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Aon Global Risk Consulting – Alex van den Doel / Rubert NieuwenhuisVimpelCom – Ramon Tolk
DACT
8 November 2013
Business Continuity Management
Do you know the impact of business interruptions on your companies' financial performance?
How to enhance your risk management function by implementing BCM
DACT | AGRC & VimpelComProprietary & Confidential | 8 November 2013 2
Why Business Continuity Management matters
Ship route Suez Canal essential for international trade
DACT | AGRC & VimpelComProprietary & Confidential | 8 November 2013
Stress Testing your continuity risks – approach
3
What (extreme) scenarios can jeopardize your financial objectives?
Approach• Define risk bearing capacity• Develop scenarios
– Industry specific– Organization specific– Out-of-the-box
• Quantify impact of scenarios• Evaluate against risk bearing capacity
DACT | AGRC & VimpelComProprietary & Confidential | 8 November 2013
Stress Test – Risk Bearing Capacity• Information from financial statements
– Balance sheet total: 880M– Equity: 330M– Solvency ratio = 38%
Claim of 50M will lower ratio to 32%
An impact of 28M will lower the ratio to 34% → RBC = 28M
Covenant in financing arrangement specifies a threshold of 34%
39 %
38 %
37 %
36 %
35 %
34 %
33 %
32 %
31 % Breach of Covenant!
DACT | AGRC & VimpelComProprietary & Confidential | 8 November 2013 5
Source: Aon Global Risk Management Survey 2013 - 1.415 respondents representing a broad range of industry sectors in 70 countries (64% > 1B turnover)
Perception of business continuity risks
DACT | AGRC & VimpelComProprietary & Confidential | 8 November 2013 6
Impact on financial performance
• An average impact of 25% on shareholder value and an impact whichcommonly lasts for two years!
• Historically, supply chain disruptions canlead to an average of 9 percent lower sales and 11 percent higher costs!
• Both physical and non-physical events drive supply chain disruptions, and 85%of companies reported disruptions in2011 (study of BCI in 2011)
• Other recent examples: Source: Vinod Singhal, Professor at Georgia Institute of Technology, and Professor Kevin Hendricks, Richard Ivey School of Business, The University of Western Ontario, London, Ontario N6A-3K7, Canada
Company Event Value Reaction
TEPCO Japan EQ -89.6% - $ 37bln
Dexia Greek debt -87.3% - $ 3.9 bln
Research in Motion Service Disruption -49.7% - $ 6 bln
BP Explosion / Oil spill -29% - $ 53 bln
Apple Iphone Antenna -2.4% - $ 6 bln
DACT | AGRC & VimpelComProprietary & Confidential | 8 November 2013 7
Objectives
• Protecting your financial performance from the impact of business interruption risks
• Understanding methods and techniques to map supply chain interruption risks and quantify the financial impact on revenue generating activities
• Enhancing Enterprise Risk Management by implementing Business Continuity Management and focus on high impact exposures
• Evolving the Risk & Insurance function towards a more mature operational risk management function
DACT | AGRC & VimpelComProprietary & Confidential | 8 November 2013 8
Agenda
• Analyzing the impact of business interruption exposures on financial performance
• Business Continuity Management - Execution– Link BCM – ERM– Buiness Continuity Management Process– Quantifying financial impact
• Business Continuity Management – In Practice– Case study VimpelCom – Peter den Dekker
• Questions
DACT | AGRC & VimpelComProprietary & Confidential | 8 November 2013 9
What is BCM
"BCM is the ongoing process of identifying continuity threatening risks
and defines a program for mitigating those risks and recovering as soon as possible within predefined time objectives".
Structured programme and process
DACT | AGRC & VimpelComProprietary & Confidential | 8 November 2013 10
How does BCM link ERM?
BCM is becoming more and more a strategic topic!!
BCM is the key mitigation for continuity risks
DACT | AGRC & VimpelComProprietary & Confidential | 8 November 2013
BCM Process
11
Analysis
- Conduct business impact analysis
- Conduct threat analysis
- Conduct requirement analysis
Design
- Define continuity strategy
• Strategic• Tactical• Operational
Implementation
- Implement response organization
- Implement response plans
Validation
- Maintain
- Review
- Exercise
DACT | AGRC & VimpelComProprietary & Confidential | 8 November 2013
Quantifying financial impact - Business Impact Analysis (BIA)
• BIA provides a very structured and efficient approach to:– Identify and quantify business interruption risks– Map complex and global supply chains– Measure the value of current mitigation measures
• BIA enables organizations to consolidate the BIexposure from unit level to every consolidated level (country, regional, global, etc.)
• The BIA provides a solid basis for risk management improvement:– Clear picture of the biggest interruption risks, accumulation effects and critical
issues– Focused development of risk management strategies (loss prevention and
response) – Optimization insurance cover and limits– Enhancing business interruption risk awareness and understanding
DACT | AGRC & VimpelComProprietary & Confidential | 8 November 2013
Step 2: Example of results of quantification unit levelSupply chain analysis Dataroom analysisSite analysis
DACT | AGRC & VimpelComProprietary & Confidential | 8 November 2013
Step 2: Quantifying consolidated level
Delivering two key elements:
• Dependencies network
– Based on unit level outcome defining and modeling material dependencies between suppliers, own units and customers
– Making use of a "engine" to simulate impact
• Consolidated risk profile on selected level
– Calculating the impact of unit level events though dependency network
– Creating consolidated loss exposure profile on selected level
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