Sometimes the “squeaky wheel” isn’t what is effecting results. Read how rPM³ helped this Division of a Fortune 500 Company apply ERM strategically to discover the truth about their performance.Read more
ROOT CAUSE DISCOVERY
Our feelings often cloud our judgment. With the right tools and measures we get the data needed to see clearly. Learn how we helped this company get insight into the root of their problems.Read more
Often conventional financial reports don’t paint a complete picture regarding costs and project effectiveness. Read how this State agency leveraged ERM to get the facts needed to demonstrate value.Read more
MANUFACTURING – the Latin American Division of a Fortune 500 Conglomerate had returned 5 consecutive years of Operating Losses with the last year being a $15 Million loss. The Division covered 15 countries and 4 languages. Convinced they understood the issues, Management devised a strategy that (they believed) would rectify the problems.
STRATEGIC RISK ASSESSMENT
Identify, analyze and evaluate the risks to the new Strategy and Strategic Targets.
QUANTITATIVE RISK ANALYSIS
Deploy Monte Carlo Simulation to results-based estimates of each risk in dollar terms.
RESPONSE & MONITORModify the Plan to address the Key Risks identified and monitor Key Risks and progress.
First, to assure the will of the CEO would not overpower the Strategic Risk Assessment (SRA), the Lead Consultant privately asked the CEO to write down on a 5×7 card the Top 5 risks he felt could effect performance (the same risks incorporated into the new Strategic Plan) and asked him to abstain from the SRA workshops. Business Unit leaders from every country participated in the workshop. Of the 50 identified risks only 7 produced 80% of the impact, measured as a result of the quantitative analysis. Once the analysis results were in, the CEO was asked to reveal the 5 risks he had written down. None of his risks were even in the Top 20. He openly admitted that “without proper risk analysis the squeaky wheel will always get the grease, but it may not be the reason the car is broken down.” He immediately ordered the Strategic Plan to be revised to address the Key Risks identified.
With a new Plan and close monitoring of the Key Risks and risk response measures every month, the Latin American Division finished out the year with a $15 Million profit – a $30 MILLION TURN-AROUND in only 12 months. The Division maintained their good performance by leveraging an Enterprise Risk Management program and by adopting ARQ™ to monitor cost of risk and measure risk management effectiveness with every financial close.GET STARTED
CASE Review: Business Turn-around
It has been said…“A person who aims at nothing is sure to hit it.” –Origin Unknown Yet, companies continue to struggle with where to focus resources and strategic effort – significantly affecting their performance.
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Root Cause Discovery
CLOTHING & SHOES DESIGNER, MANUFACTURER & RETAILER – the Company has been experiencing a 3 year history of volatile revenue and earnings performance. Revenues are currently around $500 Million. The CEO, owner and namesake is convinced that the historical fluctuations are solely due to design issues and lack of enough higher end product.
COST OF RISK BASELINEDecipher 16 quarters of historical financial results to establish a cost of risk (COR) baseline of the company.
HISTORICAL EVENT IDENTIFICATIONIdentify the events (negative and positive) that caused the Core Performance variances calculated in the Baseline.
DATA ANALYTICSAnalyze the results to ascertain connections between risks, risk management and performance.
Utilizing ARQ™, the last 16 quarters of financial results and budget data were uploaded and deciphered. Decipher workshops with key management personnel were conducted to create the decipher template for Cost of Risk. Management found value in the decipher process itself – in how it changed their thinking about expenditures and resource allocation. Results from the decipher are immediate in the system, so the major findings and anomalies were identified right away. Management were asked independently in interviews to divulge the events that were behind the core business variances and explain anomalies. With all data entered into the system, the root causes of the performance volatility were obvious to recognize.
Data analytics revealed that product design and inventory did not match with demand through any of the company’s channels to market. This was at the root of the volatility. Although the CEO had strong feelings about making his company a “high end” brand, his customers had a different idea. Brand reputation was strong and customer demand for a certain group of products was constant, however, their “high-end” designs were not being received at higher prices. Realizing that the process for the design-to-distribution process was driven by “gut feel”, not data, the company devised a multi-pronged response strategy that included front-end market research and more targeted marketing campaigns to increase demand. This $13 Million strategy closed the gaps in volatility, generating $57 MILLION IN NEW, GROWING & STABLE REVENUE.GET STARTED
CASE Review: Root Cause Discovery
Did you know that……an analysis by a Fortune 50 Company revealed that: “A 10% Reduction in Earnings Volatility (Standard Deviation from Target) yielded a 20% improvement in P-E Ratio?” Yet, with continuous technology change, global economic instability, growing regulatory intrusion and other systemic factors, businesses struggle more than ever to perform consistently.
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GOVERNMENT AGENCY – as a $280 Million State Agency reached a critical mass of conservation land holdings, the Governing Board and constituents grew concerned over the cost effectiveness of the Agency’s risk management activities. Public complaint painted a certain picture in the media, but it lacked facts.
ENTERPRISE RISK ASSESSMENTConduct an enterprise risk assessment (ERA) of the programs involving Conservation Land Holdings.
QUANTITATIVE RISK ANALYSISDeploy Monte Carlo Simulation to results-based estimates of each risk in dollar terms.
COST OF RISK BASELINEDecipher 3 fiscal years of historical financial results to establish a cost of risk (COR) baseline of the Agency.
Utilizing manual survey tools & techniques, program leads and managers were polled to identify the risks impacting Land Holding Perception. A risk assessment workshop was then conducted to vet the risks and analyse each one quantitatively. The analysis was done considering the current state (current controls and risk management activity) and in the inherent state (assuming no controls existed). To save time, the Aperitisoft™ survey tool could have been used to enable each participant to weigh-in electronically using their laptop or device. Results would have been calculated automatically. A baseline of cost of risk (COR) was done using ARQ Technology™. The Decipher process gave leadership a new perspective about risks, resource allocation and performance.
The COR baseline revealed that the Agency has been spending $6 Million annually to address Land Holdings risks. The ERA quantitatively measured the Inherent Risk Level to be $28 Million higher than the Current Risk Level. This means a $6 MILLION ANNUAL INVESTMENT YIELDS A $28 MILLION BENEFIT! New Key Risks were also identified that could drive additional benefits through Risk Response action.
Did you know that…
Regulatory and governance mandates from S&P, Moody’s, A.M. Best,SEC Regulations, Stock Exchanges and others have required Boards and Senior Management to