The ERM spring meeting in Houston hosted by Marathon Oil gave members the chance to discuss their respective ERM programs (and they vary), share best practices, and work through some real-life examples of ERM’s opportunity to influence and play a role in strategy decisions. Morris Clark, VP and Treasurer from Marathon Oil, welcomed guests and helped set the stage by outlining the importance of integrating ERM into strategic thinking.
Single greatest risk to a company is a strategic decision. “Companies need to be ready to change,” said Dr. Paul Walker as he kicked off the “Clunky Dance Part 2.5.” This discussion centered around the relationship between strategy and risk. “Companies must get better at seeing the risk and uncertainties in their strategic choices,” explained Dr. Walker, who is the Schiro/Zurich Chair in ERM at St John’s University. He noted that companies now are being valued differently; book value matters less because investors are more focused on the value of the market and future value. No longer is the money that was made important, but what money will be made in the future is the focus. Read more about ERM strategy here.
A well-controlled organization provides a solid foundation for the risk assessment process. The tone also must be set from the top. One member walked fellow members through the process of using “black swan” risk workshops to inform them of strategic planning activities. Some key black swan questions from the workshops include, what must be true in our current plans for the company to succeed? What are the biggest assumptions in these loans, and are we prepared? This member shared the results of their workshop and explained to members how the company changed its strategy.
How do members organize risk? From risk categories to risk registers, members had a variety of methods used to organize risk. Although the names varied as well as the level of granularity, all members use some type of “bucket” format to organize risk. One member puts its nine highest-level risks on a one-page summary along with mitigation strategies. Another member said his company has some persistent risks that never go away. Most members update these risks annually although some update monthly.
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