Risk  Management  and  the  Balanced  Scorecard    Be$er  Decisions  in  Strategy  Development

SRM010

Speaker: Charles Jones, Strategy & Risk Manager, UIL Holdings Corporation

Dmitriy Borovik, Director ERM Services, Deloitte Consulting

Learning Objectives

At the end of this session, you will:

•  Better understand the Balanced Scorecard Methodology

•  Have examples for applying the ERM methodology to your Strategic Planning Process

•  Have some concrete takeaways for adding immediate value at your companies and positioning yourselves for success

Se5ng  the  Stage  at  UIL

•  UIL is an gas and electric energy distribution company –  4 operating companies in CT and MA

•  Balanced Scorecard is our primary strategy tool –  First implemented in 2001 –  Worked with Kaplan/Norton (Palladium) and Balanced Scorecard Institute

•  Risk Management well established first in our operations and project management areas

–  Operational risk management embedded in gas and electric distribution –  Project centered business –  Strong adherence to the PMI methodology

•  Enterprise Risk Management evolved from the PM work and follows the ISO3100 and COSO methodologies

UIL  Company  Informa=on

Current  Situa=on

•  Increasing volatility in the energy sector –  Long standing business paradigms are being challenged/changed –  Technology advances are changing the playing field

•  Company culture is evolving with acquisitions –  Added gas companies to an electric centric holding company –  Doubled number of employees and size of the company

•  ‘Business as usual’ no matter how efficient is no longer a viable long term strategy

–  Customer and market expectations are rapidly increasing –  Macro sector trends are moving to consolidation

•  This just in…… –  Offer in the works to merge with a larger company

Copyright  ©  2015  Deloi$e  Development  LLC.  All  rights  reserved.  Strategic  Risk  SoluDons     Copyright  ©  2015  Deloi$e  Development  LLC.  All  rights  reserved.  7  

Major categories of risks

Expected  reward  for  risk  (value  to  an  organizaDon  for  taking  on  risks)  

Controllability  (ability  of  organizaDon  to  minimize  the  uncertainDes  

creaDng  risks)  Less   More  

Posi*ve  (e.g.,  rewarded  

risks)  

Nega*ve  (e.g.,  

unrewarded  risks)  

Imposed  risks    

Risks  originaDng  from  uncontrollable  and  unavoidable  external  factors  

 (e.g.,  catastrophic,  technological  or  regulatory)  

Self-­‐inflicted  risks    

Risks  resulDng  from  day-­‐to-­‐day  operaDons,  decisions,  and  behaviors  of  consDtuencies  

 (e.g.,  poor  judgment,  gaps  in  compliance)    

Calculated  risks    

Risks  resulDng  from  organizaDon's  strategic  and  operaDonal  choices  intended  to  generate  value  

 (e.g.,  new  market  entry,  R&D)  

 

Copyright  ©  2015  Deloi$e  Development  LLC.  All  rights  reserved.  Strategic  Risk  SoluDons     Copyright  ©  2015  Deloi$e  Development  LLC.  All  rights  reserved.  8  

Why is strategic risk challenging?

Unclear  what  to  look  for  

Signals  oUen  weak  

Sources  may  be  in  other  industries  or  geographies  

TradiDonal  tools  and  methods  don’t  reliably    detect  what’s  “over  the  horizon”  

No  historical  precedent  

Strategic  risks  threaten  to  disrupt  the  assumpDons  at  the  core  of  a  company’s  strategy  (and  strategic  objecDves),  and  undermine  a  company's  ability  to  achieve  or  maintain  excepDonal  performance  

Aligning  Strategy  Development  &  ERM

• First ‘Why do you need a strategy?’ – Your strategy is your map for moving your company effectively into the future – Without a strategy there is no basis for disciplined planning and you relinquish control of potential drivers of your success

• Second ‘Why do you need to do risk management at this level?’ – Failure to manage risk at any level can increase the possibility it will become a problem and/or increase the impact if it does occur – Higher level risks have the potential of greater cascading effects as they can impact large portion of an organizations business processes

• Finally ‘Why do they need to work together?’

The  Hand  and  the  Glove Strategy “aligning polices, practices & resources to realize an

objective or vision” Risk “the effect of uncertainty on objectives”

Strategies are about pursuing business opportunities (upside risk). ERM is about maximizing opportunities while controlling threats (downside risks) that could limit your success.  

Advantages  of  the  Balanced  Scorecard

•  A place for everything and everything in its place

•  Concise communication tool –  All critical information can be effectively presented on one page

•  Development is top down and delivery is bottom up

•  ‘Line of sight’ is created for every employee so they can see how their work helps achieve the overall strategic objectives

•  Risk Management can be focused at multiple levels and drive a risk informed decision making proces

 

Strategy  Methodology  

UIL  Balanced  Scorecard  

We  use    a  standardized  Excel  based  format  for  our  scorecards  at  the  Opera=ng  Company  and  Division  levels.    The  one  page  summary  is  the  founda=on  of  our  process.    It  contains  the  following  elements:    

•  Vision  Statement  •  Mission  Statement  •  4  Strategic  Perspec=ves  (Financial,  Customer,  Operations &

Capabilities) •  One or more Strategic Objectives for each Perspective to establish

the needed balance •  One or more metrics for each objective with a 3 tier performance

system that establishes levels for Threshold, Target and Max.

 

Our  Annual  Strategy  and  ERM  Process  

•  Establish Enterprise long term objectives •  Decompose those into shorter term Operating Company and

possibly division level objectives •  Assure alignment from the lower level scorecards with those

above •  Assess Risks at each level and implement mitigations needed to

address the threats to success. •  Monthly reports are made on the metric performance levels and

adjustments made as needed.  

Value  Added •  Management has one place to reference our strategic goals and a

guide to influence prioritization & resource allocation decisions

•  Employees are provided a framework in which they can assess their department and individual work efforts

•  Adding risk assessment as an element of the decision making process increases confidence in the final decision

•  The discipline required by the process helps embed risk management into strategy development

•  Reporting is simplified at all levels  

Remember

Surprise

QuesDons?