Integrated Performance & Risk Management -

Transcription

1 Integrated Performance & Risk Management - How Leading Enterprises Manage Performance and Risk D&B Seminar

2 Agenda 1. Introduction and objectives of today s session 2. Insights from the Annual CEO survey indicate a need for integrated Performance & Risk Management 3. Current state of integration between Performance & Risk Management shows room to improve 4. Case example: Using Strategy maps to explicitly integrate Performance & Risk Management 5. Summary and wrap up 2

3 Introduction and objectives Integrated Performance & Risk Management - How Leading Enterprises Manage Performance and Risk 3

4 Introduction and objectives Provide insights in what CEO s say about risk today and how that drives the need for integrated Performance and Risk management Provide insight in the current state of integration between Performance and Risk management and to discuss how to improve Provide a an example of a practical approach to strengthen the focus and alignment of Performance and Risk management 4

5 Insights from the Annual CEO survey indicate a need for integrated Performance & Risk Management Integrated Performance & Risk Management - How Leading Enterprises Manage Performance and Risk 5

6 What CEO s say about risk Results from our Annual Global CEO survey Risks have bigger impact The interconnection of markets and people and speed of communication and information make that risk has more widespread effects on companies, sectors and general economic activity. A lack of transparency Managers miss important signals of threats to Risk Resilience. Performance reports need to include risk factors as well as financial and non-financial indicators. Source: 15th Annual Global CEO survey

7 What CEO s say about risk Results from our Annual Global CEO survey Risk management continues to fail The financial and economic crisis has brought to the surface in many instances a lack of preparedness or effective response. and failures continue. A culture issue? A need to adjust approaches to risk Not surprisingly, understanding risk has become a boardroom issue. Business leaders have had to re-adjust to the new risk environment to strengthen Risk Resilience. Source: 15th Annual Global CEO survey

8 Risk management is high on the Board agenda Results from our Annual Global CEO survey 80% Of CEOs in our 15th Annual Global CEO Survey said uncertain or volatile economic growth was a potential threat to their business. 67% 51% Of CEOs say they're planning changes to their risk management approach. Of CEO s wants to spent more time personally on setting strategy and managing risk Source: 15th Annual Global CEO survey

9 How do CEO s plan to become more Risk Resilient? (Source: 14th Global CEO survey) 9

10 Integrated Performance & Risk Management Increased predictability as a result of: 1. Improved and extended risk radar; proactive responses Risk management practices must evolve from designed a separate processes to a process that is embedded in all strategic and performance management processes. 2. Makes the invisible visible; better decision making Reliable risk information and better information to understand the sources of and interconnections between risks is vital. 3. Sets a target and price on things we value; better behavior Individual and corporate behaviors can be changed, through reward and market mechanisms when applied fairly. 4. Facilitates collaborative risk mitigation models; efficient and effective responses Collaborative risk mitigation among independent business units of a single organization as well as with supply chain partners confronted with same challenge. 10

11 Current state of integration between Performance & Risk Management shows room to improve Integrated Performance & Risk Management - How Leading Enterprises Manage Performance and Risk 11

12 Alignment low high Performance Leadership is simply driven by strategic focus & alignment Clueless Performance Leadership Rigorous focus on the strategic value drivers delivering your objectives and key risks involved in doing so Full alignment of structure, processes, people and technology with strategy Going nowhere low Focus Individual high but is very hard to achieve and sustain 12

13 Performance leaders steer on both Performance and Risks Performance Management Performance Management is about Performance Leadership structurally meeting strategic objectives and being the best in your field of expertise/market. Performance Management Mission & Vision Strategy in light of Risk Appetite Strategic Objectives incl. Risk Tolerance Value Drivers and related Key Risks Risk Management (including Controls) Risk Management Risk Management is about Conscious risk taking - structurally assess risks in relation to your strategic objectives, developing appropriate responses and the execution and monitoring of those actions. KPIs as well as KRIs Plan, Budget & Forecast Act Accountability Reporting & Analysis management model for integrated performance & risk management Do 13

