COSO Enterprise Risk

Management – Integra5ng
with Strategy and
Performance
AFERM Summit
November, 2017

1
 Agenda

1 Introducing 2 Why update 3 What has 4 What does 5 More

COSO the changed? it mean for information
Framework you?
now?

COSO recognizes the growing expectation of

organizations to manage, in an integrated and
cohesive manner, risks emanating from across
an enterprise.
Robert B. Hirth Jr., COSO Chair

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 2
Introducing COSO

3
 Updating one of the world’s most widely used
risk management frameworks

2004 Publication 2017 Publication

Other COSO publications

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 4
What prompted the
Framework update?

5
 What are risk and business professionals
saying?
I want to reduce
performance
variability and
As an I need insights When I develop
respond more my strategy, I
innovative quickly to that help me
company, I understand risks want to have a
opportunities full picture of
want to use and
risk to create opportunities the potential
I want an ERM and evaluate risks and the
value and not
Framework that strategic options capabilities I
only to protect
drives improvements need to create
value
to business functions advantage
beyond risk
avoidance

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 6
 Why update the ERM framework now?

•  Boards are expecting more from their

organization’s ERM practices and
capabilities

•  Stakeholders are seeking greater

transparency and accountability

•  Business environments are

increasingly complex, technologically
driven, and global

•  There is a need to incorporate lessons

learned from recent events and the bar is
rising

•  Risk professionals are looking for a more

up to date resource describing ERM
concepts Since 2004, the market has continued to
evolve and the COSO Framework is
•  The range of ERM practices continues to evolving with it.
evolve

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 7
What’s changed?

8
Introducing the 10 key changes to the
2017 Framework

A new framework structure Explores the different
benefits of ERM

A focus on integrating risk Suite of new graphics

management highlighting the relationship
between risk and
performance

Written from the Deeper discussions on

perspective of the business challenging topics

Explores management of Addresses the evolving role

risk at all altitudes of the of technology
organization

Greater emphasis on Coming soon: Compendium

culture of Example

9
 A new framework structure

The graphic symbolizes the dynamic, integrated nature of ERM that begins with the mission,
vision and core values of the organization through to the creation of enhanced value.

5 Components that align to

the business life cycle 20 Supporting principles that
collectively describe the ERM
Framework

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 10
 The new Framework adopts a components
and principles structure

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 11
 Explores the benefits of ERM

Reducing
•  Enterprise risk management nega5ve
frameworks are as varied as outcomes
the organizations they
support. Enhancing
Iden5fy and
manage risks
enterprise
•  In their infancy, many resilience
en5ty-wide
frameworks focus on
reducing negative surprises ERM
and identifying entity-wide Benefits
risks.
Improving Increasing the
•  Boards, senior management resource range of
and stakeholders are deployment opportuni5es
increasingly expecting ERM
Reducing
to go further to deliver performance
greater benefits. variability

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 12
 Ques5on 1:

During the development of the ERM Framework, we heard
repeated calls for a closer link with risk and strategy. Do you feel:

a) it is time to get risk at

the strategic planning
table

b) many are still trying to

find their way in this
conversation

c) this is a wasted effort

and nothing will change
at the strategy level

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 13
 Focusing on integrating risk and strategy

81% of the greatest

losses in
Opera5onal Compliance Strategic External
shareholder value
since 2002 were
•  Strategic blunders account for a
majority of the losses in shareholder value attributable to
compared to operational events, incidents or
compliance failures ‘strategic blunders’
•  Research suggests that organizations are
looking to strengthen the integration *U.S. public companies around the world with at least US$1 billion in enterprise
between strategy and enterprise risk value on January 1, 2002 (1,053 companies met these criteria). Dann, Le Merle and
Pencavel, “The Lesson in Lost Value” Strategy+Business, November, 2012
management

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 14
 Focusing on integrating risk and strategy
The updated Framework elevates the discussion of integrating strategy and risk through
three different dimensions
1.  The possibility of strategy not aligning with mission, vision and core values
2.  The implications from the strategy chosen
3.  Risk to strategy and performance

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 15
 Ques5on 2:

We've been getting lots of input about the need to bring risk
considerations into decision-making. Would you say that is:

a) a widely held view

b) necessary but far

from reality

c) a voice from the

louder minority

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 16
 New graphics depict the alignment between
risk and performance
Questions for your organization Business objective: Increase sales

Is the risk assumed by the

entity, when setting Acceptable Variation
performance targets,
understood?
Risk Curve

What assumptions inform

the shape of the risk curve? Amount of Risk Risk Appetite

Do existing key indicators Where on the curve should

demonstrate movement ERM focus?
along the curve?

What level of performance

is assumed when Performance Target Number of
assessing impact and Units Sold
likelihood?

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 17
 Explores managing risk at all altitudes of the
organization

Entity Strategy
The Framework highlights that
risks emanate and must be
managed at all levels of the
organization.
Entity Level Business Entity Level Business
Objective 1 Objective 2
The Framework also addresses
how risks can change in
severity and prioritization
at different levels of the
organization Business Business Business
Objective 1 Objective 2 Objective 3

Risk 1 Risk 2 Risk 3 Risk 4

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 18
 Written from the perspective
of the business

Quem graecis quali sque

The framework was written from the perspective no nam, cu enim necessi
tatibus usu. Aeque urb
of the business to facilitate the integration of
anitas delicatissimi amet,
ERM consect etu ipsum dolor.

•  Research has confirmed that there is often a ‘siloed’ or

incremental approach to risk management that
is separate from the day to day management of an
organization

•  The lack of integration can contribute to difficulties

engaging with the business, the ability to gain and
offer insight and ultimately curbs the value that
ERM can offer

•  The Framework endeavors to remove risk ‘jargon’

and adopts the language of business to discuss concepts
and practices

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 19
 How the Framework addresses culture

Culture now features in the definition of ERM and is part of the

Framework’s Governance and Culture Component

Principles on culture are now more focused on decision-

making and the alignment to expected behaviors in line with the
core values of the organization

The importance of aligning the core values and risk

appetite of the organization to promote consistent and risk-
based decision making

Discussions on the importance and commitment to integrity

and ethics have been retained in the COSO Internal Control
Integrated Framework

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 20
 Compendium of Examples

A compendium of examples is also

being developed. The proposed
compendium will illustrate:

•  All principles

•  A variety of entity sizes from global

through to national, regional, and
local entities

•  A variety of industry types

•  Actual company practices and be

Coming Soon…. augmented with expected practices in
select areas, as needed
Coming Soon •  Written from the perspective of
the business

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 21
 What does this mean for
you and your

organization?
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 Ques5on 3:

Where do you see yourself choosing to focus with regards to the
Framework’s adoption?

a) risk's relevance to
strategy

b) risks relationship to
performance

c) culture's consideration
of risk

d) I have no idea or don’t

plan to do anything with
my program
COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 23
 Where to next?

Encourage your risk professionals to: Challenge your organization to not:

•  Sync with the language of business in your •  View ERM simply as a function, team or
organization department
•  Understand how organization creates, •  Consider ERM to be a stand alone, periodic
realizes and preserves value and the risk assessment or heat map
supporting assumptions •  View GRC technology as the entire approach
•  Develop a clear understanding of where ERM for implementing ERM
is integrated

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 24
More information

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 Staying involved

Access the Framework at www.coso.org

COSO Enterprise Risk Management Framework - Integrating with Strategy and Performance 26
Thank you