South West HAMMAR Regional Seminar

Risk Assessment 27th June 2012

www.pwc.com

PwC

Agenda

Introduction

Objectives

Risk Management

Types of Risks

Risks in Housing

Risk Management Best Practise

Questions

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Derrick Tate

Assistant Director, Real Estate Advisory, PwC

Management Consultant specialising in Repairs and Maintenance and Facilities Management with particular expertise in strategy and sourcing of contracts in both the public and private sectors.

• Master’s degree in Facilities Management

• A certified member of the British Institute of Facilities Management (CBIFM)

• A guest lecturer on Physical Asset Management at University College London

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Experience

Hyde Group

East Thames Group

Kier Harlow

Grosvenor Estates

Somerset County Council

Taunton Deane Borough Council

Avon and Somerset Police

South Gloucestershire County Council

University of Sussex

Medway Council

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Forensic Science Service

Humber NHS Foundation Trust

Home Office

WorldPay

Essex County Council

A top ten Law Firm

Government of Abu Dhabi

Microsoft

EDF

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Objectives

Aims and Objectives of today’s presentation

• To provide an overview of the concept of risk management

• To provide a view of the types of risks

• To discuss specific risks in the housing sector

• To demonstrate a methodology for assessing and managing risks

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Risk Management

What is risk management

• Risk management is the identification, assessment, and prioritization of risks

• (defined in ISO 31000 as the effect of uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities

(wikipedia)

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What is Risk Management

Principles of risk management

• Understand the risks that you face. (what is is?)

• Evaluate as to the potential impact of these risks. (what could happen?)

• Evaluate as the potential likelihood of these risks occurring. (how likely is it)

• Make an assessment of level of risk based on impact and likelihood.

• Prioritisation of risks

• Mitigation actions

• Accept and monitor residual risks

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Issues

What is the difference between a risk and an issue?

• A risk is an issue that hasn’t happened yet.

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Types of Risks

What do you know?

• We do not know what has not happened yet.

• We do know that some things will in all probability happen at some stage (the known knowns)

• We know that some unknown things might happen (the known unknowns)

• We know that some things might happen that we cannot predict at this time. (unknown unknowns)

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Nassim Taleb, The Black Swan

“Low-probability, high-impact events that are

almost impossible to forecast—we call them

Black Swan events—are increasingly

dominating the environment. Because of the

internet and globalization, the world has

become a complex system, made up of a

tangled web of relationships and other

interdependent factors. Complexity not only

increases the incidence of Black Swan

events but also makes forecasting even

ordinary events impossible. All we can

predict is that companies that ignore Black

Swan events will go under.”

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Types of Risks

Risk Categorisation

• Can be helpful to think about risks in terms of categories:

- Health & Safety Risks

- Technical Risks

- Financial Risks

- Operational Risks

- Supply Risks

- Commercial Risks

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- Legal Risks

- Reputational Risks

- Political Risks

- Investment Risks

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Risks in Housing

Health & Safety Risks

• Staff or contractor injury

• Tenant injury

• Visitor / member of the public injury

• Working at height

• Legionella

• Asbestos

• Gas safety

• Electrical Inspections

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Risks in Housing

Technical Risks

• Material Failure

• Equipment failure

• Obsolescence

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Risks in Housing

Financial Risks

• Cost overrun

• Unforeseen expenses

• Poor budgetary control

• Loss of revenue

• Macroeconomic risks: Medium term economic growth forecasts are flat to low

• Cuts in funding: 0.9% growth in FY11 and 1.5%FY12- Governments will not have the proceeds of growth to redistribute

• Grant expenditure has reduced by 63% - low grant environment

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Risks in Housing

Operational Risks

• IT system Failure

• Staff capacity

• Staff capability/skills

• Availability of resources (vehicles, office space etc)