14 Most companies manage performance and risk independently Performance Management Performance Management Mission & Vision Strategy in light of Risk Appetite Strategic Objectives incl. Risk Tolerance Value drivers and related Mission & Vision Risk Management (including Controls) Strategy in light of Risk Appetite Strategic Objectives incl. Risk Tolerance Value drivers and related Key risks Key risks Risk Management (including Controls) Results of a Management survey highlighted that of the participating companies: 45% do not link risk and performance at all Act Act KPIs KPIs as well as KRIs as well as Plan, Budget & Forecast Accountability Reporting & Analysis KRIs Plan, Budget & Forecast Accountability Do Reporting & Analysis Do 15% are uncertain if their companies link risk and performance 14

15 Recent poll during Risk practitioners workshop Please indicate whether your organization integrates performance and risk management: 1. Yes 2. No 3. I don t know 15

16 Strategy is the basis 16

17 Common barriers to integrating risk and performance Unclear and/or inconsistent goals No explicitly appointed ownership Organizations maintain multiple processes for performance and risk reporting Management information residing in multiple disparate systems and prohibiting linking performance and risk indicators 17

18 Case: Using Strategy maps to explicitly integrate Performance & Risk Management Integrated Performance & Risk Management - How Leading Enterprises Manage Performance and Risk 18

19 A Strategy Map tells the story of your strategy, showing cause and effect relationships between value drivers and strategic objectives Past - Strategy Map - Financial To succeed financially, how should we appear to our shareholders? What is critical for our shareholders? Strategic objective Strategic objective Strategic objective Value driver Current Customer To achieve our vision, how should we appear to our customer? How do customers perceive us? What is critical to the customer? Value driver External Internal Processes To satisfy our shareholders and customers, what business processes must we excel at? What is critical in our business processes? Value driver Value driver Internal Future Learning & Growth To achieve our vision, how will we sustain our ability to change and improve? Value driver Measurable factors that impact strategy execution and create value 19

20 Innovation & Learning Process Customer Finance Using Strategy Maps to create focus on value Risks mapped to the strategy map drivers and key risks Objectives Operational Leadership: We enable the shortest aircraft turnaround times 9 7 EBIT growth of 10% 8 Risk tolerances > 10 % 8.% < 10% < 8% Cost Leadership: Our cost base = < 95% of our closest competitor Value Drivers Key Risks Indicators for each Value Driver and Risk 6 Minimizing turn 2 around time average turn around time Staff involvement in innovation 4 number of staff ideas on possible innovation Satisfying our client s needs customer satisfaction number of complaints time to handle complaints satisfactory Working with our clients on process optimization number of client s flight delayed due to our ground handling 10 Employing the best % of targeted competitors top performers that we signed up Training % of staff that has finalized the yearly curriculum Minimization of working capital working capital / aircraft seat Minimization of unit costs costs / seat costs / passenger 8 9 Replacing costly process steps with less costly alternatives 2 number of process steps remaining to be replaced by a cheaper alternative Efficient asset deployment 1 asset utilization Deep understanding of own and client s processes % of clients attending one or more of the ground handling innovation discussion sessions 6 12 No risks related to value drivers: is the risk identification complete?/ Is this really a value driver? 20

