Tag Archives: Risk Management

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Study Lists Most and Least Resilient Countries

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Businesses are more dependent on their supply chains than ever, with supply chain disruption one of the leading causes of business instability. To thrive, companies need to be resilient, and part of that is their location and the location of suppliers. According to FM Global’s 2015 FM Global Resilience Index, Norway tops the list of resilient countries, with Switzerland in second place.

The study’s purpose is to help companies evaluate and manage their supply chain risk by ranking 130 countries and regions in terms of their business resilience to supply chain disruption. Data is based on: economic strength, risk quality (mostly related to natural hazard exposure and risk management) and supply chain factors (including corruption, infrastructure and local supplier quality).

According to the study:

1. Norway retains its top position in the index from last year, with strong results for economic productivity, control of corruption, political risk and resilience to an oil shock. The country’s management of fire risk offers opportunity to improve still further.

2. Despite its massive oil reserves, Venezuela ranks 130, placing it at the bottom of the index, and reflecting the many challenges South America faces, ranging from economic and political to geological, with its west coast on the Pacific ‘Ring of Fire’.

3. Taiwan has jumped the most in the index – 52 places in the annual ranking to 37; more than any other country. Its rise is due mainly to a substantial improvement in the country’s commitment to risk management, as it relates both to natural hazard risk and fire risk. Given the country’s location at the western edge of the Philippine Sea plate, this is a welcome development.

4. Ukraine, ranked 107, and Kazakhstan, ranked 102, dropped more places this year than any other country; a fall of 31 places each. Unsurprisingly, for Ukraine, the worsening political risk, combined with poorer infrastructure, was to blame. The fall for Kazakhstan this year reflects a poorer commitment to natural hazard risk management in the region.

5. In the European Union (EU), Greece fell from position 54 to 65. The recent victory of the anti-austerity Syriza party almost certainly will usher in a period of greater friction and turbulence with its EU partners.

6. France, ranked 19, trails Germany at 6, the leading EU nation. France has slid down the index in recent years reflecting a rising risk of terrorism – evidenced tragically in Paris – and deteriorating perceptions of both infrastructure and local suppliers. Also exposed to terrorism risk is the United Kingdom, which nevertheless held steady at 20 for the third year running, aided by its relative resistance to oil shocks.

New to the top 10 this year are Qatar, ranked 7, and Finland, ranked 9. Qatar benefits from its macroeconomic stability, efficient goods and labor markets and high degree of security. The country owes its rise of 8 places to a considerable improvement in commitment to fire risk management in the region. Finland’s strengths derive from its innovative capabilities, a product of high public and private investment in research and development, strong links between academia and private sector companies, and an excellent record in education and training, according to the study.

In 10th place is U.S. Region 3, the central region of the United States. While this part of the country is subject to a variety of natural hazards, there is less exposure than states on the east or west coasts of the country. Belgium, ranked 11, and Australia, ranked 14, dropped out of the top 10–barely–and both countries retain high positions in the 2015 index.

 

 

Enterprise Risk Management Needed in Battle Against Corruption

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Even though the U.S. government has broadened its pursuit against corruption, only about 9% of organizations see Foreign Corrupt Practices Act monitoring as a top concern, according to “Bribery and Corruption: The Essential Guide to Managing the Risks” by ACL.

Many companies have policies against corruption, but it still exists. Although remaining competitive can be difficult in some parts of the world that see payments, gifts and consulting fees as part of doing business, companies need to identify these risks and manage them across the organization. There is much is at stake, as penalties are rising and more companies globally are being fined, the study found.

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According to ACL, if a formalized ERM process exists within an organization, then the anti-bribery and anti-corruption (ABAC) risk assessment process should ideally be carried out within that ERM framework. In some organizations, however, the overall risk management process is fragmented, meaning that the risks of bribery and corruption are considered in relative isolation. Whichever approach is taken within an organization, the process of defining the risks should involve individuals with sufficient knowledge of the regulations and ways the business actually works.

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“We encourage companies to maintain robust compliance programs, to voluntarily disclose and eradicate misconduct when it is detected, and to cooperate in the government’s investigation. But we will not wait for companies to act responsibly,” said Leslie Caldwell, assistant attorney general in the criminal division at the Department of Justice. “With cooperation or without it, the department will identify criminal activity at corporations and investigate the conduct ourselves, using all of our resources, employing every law enforcement tool, and considering all possible actions, including charges against both corporations and individuals.”

The study’s findings also include:

Haulers of Crude Finding Coverage Scarce

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HOUSTON—The recent spike in oil and natural gas production has led trucking companies to grow so quickly that they sometimes scramble to find qualified drivers. This has meant tightening coverage with a limited number of carriers and a market in “disarray,” Anthony Dorn, a broker with Sloan Mason Insurance Services, said today at the IRMI Energy Risk and Insurance Conference.

“Carriers have taken a bath on construction risks,” he said. “Only nine carriers will write crude hauling.”

