) Assessment
Group Risk Services
Integrated Risk Management Strategy
5Finance & Control
Overview of ERM ActivityApplication of ERM process since December 2004
1
02
≥ 3Number of Assessments
Innovation & Renovation Projects:Coffee, Confectionery, Culinary,Ice Cream, Nutrition, NPPC
Markets:Z-AMS (Brazil, Chile, Ecuador, Mexico, Central America, Cuba)Z-AOA (India)Z-EUR (Germany)
Business:PowerBar, CPW, Nestlé Waters, Nespresso, NITR
Legal/IP:Russia, Nespresso
ERM at Zones / Globally Managed Businesses level:Value driver 2006, Z-AMS Target 2006
ERM at Alcon:General Management, Europe, LACAR, Spain, France, UK, Nordic, Belgium, Germany, Italy and Tax, Treasury, R&D, HR
M&A: Ice-Cream
Supply Chain:RATES project with
further embedment in Quality, Purchasing,
Industrial Performance, Engineering, Regulatory
Engineering: New factory projects
in Russia (NestléWaters, NPPE)
R&D/PTC:All PTC/R&D
except St. Louis and Vittel
Group Risk Services
Integrated Risk Management Strategy
6Finance & Control
Foundation to Support an Integrated Approach
Single repository for R&O information
R&O Management Information Repository (ARM)Secure and wed-based, providing transparency and real-time updates
Facilitates sharing of knowledge and avoids duplication of efforts
Documented Best Practices and GuidelinesR&O Assessment Best Practice
R&O Management Terminology / ClassificationARM User Guidelines
‘R&O Champions' in selected markets
Input Output
Consistent assessment of R&O
Consolidated profile
Group-level perspective
Raise major Group-level R&O
Top-Level R&O Assessments(mandatory, Zone & Globally Managed Business)
Bottom-up R&O Assessments(on management request, ad-hoc)
Nestlé Audit Group Findings(NAG guidelines, R&O classification)
Compliance Framework
Regular reportsto EBM
(work in progress)
Collectively address all sources of main R&O
to Nestlé S.A.Strategic, Operational, Reporting,
Financial, Compliance
Group Risk Services
Integrated Risk Management Strategy
Finance & Control
• Mandatory annual Zone/Globally Managed Business (GMB) assessment(major R&O impacting on targets)
– Workshop involving direct reports, timing: October / November– Support provided by Group Risk Management (FC-GRS)– Outcome challenged and validated by Head of Zones / GMB
• ‘Ad-hoc’ assessments (on request):– Provide support for business, project ‘ad-hoc’ assessments
Furthermore we have agreed to work hand-in-hand with:• Group Control:
– To improve R&O management within strategy setting– To embed simple process within Strategic Planning (GBS) to identify major strategic R&O– Pilot studies already performed
• GMB (Nestlé Nutrition):– Embed R&O Management within Top Nestlé Nutrition I&R projects, operational R&O
• R&D/PTC:– Build upon ‘ad-hoc’ R&O assessment already performed in Coffee, Confectionery, Culinary, Ice
Cream, NPPC to develop common I&R project R&O catalog– Embed R&O Management within Top I&R projects (all product categories)
Where is the ERM process applied at Nestlé…? Status – December 2006
Group Risk Services
Integrated Risk Management Strategy
Finance & Control
- Single production center - Prototype lines - Maximum capacity utilization - Single distributor- Single key suppliers
Nespresso risk characteristics
Group Risk Services
Integrated Risk Management Strategy
Finance & Control
ERM Process
7. Action(ongoing)
6. Decision
5. Reporting(Moderator)
4. Evaluation(Team)
3. Description(Moderator)
2. Brain-storming
(Team)
1. Goals &Objectives
8. Monitoring(ongoing)
NestléRisk & Opportunity(R&O) Assessment
Group Risk Services
Integrated Risk Management Strategy
Finance & Control
1. Goals &Objectives
Step 1: Goals & Objectives
Key Supplier 3PL (former PESA)Operation
Supply
Supplier Production Center Distributor
Delivery
Logistics
ConstructionTransfer
Other Suppliers
Scope of the assessment defined:Production Centre operation
Group Risk Services
Integrated Risk Management Strategy
Finance & Control
Management
Logistics Factory Operation
External Threats
Raw & Pack Mat
Quality
Supply ChainProduction
IT & Systems
HR
Engineering
Operational Health & Safety
Finance & Controlling
External Exposure
Natural Hazards
Environmental Impact
Delivery to 3PL
Steps 2-3: Brainstorming and Description
3. Description
2. Brain-storming
Team: Simple, flexible and multifunctionalSupported by Group Risk Services, Nestec
Group Risk Services
Integrated Risk Management Strategy
Finance & Control
Steps 4-5: Evaluation and Reporting
4. Evaluation
5. Reporting
All areas covered120 risk scenarios evaluated Impact/Likelihood assessed
Tolerable risk level defined
Impact
Prob
abili
ty /
Freq
uenc
y
5272
5273
5274
5275
5276
5277
5278
5279
5280
5281
5282
5283
5284
5285
52865287
5288
5289
5290
52915292
5293 52945295
5296
5297
5298
5299
5300
5301
5302
5303
5304
5305
5306
5307
5308
5309
5310
5311
5312
5313
5314
5315
5316
5317
5318
5319
5320
5321 5322
5323
5324
5325
5326 5327
5328
5329
5330
5331
5332
5333
5334 5335
5336
5337
5338
5339
5340
F A
lmos
t E
Unl
ikel
yD
Fai
rly L
C P
roba
bB
Hig
hly
A A
lmos
t
-4 Exceptional -3 Significant -2 Moderate -1 Negligible 1 Negligible 2 Moderate 3 Significant 4 Catastrophic||||
Group Risk Services
Integrated Risk Management Strategy
Finance & Control
Step 6: Decision
6. Decision
““firefire””: A scenario clearly above our risk appetite!: A scenario clearly above our risk appetite!
-70% of Nestlé’s large property losses
Group Risk Services
Integrated Risk Management Strategy
Finance & Control
Steps 7&8: Improvement and Monitoring
Measures• Clear rules and training• Procedures (hot work permit)• Audits• Roasters safety checks• Smoke detection system installed• Sprinkler system in place• …
8. Monitoring
7. ImprovementWho, what, by when…
Group Risk Services
Integrated Risk Management Strategy
Finance & Control
Our BCM strategy
• Ensure the safety of our staff
• Maximise the defence of Nestlé Nespresso S.A reputation and brand image
• Minimise impact of business interruption events on our consumers (the Gap)
• Limit/prevent impact beyond our company’s boundaries
• Demonstrate effective and efficient governance to the media, markets and stakeholders
• Protect Nestlé Nespresso S.A assets
• Meet insurance, legal and regulatory requirements
Group Risk Services
Integrated Risk Management Strategy
Finance & Control
Thank you very muchThank you for your attention
And enjoy 5 minutes of pleasure…
www.nespresso.com
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