21 Process Finance Customer Innovation & Learning Month vs. Freq. Month vs. Freq. Customer Perspective Last year Process Finance Customer Innovation & Learning Last year Financial Perspective Key Performance Indicator KPI Owner Period M Turnover o COO April 2010 Innovation & Learning Perspective April Year-to-date Legend x actual target difference actual target difference Month vs. Forecast Forecast ++ Over 5% better than target Freq. Key Turnaround Performance Indicator Last year vs trend % better than target Next gen M o + Number UKof staff ideas n.a. o On target (i.e. within 1% of target) Turnaround % worse than target M o % staff finalized training o Next gen Over 5% worse than target 598 % clients France attending Q o o innovation Turnaround discussions o Improving trend (improvement of =>1%) Stable trend (less than 1% deviation) 519 % targeted Next gen. competitors top Worsening trend (worsening of =>1%) M + o performers Germanysigned up n.a. Not available or not applicable Turnaround Next gen Netherlands Turnaround Next gen Other Total Observation Turnover is still deminishing, showing a negative trend for the last 5 months now, against a budget that is actually going up month over month. Explanation The rising budget was based on great expectations of the introduction of 'Next generation turnaround'. However turnover of this new product is even beating that rising budget! The negative trend is entirely caused by deminishing turnover of the 'old' product 'Turnaround', and only in those countries where we already launched 'Next. gen.'. There we are loosing customers that are not switching to 'Next gen.' because our service levels on the old product are deteriorating due to the focus on perfect delivery of 'Next Gen'. Conclusion Although turnover of 'Next gen.' is beating the budget, we are actually loosing customers as delivery of 'Next gen.' is at the expense of our service level for the other customers (still the majority!). Proposed action(s) (1) See if we can do with a little less focus on delivery of 'Next gen.' freeing capacity to ensure our service levels for the other customers as well (pilot in Netherlands, rapid roll-out afterwards). (2) If this is insufficient then temporarily hire additional staff until the majority of our clients have switched to 'Next. gen.'. Forecast Forecast vs. trend M + + EBIT + M o Costs / aircraft seat o M o + Costs / passenger o M o + Working capital / aircraft seat o Key Performance Indicator Forecast Forecast vs. trend Q + + Customer satisfaction + M o Number of complaints o M ++ + Time to handle complaints + Month vs. Freq. Last year Process Perspective Key Performance Indicator Forecast Forecast vs. trend M + o Average turn around time o M + + Nbr. client s flight delayed + M o Asset utilization o Number of process steps remaining to be replaced by a cheaper alternative o x Action Marketing campaign 'Seamless service ' Launch 'Next generation turnaround ' Development turnover Owner Start date End date Compl. % VP Marketing SVP BU 'Next Gen.' actual target 2010 target 2009 May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Nov. '09 Jan. '10 100% Jan.'10 Jul.'10 80% Process Finance Customer Innovation & Learning Month vs. Freq. Month vs. Freq. Customer Perspective Last year Last year Financial Perspective Key Performance Indicator KPI Owner Period M Turnover o COO April 2010 Innovation & Learning Perspective April Year-to-date Legend x actual target difference actual target difference Month vs. Forecast Forecast ++ Over 5% better than target Freq. Key Turnaround Performance Indicator Last year vs trend % better than target Next gen M o + Number UKof staff ideas n.a. o On target (i.e. within 1% of target) Turnaround % worse than target M o % staff finalized training o Next gen Over 5% worse than target 598 % clients France attending Q o o innovation Turnaround discussions o Improving trend (improvement of =>1%) Stable trend (less than 1% deviation) 519 % targeted Next gen. competitors top Worsening trend (worsening of =>1%) M + o performers Germanysigned up n.a. Not available or not applicable Turnaround Next gen Netherlands Turnaround Next gen Other Total Observation Turnover is still deminishing, showing a negative trend for the last 5 months now, against a budget that is actually going up month over month. Explanation The rising budget was based on great expectations of the introduction of 'Next generation turnaround'. However turnover of this new product is even beating that rising budget! The negative trend is entirely caused by deminishing turnover of the 'old' product 'Turnaround', and only in those countries where we already launched 'Next. gen.'