2016-03-29-奥纬咨询-Risk_-_Informed_Decision_Making_9页_244kb

RISK-INFORMED DECISION MAKING SUMMARY

Core Content

Risk-informed decision making is a critical capability for senior executives in large conglomerates to navigate the uncertainties of the modern business environment. The framework emphasizes the integration of strategy, risk, and performance management to ensure that decisions are not only aligned with organizational goals but also grounded in a clear understanding of risk-return trade-offs.

Main Challenges and Concerns

• Unpredictable Economic Conditions: Volatile commodity prices, global trade disruptions, and shifting political landscapes are creating uncertainty that impacts strategic decision-making.
• Stakeholder Demands: Boards and shareholders are increasingly interested in understanding the sources of earnings volatility and how much risk is involved in different business initiatives.
• Outdated Risk Assessments: Executives often struggle to keep their risk assessments current, making it difficult to communicate with stakeholders.
• Intuitive vs. Systematic Risk Management: Some companies rely on gut feeling or treat risk as an operational issue, which can lead to strategic miscalculations.

Key Areas of Focus

1. Determining the Business Footprint: Companies must decide on geographic expansion, business mix, capital strategies, pricing, and other operational aspects in a risk-conscious manner.
2. Stakeholder Management and Communication: Transparent communication is essential to align internal and external stakeholders with strategic goals and risk appetite.
3. Risk-Return Culture: Developing a culture that consistently evaluates risk and return is challenging but necessary for sustainable performance.

Risk-Informed Decision-Making Framework

Oliver Wyman proposes a framework that integrates strategy, risk, and performance management to enhance decision-making:

• Linking Strategy and Risk: Executives should evaluate strategic decisions (e.g., technology investment, geographic expansion) by quantifying associated risks and understanding how they affect the company's overall risk appetite.
• Linking Strategy and Performance: Strategic priorities must be aligned with performance metrics across all business units to ensure consistency and clarity.
• Linking Risk and Performance: Dynamic portfolio and performance management are used to evaluate how different scenarios affect risk and return, allowing for more informed strategic choices.

This framework ensures that risk considerations are not isolated but integrated into the core of strategic and performance planning, enabling better alignment and execution.

Key Questions for Effective Management

• Which geographies, businesses, and assets offer an acceptable risk-return profile?
• How can the portfolio be dynamically optimized for risk and return?
• What is the mechanism for transfer pricing across different entities?
• How to ensure strategic alignment across all operating companies (OpCos) and subsidiaries?
• What is the sensitivity of different business units (BUs) to various value drivers and scenarios?
• What is the organization's overall risk appetite, and how is it cascaded to individual business units?
• How is the risk-informed performance management framework communicated and implemented at different organizational levels?
• What workforce capabilities are needed, and how should they be measured to support a risk-return culture?

Client Case Study

Oliver Wyman worked with a large industrial client to implement a transformational approach to risk-informed decision making:

• Step 1: Defined the organization's risk appetite and translated it into tangible limits, such as country exposure.
• Step 2: Strengthened existing processes with templates, roles, and responsibilities, focusing on the Investment Approval Process (IAP) and strategic planning.
• Step 3: Embedded risk into performance management through risk-adjusted metrics and governance guidelines.
• Step 4: Created scorecards for each role to reflect the balance between strategic objectives and risk-appropriate returns, based on responsibilities and remits.

This structured approach helped the client align strategy, risk, and performance across the entire organization, supporting better decision-making and financial outcomes.

Conclusion

In an uncertain environment, developing a sustainable competitive advantage requires a risk-informed decision-making framework. While the building blocks for such a framework are often already in place, the challenge lies in effectively linking them. Oliver Wyman's framework enables organizations to evaluate strategic options, optimize portfolios, and align performance with risk and strategy, ultimately improving financial outcomes.

Organizations that successfully embed a risk-aware culture will see the most significant improvements in returns. This transformation is supported by a robust execution platform that includes governance, structure, performance tools, and internal capabilities.

About Oliver Wyman

Oliver Wyman is a global leader in management consulting, with a focus on strategy, operations, risk management, and organizational transformation. The firm operates in over 26 countries and has a team of 3,700 professionals dedicated to helping clients improve their performance and risk profile.

Contact Information

• Abhi Bhuchar – Partner, Energy - Oil & Gas
  Email: abhimanyu.bhuchar@oliverwyman.com
  Phone: +65 6510 9700

• Vadim Kosin – Partner, Strategic IT & Service Operations
  Email: vadim.kosin@oliverwyman.com
  Phone: +65 6510 9700

• Website: www.oliverwyman.com

Legal Disclaimer

This report is for informational purposes only and is not intended as investment advice. It should not be relied upon as a substitute for professional consultation. Oliver Wyman accepts no liability for any loss or damage arising from the use of this report.