Ape SyndicateYuliana Irmina 29110389,Decky Prasakti 29110391, Resti Athayani

29110402 Lamya Nur Zahidah 29110406, Harry Riusxander 29110408

Wisnumurti Rahardjo 29110412, Ronaldo Bagus Putra 291104xxx

THE NEW RELIGION OF

RISK MANAGEMENT

Success brings profits, growth, and unbounded optimism. But it also has a way

of blinding executives to the many organizational dangers that creep in at the

same time.

In good times, it’s easy to forget about risk, and that might be happened to every

companies.

Internal risk that are hiding within your company could be determined by using

RISK EXPOSURE CALCULATOR

Determine company’s risk level

Help CEO to discover pressure on other critical pressure points

Give opportunity to conduct two illuminating exercise :

• Compare scores of each division• Compare current risk exposure with 24 month ago

RISK EXPOSURE CALCULATOR

GrowthPressures for Performance

Rate of ExpansionInexperience of Key Employees

=

Score Score Score Score

CultureRewards for

Entrepreneurial Risk-Taking

Executive Resistance to Bad

News

Level of Internal Competition

=

Score Score Score Score

Information Management

Transaction Complexity and

Velocity

Gaps in Diagnostic

Performance Measures

Degree of Decentralized

Decision Making=

Score Score Score Score

Total Score =

RISK EXPOSURE CALCULATOR

GRO

WTH

1. Pressure for performance

How can managers measure their score on this point?• manager can achieve their goal through the subordinate• good performance by subordinate• high expectation for financial result due to good performance

2. Rate of expansion How can managers measure their score on this point?

• operation expanding faster than the capacity to invest in more people and technology

• without careful planning and allocation of resources, the infrastructure to support rapid expansion may quickly become overloaded, resulting in sacrifices in quality.

3. Inexperience among employees and staffHow can managers measure their score on this point?

• percentage job filled with newcomers / inexperience employee

• employee make too many mistakes• increased customer complaint

CULTU

RE1. Reward for entrepreneurial risk taking How can managers measure their score on this point?

• percentage of the business is based on new product and services that have been generated by creative, risk taking employees

• environment in which people are allowed to operate like the Lone Ranger• increasing frequency in failed new products or servicess or unsuccessful

deals

2. Executive resistance to bad newsHow can managers measure their score on this point?

• amount of bad news that manager get• people who speak of obstacles, problems, or impending dangers are

derided as annoying naysayers and accused of not being team player.

3. Level of internal competitionHow can managers measure their score on this point?

• Manager believe that they are in a horce race with their peers for promotions and rewards.

• Employee perceived advancement and promotion as a zero sum game, internal competition (compared with one another) can have unintended side effect decrease in information sharing

INFO

RMAT

ION

MAN

AGEM

ENT

1. Transaction complexity and velocity How can managers measure their score on this point?

– when systems to manage information are inadequate havoc ensues– success in the marketplace is often accompanied by increasingly sophisticated

product, by innovation in the way that customer are served, and by creativity in bundling new products or services.

– managers have less opportunity to scrutinize transaction to ensure that they adhere to preapproved policies.

2. Gaps in diagnostic performance measuresReason the manager ignore the internal reporting system that measure critical performance variable :

1. Rapid growth system outdated and inadequate2. Human nature

How can managers measure their score on this point?– hard to get the right data at the right time feeling frustration– didn’d control the performance effectively.

3. Degree of decentralized decision makingHow can managers measure their score on this point?

– local managers acting without a larger sense of their organization corporate strategy

– didn’t have well-defined information channels for sharing information either sideways or upward.

– if senior executives are not hearing important information until it’s too late

9-20

The

Saf

ety

Zone Probably safe

from unexpected errors or events that could threaten the health of business

21-3

4 Th

e Ca

ution

Zon

e Managers should be alert for high scores in any two or three risk dimensions

35–4

5 Th

e D

ange

r Zon

e The alarm bells should be ringing and fast action should follow

Interpreting the Score

LOC Model Implementation

Pressure Point Identification

Score calculation

Next step?

