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At the initial stage with individual participants at a risk identification and assessment workshop, the CRO did not intervene, even though he believed that there was some bias in the opinions being expressed. As the sessions continued, interaction among the different participants resulted in a diminution of the biases. At the conclusion of each workshop, all the risks were prioritized according to group consensus. Communication among the team members and the great facilitation by the CRO helped to reduce the biases. A set of risk criteria[1] was developed (depicted in Exhibits 22.3, 22.4, and 22.5), which was used to guide strategic business decisions with respect to the apparent risks.

A new communication channel was established with the EROC and the risk owners, who met and continue to meet quarterly. This structure helped JAA establish a sound and trusted medium for the exchange of ideas, thus reducing misunderstandings. The meeting agenda usually included ongoing projects, new perceptions of risk, and changes in the context and alignment of the current risk profile with the organization's risk management policy and the risk attitude. The EROC demonstrated executive management's commitment to managing risk, and helped to establish a risk consciousness and risk culture within JAA.

The need for an increased awareness of sustainability among stakeholders was one area of concern, and as such it was one of the new projects undertaken by JAA. The company added new policies and a few application projects to increase public awareness. These projects also helped to increase the brand value.

Exhibit 22.3 Consequence Scales for Quantifiable Effect

Metric for Impact or Consequence

Objective Type

Measure

Scenario

5 – Very High

4 – High

3 – Moderate

2 – Low

1 – Very Low

Financial

Sales growth

Quarterly sales expectations

> +25% < -25%

> +15% < -15%

> +10% < -10%

> +7% < -7%

> +4% <-4%

Brand value

Market price volatility

> +25% < -25%

> +15% < -15%

> +10% < -10%

> +7% < -7%

> +4% < -4%

Reputation

Public relations

Media coverage value (+/-)

>$10M

International

media

coverage

> $7M

National media coverage

> $4M Local media coverage

> $2M Within the sector

>$1M

Partial sector

Employee

commitment

Key personnel turnover

15%

10%

5%

3%

1.5%

Regulatory

Local licenses

Regulatory fines

>$1M

> $700,000

> $500,000

> $300,000

> $100,000

Legal

Contract

liabilities

>$10M

> $7M

> $4M

>$2M

>$1M

Customers

Quality

perception

Customer

satisfaction

> 80%

> 60%

>40%

> 20%

>5%

Retail customer growth

New customers and retention

> 15%

> 10%

>5%

>3%

> 1.5%

Retail branches

Branch

performance

> +25% < -25%

> +15% < -15%

> +10% < -10%

> +7% < -7%

> +4% < -4%

Sustainability

Business

Business

continuity

Disruptions

> 3 days

> 2 days

> 1 day

> half day

> 1 hour

Markets

Order delivery delays

> 5 days

> 3 days

> 1 day

> half day

> 1 hour

Technology

Project delivery delays

> 3 months

> 2 months

> 1 month

> 15 days

> 1 week

Safety and Environment

Work safety

Incidents

1 casualty

> 1 major wound

> 1 minor wound

Minor wound

Local physical damage only

Exhibit 22.4 Consequence Scales for Nonquantifiable Effect

Rating

Financial

Reputation

Regulatory

Customer

Sustainability

Safety

Environment

Massive

Available financial resources affected highly so that revisions of business plans needed

Organization assets that represent value to company brand and market credibility severely affected

Market existence and/or ability to generate business severely affected

Performance or quality severely affected

Business flow severely affected

Multiple fatalities or irreversible disability to many individuals

Natural

resources

severely

affected

Major

Available financial resources affected remarkably so that revisions of some of the elements of business plans needed

Organization assets that represent value to company brand and market credibility significantly affected

Market existence and/or ability to generate business significantly affected

Performance or quality significantly affected

Business flow significantly affected

Fatality and/or irreversible disability to one or many individuals/ persons

Natural

resources

significantly

affected

Moderate

Available financial resources affected noticeably so that revisions of a few of the elements of business plans needed

Organization assets that represent value to company brand and/or market credibility noticeably affected

Market existence and / or ability to generate business noticeably affected

Performance or quality noticeably affected

Business flow noticeably affected

Moderate irreversible injury or impairment to one or more persons

Natural

resources

noticeably

affected

Minor

Financial resources affected at manageable level so that changes stay within the budget limit

Limited effect on brand value or market credibility

Effect stays limited and does not cause long-term business change

Effect can be considered

manageable with little

resources

Effect stays in expected regions and manageable with current assets

Hospitalization required; largely reversible injury to one or more

persons

Visible local effect

Insignificant

Adjustments can be made with short-term arrangements of funds

Manageable with daily operations

Manageable with simple adjustments

Manageable with local resources

Manageable with local resources and current assets

Reversible injury requiring hospital treatment

Can be treated with current assets

Exhibit 22.5a Likelihood/Probability Scales and Risk Levels

Likelihood

Probability

Possible Example Event

5 – Very often

More than 10 times or once in 0-5% of the target time period

Contract liabilities are violated 12 times in 3 years

4 – Often

5-10 times or once in 5-25% of the target time period

Imitation of JAA products is observed 9 times in 5 years

3 – Even

3-5 times or once in 25-50% of the target time period

M&A is observed with outsourced contractors 3 times in 5 years

2 – Few

1-3 times or once in 50-75% of the target time period

Dye technology is changed once in 5 years

1 – Rare

1-2 times or once in 75-100% of the target time period

Environmental pollution is caused once in 10 years

These projects later fostered a corporate culture of "learning to give." The company has also encouraged its employees to get involved in volunteer projects. JAA started to use natural dye colors wherever possible on the fabrics in the manufacturing process, which was greatly welcomed by its customers. Also, the company's credit rating increased one notch with the last rating revision. This in turn has helped the company access cheaper and longer-term loans.

The communication infrastructure is now robust. The Internet phone network is set up with regional sales functions for easy access to customer needs and resolving issues. Low-cost and high-availability web meetings were enabled with this project. An "I suggest" project, which helps the workforce describe innovative ideas about their jobs, has now been implemented with web-based software. Suggestions are reviewed and evaluated by risk and control owners. Prizes are provided for those whose suggestions are implemented. The project is also helpful to the company's efforts at enhancing the whistle-blower hotline.

During the risk workshops, it was identified that one of the root causes for a risk at the company was the potential for significant age gaps between the senior management and other personnel. Additionally, during the prior five years, most of the key personnel had left the company. Therefore, the company adopted new human resources performance and competence criteria so that highly qualified personnel could be retained. With these treatments, previously high-level risks and weaknesses have been reduced to low levels and JAA has enabled a forward- looking and proactive management approach to be put in place.

Exhibit 22.5b Defining Risk Levels

Risk Level

Quantitative Level

Qualitative Level

High

More than $10M or >1.5% of the net sales

Frequent occurrence and high or very high impact or above

Medium-high

$5-10M or 0.75-1.5% of the net sales

All between high and medium

Medium

$1-5M or 0.15-0.75% of the net sales

Few occurrences and low impact

Low

Less than $1M or < 0.15% of the net sales

All below medium

  • [1] See ISO 31000:2009 section 5.3.5 for additional detail on risk criteria.
 
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