Risk Scorecard Making risk visible and actionable Brett

Risk Scorecard Making risk visible and actionable…. Brett Knowles CMA Foundation Thought Leader for Performance Measurement Performance Management Brett. Knowles@pm 2 Consulting. com © pm 2 Consulting. com 1

Our clients have been profiled by the Thought. Leaders Over the last 10 years, every book written by the founders of the Balanced Scorecard, Drs Kaplan and Norton have profiles our clients. 2

Four Clients have become Kaplan-Norton Hall of Fame Winners! Hall of fame Winner – 1999. Quadrupling of share price, Growth 30% above industry, exceptional customer and employee satisfaction. Hall of fame Winner – 2001. 8 -Fold increase in share price, ground-breaking development of intangible asset measurement, exceptional stakeholder satisfaction. Drs Kaplan and Norton’s prestigious Hall of Fame award, presented by Kaplan & Norton to the best scorecards in the world. Hall of Fame Winner – 2004. Breakthrough performance results including average annual revenue growth of 20 percent, net income improvement from $19. 4 million to $100. 9 million. Datacraft Hall of fame Winner – 2011. In three years revenues grew 8%, productivity 8. 5%, and profit 27%. Customer satisfaction is up 13% and employee engagement is up 12%.

Risk Scorecard’s Location in the e -MAGs Strategy 1) Strategy Model Performance Metrics 2) Balanced Scorecard Core Processes 3) Process Strategic Performance Analysis 6) Performance Dashboards 4) Strategic – Organization Design Process Improvement Initiatives 8) Accountability & Compensation 5) Initiative Strategic Performance Analysis 7) Process Improvement Management Risk Ledger 10) Risk Scorecard 9) Strategic Management Practices 4

The Risk Scorecard RISK ELEMENTS STRATEGIC GOALS & PRIORITIES 1 2 3 4 5 6 7 8 A B C D © pm 2 Consulting. com 5

The Risk Scorecard RISK ELEMENTS STRATEGIC GOALS & PRIORITIES 1 2 3 4 5 6 7 8 A B C D © pm 2 Consulting. com 6

The Risk Scorecard RISK ELEMENTS STRATEGIC GOALS & PRIORITIES 1 2 3 4 5 6 7 8 A B C D © pm 2 Consulting. com 7

The Risk Scorecard RISK ELEMENTS STRATEGIC GOALS & PRIORITIES 1 2 3 4 5 6 7 8 A 10% B 50% C 20% D 20% © pm 2 Consulting. com 8

The Risk Scorecard RISK ELEMENTS STRATEGIC GOALS & PRIORITIES 1 2 3 4 5 6 7 8 A 10% B 50% C 20% D 20% © pm 2 Consulting. com 9

The Risk Scorecard What benefit would this offer your leadership team? © pm 2 Consulting. com 10

Benefits to the Leadership Team Visibility of the risks Ë Alignment around criticality of each risk Ë Ability to focus on the few Ë Actionable information Ë © pm 2 Consulting. com 11

The Risk Scorecard What benefit would this offer your Board? © pm 2 Consulting. com 12

Benefits to the Board of Directors Confidence in the Leadership Team Ë Visibility of risks Ë Alignment and support with the Leadership Team Ë Ability to focus on the few Ë © pm 2 Consulting. com 13

The Risk Scorecard What benefit would this offer your Investors? © pm 2 Consulting. com 14

Benefits to Investors Confidence in the Leadership Team Ë Visibility of risks Ë Ability to take risks into account when determining risk tolerance Ë © pm 2 Consulting. com 15

The Risk Scorecard If you could build this next week, would you? © pm 2 Consulting. com 16

USE CASE EXAMPLE © pm 2 Consulting. com 17

STRATEGY © pm 2 Consulting. com 18

The Overall Process STRATEGY RISKS STRATEGIC RISK REGISTER RISK SCORECARD © pm 2 Consulting. com 19