There is a huge need for risk management in trucking right now, he added. “A lot of these are fly-by-night companies. They are running with drivers that have no experience, they are getting violations from the DOT left and right for not having licenses and adequate brakes on their trucks and they are running on dirt roads that aren’t made for 100,000 pound units,” Dorn said. “It’s a very risky place for underwriters. If we don’t do something as agents and as risk managers there will be fewer carriers.”

The recent downturn in the oil and gas market has also been a game-changer for some companies. Dorn predicts a “cleaning of the crop” of truckers. Inexperienced companies with new drivers will “fall by the wayside. What we are going to be left with are companies that are well-run with proper safety procedures in their fleet.”

Once that happens, he believes more carriers will enter the market. “But as of now, in general the whole market is in disarray,” he said.

He noted that agencies such as the Department of Transportation have vehicle reports available online, which insurers now frequently access when considering whether to take on a trucking company as a risk. He suggested that companies looking for coverage also check these reports and work closely with their risk managers and safety directors to correct any problems, such as drivers without adequate experience.

“There is a huge opportunity out there right now for risk managers to approach these companies and tell them, ‘If you don’t have a risk manager to help with your losses, you are not going to be able to find insurance.’ Right off the bat, I’d say 50% [of trucking companies] are declined as soon as they walk in the door,” Dorn said. As a result, he has seen companies declined by every insurer and forced to form a new LLC or even shut down.

Loren Henry, also a broker with Sloan Mason, said that another thing they are seeing as oil prices drop is companies formed to haul salt water for hydraulic fracturing looking to other opportunities. “They start hauling agricultural products and paper products, whatever there is that is not oil and gas related,” he said. “That is typically not going to be covered under their auto policy.

” He advised fleet owners to be aware of this and communicate any changes to their broker to find out specifically what is covered.

“We have had some losses recently, where a company made a shift from what they were hauling because they had lost some saltwater accounts. They were hauling cattle and they had a loss and it wasn’t covered because it is not in the policy language,” Henry explained.

“I don’t know where all these water-haulers are going to go,” Dorn added. “You’re going to see massive fleets go on sale and you’ll get huge discounts on trucks. You are going to see some transitions.”

Dorn added that one of his clients is now hauling salt water with half of his trucks and cattle with the rest. He advised his client to form another LLC for the cattle-hauling if he expects to get insurance coverage, as insurers would cover one or the other, but not both.

Asked whether companies are hiring risk managers and if they are also listening to their advice, he said, “Yes, especially after they get their premium. When they go from $5,000 a unit to $12,000 a unit their ears perk up pretty quick. They are willing to do almost anything to get that pricing down. It’s sad because companies are actually being put out of business because their premiums are too high.”

He expects the next year to see a lot of changes. “A lot of companies will go by the wayside,” he said. “A lot of smaller companies will be gone—they will sell their trucks or be bought out by bigger fleets.”

Why Aren’t We Performing Risk Management Well?

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Whenever a project is being planned, risk management has to be part of the equation – things rarely go smoothly or completely as expected, and there will always be areas that present more risks than others. Whether they affect the projected timeframes, budgets or outcomes, it is the job of the project manager to identify them and ensure that provisions are in place to limit their impact should they occur.

However, failures are made in risk management every day – they helped to trigger the economic crisis in 2008, demonstrating that even the world’s biggest banks, which take financial and logistical risks every day, are not immune to risk mismanagement. With this in mind, it’s understandable that smaller projects and processes might suffer from errors made in risk management.

Why aren’t we performing risk management well, then? With project management an ever-growing sector and more and more jobs being created every day, the next generation of risk managers needs to be able to identify issues in order to rectify them.

Unknown Unknowns

One of the most problematic aspects of risk management is the concept of “unknown unknowns” – the risks that we can’t predict and don’t even know could occur. As thorough as a risk management plan might be, there are some areas that it just can’t cover because they technically do not exist until the project has started and will arise as a result of the ongoing work.

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There is little that can be done about unknown unknowns – the only way that they can be completely avoided is if the project is never started, which is not a viable option.

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Any project inherently contains risks, but they can be risks that work out positively for the project and the organization. There is every chance that unknown unknowns may turn out that way.

Lack of Data

A lot of project risks are identified using historical data, which isn’t always credible – in the stock market, it is impossible to figure out future trends by using past events, and it’s the same here. However, data can be utilized to an extent, which means that the job is made a lot more difficult when it isn’t available.

A recent survey by the Economist Intelligence Unit states that more than half of risk executives at banks around the world have insufficient data to support a robust risk management strategy – therefore, there is no reason to suggest that, should the situation be the same in other industries, they would be any better equipped to produce a decent risk management strategy with the same data deficiencies.

Intimidation

On a very basic level, it can be quite intimidating to think about the number of risks that a project might possess, and risk managers can be concerned about seeming overly negative, affecting people’s opinions of the project and potentially the methods and processes used to complete the project. One might argue that if someone lacks this kind of forthrightness, they should not be involved in project management, but it is a weakness that has to be legislated for.

To not perform risk management thoroughly, however, smacks of incompetence and costs the organization as a whole both time and money. The responsible thing is to highlight risks so that they can be planned for in the event that they occur.

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Don’t worry about telling stakeholders anything they don’t want to hear – it just might trigger a different, better way of doing things.