. There we are loosing customers that are not switching to 'Next gen.' because our service levels on the old product are deteriorating due to the focus on perfect delivery of 'Next Gen'. Conclusion Although turnover of 'Next gen.' is beating the budget, we are actually loosing customers as delivery of 'Next gen.' is at the expense of our service level for the other customers (still the majority!). Proposed action(s) (1) See if we can do with a little less focus on delivery of 'Next gen.' freeing capacity to ensure our service levels for the other customers as well (pilot in Netherlands, rapid roll-out afterwards). (2) If this is insufficient then temporarily hire additional staff until the majority of our clients have switched to 'Next. gen.'. Forecast Forecast vs. trend M + + EBIT + M o Costs / aircraft seat o M o + Costs / passenger o M o + Working capital / aircraft seat o Key Performance Indicator Forecast Forecast vs. trend Q + + Customer satisfaction + M o Number of complaints o M ++ + Time to handle complaints + Month vs. Freq. Last year Process Perspective Key Performance Indicator Forecast Forecast vs. trend M + o Average turn around time o M + + Nbr. client s flight delayed + M o Asset utilization o Month vs. Freq. Number of process steps remaining to be replaced by a cheaper alternative Month vs. Freq. Customer Perspective Last year o Last year x Action Marketing campaign 'Seamless service ' Launch 'Next generation turnaround ' Financial Perspective KPI Owner Period Development turnover May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Key Performance Indicator Owner Start date End date Compl. % VP Marketing SVP BU 'Next Gen.' M Turnover o COO April 2010 actual target 2010 target 2009 Nov. '09 Jan. '10 100% Jan.'10 Jul.'10 80% Innovation & Learning Perspective April Year-to-date Legend x actual target difference actual target difference Month vs. Forecast Forecast ++ Over 5% better than target Freq. Key Turnaround Performance Indicator Last year vs trend % better than target Next gen M o + Number UKof staff ideas n.a. o On target (i.e. within 1% of target) Turnaround % worse than target M o % staff finalized training o Next gen Over 5% worse than target 598 % clients France attending Q o o innovation Turnaround discussions o Improving trend (improvement of =>1%) Stable trend (less than 1% deviation) 519 % targeted Next gen. competitors top Worsening trend (worsening of =>1%) M + o performers Germanysigned up n.a. Not available or not applicable Turnaround Next gen Netherlands Turnaround Next gen Other Total Observation Turnover is still deminishing, showing a negative trend for the last 5 months now, against a budget that is actually going up month over month. Explanation The rising budget was based on great expectations of the introduction of 'Next generation turnaround'. However turnover of this new product is even beating that rising budget! The negative trend is entirely caused by deminishing turnover of the 'old' product 'Turnaround', and only in those countries where we already launched 'Next. gen.'. There we are loosing customers that are not switching to 'Next gen.' because our service levels on the old product are deteriorating due to the focus on perfect delivery of 'Next Gen'. Conclusion Although turnover of 'Next gen.' is beating the budget, we are actually loosing customers as delivery of 'Next gen.' is at the expense of our service level for the other customers (still the majority!). Proposed action(s) (1) See if we can do with a little less focus on delivery of 'Next gen.' freeing capacity to ensure our service levels for the other customers as well (pilot in Netherlands, rapid roll-out afterwards). (2) If this is insufficient then temporarily hire additional staff until the majority of our clients have switched to 'Next. gen.'. Forecast Forecast vs. trend M + + EBIT + M o Costs / aircraft seat o M o + Costs / passenger o M o + Working capital / aircraft seat o Key Performance Indicator Forecast Forecast vs. trend Q + + Customer satisfaction + M o Number of complaints o M ++ + Time to handle complaints + Month vs. Freq. Last year Process Perspective Key Performance Indicator Forecast Forecast vs. trend M + o Average turn around time o M + + Nbr. client s flight delayed + M o Asset utilization o Number of process steps remaining to be replaced by a cheaper alternative o x Action Marketing campaign 'Seamless service ' Launch 'Next generation turnaround ' Development turnover May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr Owner Start date End date Compl. % VP Marketing SVP BU 'Next Gen.' actual target 2010 target 2009 Nov. '09 Jan. '10 100% Jan.'10 Jul.'10 80% Strategy maps are used to align performance and risks management across the organization 1. Vertical alignment: cascade the strategy, objectives, value drivers and key risks to all levels of the organisation Strategy 8 9 EBIT growth of 10% 7 Operational Leadership: Cost Leadership: We enable the shortest aircraft turnaround times Our cost base = < 95% of our closest competitor Consistent KPI