Frederick Industries Story Frederick 20

FINANCIAL Frederick To be our customers’ supplier of choice by providing a quality product with exceptional service at a competitive price. F 1: Profitable Growth v 1 F 2: Low Cost Producer 5% 5% C 1: Build Loyalty CUSTOMERS 3% C 2: Low Price C 3: Quality Product 15% INTERNAL 16% 5% ENABLERS 4% 6% I 2: Develop New Products E 1: Invest in Our People 4% I 1: Continuous Improvement I 4: Anticipate Customer Needs 10% E 2: Embrace Change 4% C 4: Great Service I 3: Improve Inventory Management 15% E 3: Promote a Safe Work Place 6% 4% E 4: Leverage Technology

The Overall Process STRATEGY RISKS STRATEGIC RISK REGISTER RISK SCORECARD © pm 2 Consulting. com 22

RISK CATEGORIES © pm 2 Consulting. com 23

There are countless Frameworks… © pm 2 Consulting. com 24

STRATEGIC RISK ASSESSMENT © pm 2 Consulting. com 25

Your Strategic Risk Assessment STRATEGY RISKS STRATEGIC RISK REGISTER RISK SCORECARD © pm 2 Consulting. com 26

Strategic Risk Analysis © pm 2 Consulting. com 27

Strategic Risk Analysis © pm 2 Consulting. com 28

Strategic Risk Analysis © pm 2 Consulting. com 29

Strategic Risk Matrix Low impact/Low probability – Risks in the bottom left corner are low level, and can often be ignored. Low impact/High probability – Risks in the top left corner are of moderate importance – if these things happen, you can cope with them and move on. However, you should try to reduce the likelihood that they'll occur. High impact/Low probability – Risks in the bottom right corner are of high importance if they do occur, but they're very unlikely to happen. For these, however, you should do what you can to reduce the impact they'll have if they do occur, and you should have contingency plans in place just in case they do. High impact/High probability – Risks towards the top right corner are of critical importance. These are your top priorities, and are risks that you must pay close attention to. © pm 2 Consulting. com 30

RISK SCORECARD © pm 2 Consulting. com 31

The Risk Scorecard STRATEGY RISKS STRATEGIC RISK REGISTER RISK SCORECARD © pm 2 Consulting.

Building the Risk Scorecard © pm 2 Consulting. com 33

Pulling in the Impact Estimates © pm 2 Consulting. com 34

Finding Leading Indicators Leading indicator of that aspect of risk occurring. In this example, a leading indicator of the ERP Implementation Failing on the Strategic Objective Profitable Growth might be: • ERP Customer Profitability Roll-up vs. non-ERP roll-up • ERP Revenue growth projections based on ERP numbers © pm 2 Consulting. com 35

Graphing the Impact Graphical representation of the leading-indicator’s projection of risk that is occurring with respect to that strategic objective. (Strategic Weighting) * (Impact) * (Leading Indicator Performance) © pm 2 Consulting. com 36

Understanding the Graphs Even though they both have a risk-impact of four and a poorly performing risk indicator, because C 4 has a weighting of 4% it has a shorter bar-graph than I 1 with a weighting of 16% © pm 2 Consulting. com 37

Looking at Each Risk Providing the Predictive Indicator for each risk is the sum of: (Strategic Weighting) * (Impact) * (Leading Indicator Performance) across all strategic objectives. © pm 2 Consulting. com 38

The Impact of Strategic Weighting © pm 2 Consulting. com 39

The Impact of Strategic Weighting © pm 2 Consulting. com 40

Key Risk Points © pm 2 Consulting. com 41

Next Steps 1. CMA Risk Scorecard 2. Risk. Scorecard. net © pm 2 Consulting.

To learn more, please go to www. pm 2 Consulting. com Over 200 You Tubes and webinars on performance measurement a management © pm 2 Consulting. com 45