ZURICH'S PROPRIETARY TOOLS USED IN ERM FRAMEWORK
Zurich uses a variety of methodologies and tools to manage its business risk, with the following aims. More information on Zurich's Strategic Risk Management work can be found at zuricherm.com.
• Understand issues in enterprise strategy, resilience, supply chain, and business continuity.
• Identify scenarios that could – or should – be built into a strategic and/or operational resilience plan.
• Develop action points and risk responsibilities to help protect profitability.
Total Risk Profiling Tool
One of Zurich's key proprietary tools is called Total Risk Profiling (TRP); it is a workshop-based approach where a facilitator-led team develops a risk profile by determining relative ratings in probability and severity (likelihood and impact) for potential risk scenarios. (See Exhibit 14.5.) TRP is a structured approach to identifying, assessing, and monitoring holistic risks and improvement
Exhibit 14.5 Zurich Total Risk Profiling Tool
actions needed. By embedding its Total Risk Profiling methodology into its risk culture, this has helped ensure its risk management culture is consistent and effective across its various business units. It uses these risk scenarios to define the underlying issues and break them into components of vulnerability, trigger, and consequences. The TRP tool can also help a business unit define and quantify its risk tolerance limit. A short video explains more about Total Risk Profiling (zdownload.zurich.com/zna/TotalRiskProfiling.html).
A risk tolerance limit is defined as part of the risk appetite, and action plans are developed to improve the prioritized risks and bring them within the business unit's tolerance for risk. The structure of the TRP risk identification process provides a sound basis for detailed quantification of more complex risks. TRP has helped Zurich's business units set the agenda for internal audit or enterprise risk management to monitor risks at or just below the risk tolerance boundary.
By being able to define multiple risk triggers with different potential consequences, the TRP tool has helped Zurich to identify the true drivers of risk by undertaking various stress tests or even to define new risk exposures. A facilitator- led team develops a relative rating for each risk scenario, often without a predefined scale of impact and likelihood, to improve the business unit's understanding of the risk.
Another main aim of the flexible TRP tool is to help embed a risk culture that will sustain shareholder value through better enterprise risk management practices and strategic planning processes. Zurich performs nearly 200 TRP workshops per year, ranging from assessing strategy execution, project management, human resources (HR), mergers and acquisitions (M&A), or business interruption (BI) exposures to new product development. In fact, completion of a TRP is a requisite part of the submission for a project budget or operational plan. The TRP tool helps to enable the following:
• Assessment of current and emerging risks to business resilience and profitability
• Alignment of business strategy with key performance indicators
• Communication of board discussion on risk appetite to investors and other stakeholders
• Reviewing the environmental scanning tool for corporate or competitive business strategy development
• Embedding of ERM in the strategic planning process
• Product launches, acquisitions or divestitures, and project management
• Considering the vulnerabilities in the supply chain
• Evaluation of business interruption risk scenarios
• Testing of existing strategies in the context of unrealized/underrealized risks and opportunities
• Use in the objective-setting stage of the business cycle to determine the budget