definitions and reporting 12 Minimization of working capital working capital / aircraft seat Minimization of unit costs 12 costs / seat costs / passenger 8 9 Satisfying our client s needs 7 customer satisfaction number of complaints time to handle complaints satisfactory 11 6 Minimizing turn 2 Working with our clients 12 around time on process optimization average turn around number of client s flight delayed time due to our ground handling 3 1 Replacing costly process steps with less costly alternatives 2 number of process steps remaining to be replaced by a cheaper alternative 13 6 Efficient asset deployment 1 asset utilization Staff involvement in innovation 4 number of staff ideas on possible innovation 10 Employing the best % of targeted competitors top performers that we signed up Deep understanding of own and client s processes % of clients attending one or more of the ground handling innovation discussion sessions 5 Training % of staff that has finalized the yearly curriculum 2. Horizontal alignment: cooperate around the strategy, objectives, value drivers and key risks to ensure optimal cross organisational synergies are effectuated 8 9 EBIT growth of 10% 7 Operational Leadership: Cost Leadership: We enable the shortest aircraft turnaround times Our cost base = < 95% of our closest competitor 12 Minimization of working Minimization of unit costs 12 capital costs / seat working capital / aircraft seat costs / passenger 8 9 Satisfying our client s needs 7 customer satisfaction number of complaints time to handle complaints satisfactory 11 6 Minimizing turn 2 Working with our clients 12 Replacing costly process steps around time on process optimization with less costly alternatives Efficient asset 2 average turn around number of client s flight delayed number of process steps remaining to deployment 1 time due to our ground handling be replaced by a cheaper alternative asset utilization Staff involvement in Deep understanding of innovation 4 10 own and client s processes Employing the best number of staff ideas % of targeted competitors top % of clients attending one or more of the on possible innovation performers that we signed up ground handling innovation discussion sessions Training 5 % of staff that has finalized the yearly curriculum 8 9 EBIT growth of 10% 7 Operational Leadership: Cost Leadership: We enable the shortest aircraft turnaround times Our cost base = < 95% of our closest competitor 12 Minimization of working Minimization of unit costs 12 capital costs / seat working capital / aircraft seat costs / passenger 8 9 Satisfying our client s needs 7 customer satisfaction number of complaints time to handle complaints satisfactory 11 6 Minimizing turn 2 Working with our clients 12 Replacing costly process steps around time on process optimization with less costly alternatives Efficient asset 2 average turn around number of client s flight delayed number of process steps remaining to deployment 1 time due to our ground handling be replaced by a cheaper alternative asset utilization Staff involvement in Deep understanding of innovation 4 10 own and client s processes Employing the best number of staff ideas % of targeted competitors top % of clients attending one or more of the on possible innovation performers that we signed up ground handling innovation discussion sessions Training 5 % of staff that has finalized the yearly curriculum 21

22 Creating a risk resilient performance dialogue Performance & Risk is not on the agenda.. Performance & Risk is the agenda 22

23 Summary and wrap up Integrated Performance & Risk Management - How Leading Enterprises Manage Performance and Risk 23

24 Summary CEO s need a more strategic and integrated approach towards performance and risk management The majority of organizations struggle with integration Do not worry! There are models available, such as the model, to structure your vision on integrated performance & risk management Many barriers to integrations are of a practical nature and can be solved Tools such as strategy maps can be used to focus and align your performance an risk dialogue with the company strategy. The improved dialogue strengthens the performance and risk culture and results in improved Risk Resilience 24

25 No performance without risk? For further questions please contact: Martijn Niekus Tel: +31(0) Mobile: +31(0) All rights reserved. Not for further distribution without the permission of. "" refers to the network of member firms of PricewaterhouseCoopers International Limited (IL), or, as the context requires, individual member firms of the network. Each member firm is a separate legal entity and does not act as agent of IL or any other member firm. IL does not provide any services to clients. IL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm's professional judgment or bind another member firm or IL in any way.