Enterprise Risk Management (ERM)
ABN AMRO Business Unit North America (BU NA)
Overview for ERM Committee
April 11, 2007
Table of Contents
1
ERM is all about integration
2
Four stages of the ERM Process
3
Characteristics and sources of effective KRIs
4
An ERM Dashboard should address 5 key questions
5
Hallmark of success in ERM
2
ERM is all about integration
 Risk factors – strategic, business, credit, market and operational
 Oversight – governance, risk and compliance
 Analytical models – data standards, modeling, assumptions, stressed
scenarios
 Information flows – risk vs. performance; internal vs. external
 Business processes – strategic planning, M&A, product development, pricing,
performance measurement
Source: James Lam’s Presentation, “Emerging Best Practices for Enterprise Risk Management (ERM) in Financial Services “
3
Four stages of the ERM process
ERM
Foundations
• Governance structure
• Resource allocation
• ERM Framework
• Risk policies
• Incentive systems
• Education & Training
Risk
Identification &
Assessment
• Top-down risk
assessments
• Bottom-up risk
assessments
• Audit reviews
• Independent
assessments (regulators,
consultants, customers)
Risk
Measurement
and Reporting
• KRIs
• Performance vs.
Standards
• Dashboard reporting
(Management, Board)
• Public disclosure
Risk
Mitigation and
Management
• Resolution of issues
• Product & Customer
Management
• Risk-adjusted
pricing
• Investment, funding
& capital strategies
• Risk transfer
Source: James Lam’s Presentation, “Emerging Best Practices for Enterprise Risk Management (ERM) in Financial Services “
4
Characteristics and sources of effective KRIs
KRIs
Strategic
Objectives
• Business Plans
• Management Goals
• Performance Metrics
Regulations
and Policies
• Legal requirements
• Regulatory standards
• Policy limits
Losses and
Incidents
• Actual losses
• Incidents
• Industry data
Stakeholder
Requirements
• Investors
• Business Partners
• Other
Source: James Lam’s Presentation, “Emerging Best Practices for Enterprise Risk Management (ERM) in Financial Services “
5
ERM Dashboard should address 5 key questions
1. Are any of our business objectives at risk?
2. Are we in compliance with policies and regulations?
3. What risk incidents have been escalated?
4. What KRIs and trends require immediate attention?
5. What risk assessments need to be reviewed?
Source: James Lam’s Presentation, “Emerging Best Practices for Enterprise Risk Management (ERM) in Financial Services “
6
Hallmark of success in ERM
 “Tone from the top” – engaged senior management and Board of Directors
 Establishment of policies, systems and processes – supported by a
strong risk culture
 Clearly defined risk appetite with respect to risk limits and business
boundaries
 Robust risk analytics - summarized in an “ERM Dashboard” for executive
and Board reporting
 Risk-return management via integration of ERM into strategic planning,
business processes, performance measurement and incentive compensation
Source: James Lam’s Presentation, “Emerging Best Practices for Enterprise Risk Management (ERM) in Financial Services “
7