• Decision Making

• Inaccurate Information

• Poor communications

• Condition of stock

• Availability of stock

• Unplanned repairs and maintenance

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Risks in Housing

Operational Processes

• Core service delivery

• General administration

• Recording & data entry

• Management & supervision – frontline

• Processing requests & applications

• Enquiry Handling

• Financial Management

• Appointment taking & booking

• Training

• Billing & receiving payments

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Risks in Housing

IT Systems

• Asset Management

• CRM

• Intranet

• Development Management

• Social Media

• Housing Management

• Finance & Procurement

• HR

• Telephony

• Document Management

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• Reporting

• Website

• Data networks

• Desktops

• Mobile devices

• Contact Centre

• Servers & Data Centre

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Risks in Housing

Supply Risks

• Spare parts and consumables

• Selecting suppliers with the right skills and behaviours

• Supplier Financial health

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Risks in Housing

Supply Risks

• Spare parts and consumables

• Selecting suppliers with the right skills and behaviours

• Supplier Financial health

• Relationship with Supplier

• Corruption

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Risks in Housing

Commercial Risks

• Pricing level

• Volumes

• Inflation

• Interest rates

• Payment terms

• Lifecycle cost

• Commercial risk ownership

• Partnerships/ Joint Ventures

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Risks in Housing

Legal Risks

• Civil legal action

• Criminal legal action

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Risks in Housing

Reputational Risks

• Reputation with tenants

• Reputation with funding bodies

• Reputation with partners

• Reputation with general public

• Reputation with suppliers

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Risks in Housing

Political Risks

• National Legislation

• European Legislation

• National Politics: Economics and Housing Policy

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Risks in Housing

Political Risks

• National Legislation

• European Legislation

• National Politics: Economics and Housing Policy

• Local Politics

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Risks in Housing

Investment Risks

• Capital Values

• Cost of capital

• Lifecycle investment

• Long term asset management

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Risk Management Best Practice

Identify and capture risks

• Touch points with tenants/suppliers/others

• Processes

• SWOT analysis (the W & the T)

• Workshop

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Proportionality

• Key risks with a significant impact that have a reasonable likelihood of occurrence

• Omit everyday occurrences (this is operational management)

• Omit “acts of god” (this is disaster recovery planning)

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Risk Management Best Practice

Risk Management Group

• Set up a regular meeting, perhaps quarterly.

• ToR at commencement to populate risk register

• ToR Ongoing: review risks

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Risk Register

• Template

• Ownership

• Reporting (Governance)

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Risk Management Best Practice

Risk Register Template

• Word, Excel, PowerPoint

• Tabular

• Drop downs, conditional formatting, formulas

• Balance between being detailed enough to meet your needs and keeping it simple, not overcomplicating it.

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Example Risk Register Format 1

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Example Risk Register Format 2

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Risk and

Possible Impact Gross Risk

Early

Warning

Mechanisms

Countermeasures Residual

Risk Contingency

Arrangements Assurance Responsibility

The risk and its

possible

consequences

[1-5]

Likelihood

x Impact =

score

Signs that

the risk

Is increasing in likelihood

Actions to reduce

the likelihood

or impact of risk

Risk

after

counter

measur

e

Actions to

minimise

impact

after risk

occurs

Effectiven

ess

of

counter-

measures

Who is

managing the

risk

Questions?

This publication has been prepared for general guidance on matters of interest only, and does

not constitute professional advice. You should not act upon the information contained in this

publication without obtaining specific professional advice. No representation or warranty

(express or implied) is given as to the accuracy or completeness of the information contained

in this publication, and, to the extent permitted by law, [insert legal name of the PwC firm], its

members, employees and agents do not accept or assume any liability, responsibility or duty of

care for any consequences of you or anyone else acting, or refraining to act, in reliance on the

information contained in this publication or for any decision based on it.

© 2010 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to

PricewaterhouseCoopers LLP which is a member firm of PricewaterhouseCoopers

International Limited, each member firm of which is a separate legal entity.

Contact details: DERRICK TATE Corporate Finance Direct: 07718340363 Email: derrick.j.tate@uk.pwc.com