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AGGREGATION

The company historically had very well-defined ranges of risk that it would take on in the areas of currencies, commodities, insurance, and so on. It had comprehensive reporting that aggregated such financial risks. Although these areas were well managed at the regional, segment, or corporate level, their role frequently influenced decisions at the business unit level.

While companies can easily aggregate these types of financial risks, the ERM process presented other types of information. The output of the ERM workshops produced both qualitative and quantitative data, as well as tangible and intangible risks. These included operational, supply chain, and human resources risks.

To aggregate these risks and identify emerging risks for regional, segment, and corporate management teams, the ERM team had two methodologies – human review and technology. In the early years, the ERM team would review all of the workshop output and summarize the three or four key themes for the corporate management team. In some cases, they would delegate the review of this information to the individual(s) responsible for the issue. In two cases, the ERM team led a short workshop with the corporate management team on one or two of the critical issues identified.

In many of the early workshops, the ERM team was surprised to find so many human resources issues across the world. Frequently, these rose to be near the top of the list in priority for many units. Bringing these out in workshops enabled the units to view these from the perspective of risk to the business. On a corporate, aggregated basis, this gave leadership a different perspective (i.e., risk) from which to view the issue, and over time how their initiatives worked to improve the risk at the corporate and unit levels.

Once the company moved to segments from regions, the ERM team aggregated the output from the individual units in the segment and conducted workshops with the segment management teams, to help them identify the key issues confronting their business in the coming year. These included themes and emerging risks identified across the entire business, but focused on their impact on the individual segment. This was done in conjunction with their overall planning activities, bringing risk into their evaluation process. Some segments found this quite useful in helping them to allocate resources and identify action plans to improve the likelihood of the segment's success in the upcoming year. Segments that found this helpful held these workshops annually.

In aggregating the risks in the workshops, we considered such issues as these:

• The number of business units impacted

• The number of associates impacted

• The number of business processes or functions impacted

• The impact on our consumers and customers

• The potential impact to our brands

This methodology worked very well with difficult-to-quantify risks. It also helped to identify emerging risks. The overall process identified issues that might be a nuisance in individual markets but when viewed on an aggregated basis had a potential impact on the segment or corporation as a whole.

The software solution provided another opportunity for aggregation. As workshop teams had categorized the initiatives and risks by both function and risk definition, we could run reports or aggregation by business unit; by geography (country, region, corporate); by corporate function (S&F, Sales, Compliance, Marketing); and so on. Once the system had three years of data, it could provide comparisons by year, segment, region, and business unit. This enabled the preparation of summary reports, aggregating the issues identified and changes by year, thus allowing the identification of emerging risks, such as the increasing importance of commodity pricing and availability. The reports provided a summary analysis of the data for the segments, which used this to supplement their ERM work.

Unfortunately, we lost our back-office support for these reports after the first year of developing the capability. As such we were unable to run these reports on an ongoing basis thereafter. The learning for others is to ensure that you select software that your team has the capabilities to fully utilize.

 
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