The Relationship between Risk and Awareness

Potential Consequences

Awareness

External Risk

aware of their nature and magnitude

act

avoid the hidden dangers

Internal Risk

know where it exist in the organization & at what

levels

act

Done everything possible to control risk!

What action are left?

Levers of Control

Levers of Control

(to balance profit, growth, and control)ensure that the business strategy stays on track

(to safeguard assets and ensure reliable information)

essential foundation for controlling risk in all organization.

Internal Controls +

5Question

AboutRisk

Have senior managers communicated the core values of the business

in a way that people understand and embrace?

#1

To effectively communicate core values and beliefs, manager must do more than go through the motion

of writing a mission statement

Belief system consist of :• communicated through mission statements,

credos and statement of values• can go a long way toward creating a culture that

rewards integrity and makes clear the types of choice

At Johnson & Johnson, top manager periodically meet with all business unit managers to debate and reaffirm the importants of their long standing credo

Have managers in your organization

clearly identified the specific actions and behaviors

that are off-limits?

#2

For any given business strategy managers must determine what behaviour or action to damage the business reputation and declare those actions categorically off limits.Consultants and

audithors like McKinsey depend on their reputation for trustworthiness as an essential assets for effective competition

Are diagnostic control systems adequate at monitoring critical

performance variables?

#3

Managers may choose to focus diagnostics

measures on operations, on critical balance sheet

assets, or on the competitive environment.

Because success makes it to easy to neglect or business diagnostic

control systems, managers have to be sure to invest in these systems in boom times

and ensurre that everyone is focusing on

the right critical performance variables

Are your control systems interactive and designed to stimulate learning?

#4

An additional and important way to monitor risk exposure is through

certain interactive control system- that is systems that force managers to engage in

conversation about strategic uncertainties. These control

systems trigger can raise important questions about customers,

technology, competitors, regulation, markets.

Any number systems can be used: profit plans, performance scorecards, technology monitoring systems, or brand revenue systems.

Example: J&J

• The J & J managers use their profit planning and long range planning system in a highly interactive way to continually assess opportunities and threats.

Are you paying enough for traditional internal

controls?

#5

In this age of Balance score card and enterprisewide

information systems, internal controls have been neglected

by many organizations, such as segregating duties, limiting

access to critical information, and adequately staffing key

control and risk management positions, such as controllers

and internal auditors. The main reasons of this condition is the

wave of reengineering and downsizing.

On the other hand, these initiatives have successfully refocused and streamlined businesses, making them

healthier and more competitive.

Example: J&J

• The J & J managers use their profit planning and long range planning system in a highly interactive way to continually assess opportunities and threats.

implemented the levers of control model and found a way to drive maximum performance while ensuring adequate safeguards against

risk.

Successful company’s managers:

Its disastrous fall in 1994, when over $350 million of false profit were uncovered and GE decided to dispose of Kidder Peabody’s assets

The company’s score would have been close to straight fives in all categories for a total of 45 (danger zone)

General Electric

Growth

• Pressure for performance was extremely high– Did not fully understand the operations or the nature of

financial service products

• The rate of expansions was intense– Pouring money so the business could expand

aggressively

• Inexperience of key employees mounting– Hired the fixed-income desk that was young and had no training

or experience in buying and selling specialized types of bonds

Culture

• GE created an environment that rewarded entrepreneurial risk taking– Who could create new financial products were well compensated

• Executive resistance to bad news– Especially given the rewards and accolades that were being showered

on the trader – that those with suspicious were quickly quieted

• Intense internal competition – Vied for promotion, recognition, and large bonuses

Information Management

• Transaction complexity and velocity increasing rapidly– Jett place order to buy and sell billion of dollars worth of bonds

• Diagnostic performance measures were faulty and incomplete– Lack of early warning system

• High on decentralized decision making– Major decisions to be made by employees at the

trading desks without direct management oversight

• The company was too much relied on the company’s diagnostic control system and internal auditor to alert them.

• Blame must be placed on managers who failed to appreciate the risk pressures due to growth, culture, and information management

Conclusion

THANK YOU SO SO