Tackling Enterprise Risk Management (ERM) in Government Understanding the Office of Management and Budget’s (OMB's) Circular A-123 and implementing ERM in your agency Federal agencies face unprecedented risks to achieving their mission, goals, and objectives. Federal News Radio | July 29, 2016, OMB prepares to ratchet up enterprise risk management Institute for Catastrophic Loss Reduction Page 1 Risk Assessment and Management in Local Government Emergency Planning Mitigation is the first of the four phases identified under Comprehensive Emergency Management (CEM) – the others being … The government may also provide guarantees, such as the revenue and exchange rate guarantees provided for toll road projects in Chile, Columbia, Korea and Spain,[2] which compensate facility operators when revenues fall below a given point or when the exchange rate between local currency and the currency of debt exceeds a given ceiling. While several executives have significant responsibilities for ERM, including the Chief Risk Officer, Chief Financial Officer, Chief Legal Officer and Chief Audit Executive, the ERM process works best when all key managers of the organization contribute. Risk Assessment and Management in Local Government Emergency Planning Mitigation is the first of the four phases identified under Comprehensive Emergency Management (CEM) – the others being preparedness, response and recovery. 3. It is the government’s responsibility to keep the risk within boundaries. 3. IT Risk Management is the application of risk management methods to information technology in order to manage IT risk, i.e. Identify, assess, and … Governments need to assess the type of support provided to a project. Many would consider the United States to be a market economy, despite its heavy levels of government control and regulation. In OMB’s revised Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control, released on July 15, 2016, OMB raised the bar on expectations for risk management. Economic rationale for government intervention 5. Risk management involves developing flexible strategies aimed at preventing any negative event from occurring or, if this is not possible, minimising the harm caused. Please see www.deloitte.com/about to learn more about our global network of member firms. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. Deloitte named a global leader in Enterprise Risk Management Consulting. • Market Risk - Market risk refers to the risk of loss to an institution resulting from In this profile, vital infrastructure and all companies that pose a risk should be identified. These events have helped create a sense of community among other federal Chief Risk Officers (CRO), ERM and internal control practitioners, and OMB. 3. Governments actively managing fiscal risk exposure face challenges associated with gathering of information, creating opportunities for dialogue, analysis of available information, setting government policy and creating and enforcing appropriate incentives for those involved. It is a recognised management science and has been formalised by international and national codes of practice, standards, regulations and legislation. As agencies mature their ERM programs, greater value can be driven by leveraging ERM to support and strengthen other agency-wide management activities. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and … The government will want to manage the provision of government support, and in particular any contingent liabilities created through such support mechanisms, for example through government guarantees of grantor payment obligations or debt repayment. By recognizing the challenges facing an ERM program and adapting to those challenges, ERM leaders can be better positioned to build sustainable programs. Outcome Management in the Government of Canada has not yet had a published method supporting the execution of the approach. Governments can also obtain contingent, stand-by facilities (for example from trusted lenders with good credit ratings to provide confidence to the market and those potential purchasers of such guarantees) to offset some of the need to set aside assets. It is intended as useful guidance for board members and risk practitioners. Provide Public Safety Canada, as requested, with emergency management plans and risk assessments for the purposes of analysis and evaluation of these, in order to contribute to a cohesive emergency management planning process across the federal government. [1] Striking this balance right will help the government make careful decisions about when to provide public-money support and manage the government liabilities that arise from such public-money support, while still being aggressive in encouraging infrastructure investment. It is intended as useful guidance for board members and risk practitioners. We are also considering how to improve the government response to major crises.We need to understand the relationship farmers have with risk better, and the barriers to the uptake of insurance and other tools. Guidelines to reduce economic distortions of government-run schemes 7. Risk assessment provides information on potential health or ecological risks, and risk management is the action taken based on consideration of that and other information, as follows: Scientific factors provide the basis for the risk assessment, including information drawn from toxicology, chemistry, epidemiology, ecology, and statistics - to name a few. When appropriately implemented, ERM enables greater enterprise-wide discipline and reliability to help agencies better manage risks. See Terms of Use for more information. 1.2 Leadership and ownership of risk management in government departments is inconsistent. These risks might be specific to an industry (for example, HIPAA compliance in the healthcare field) or those faced by virtually every … Charging fees can also help ensure that guarantees are only sought when needed. Credit risk management is the practice of mitigating losses by understanding the adequacy of a bank’s capital and loan loss reserves at any given time – a process that has long been a challenge for financial institutions. The Risk Management Society (RIMS™): An advocate and educational resource for the global risk community, RIMS represents over 3,000 industrial, corporate, service, non-profit, charitable, and government entities internationally. Disaster Risks and Port Management System: Involvement of the Central Government in Disaster Risk Management in Port Operations 5th International Disaster and Risk Conference IDRC 2014 ‘Integrative Risk Management - The role of science, technology & practice‘ • 24-28 August 2014 • Davos • … Effective risk management plays a crucial role in any company's pursuit of financial stability and superior performance. help the government in their risk management of contingent liabilities (increasing efficiency and targeting of guarantees and ring-fencing government contingent liabilities). Risk management is a … This was a main criticism of the CSIS regarding US government risk management – the Nuclear Agency is the exception, not the rule. It informs strategic decision-making, budget formulation, near-term actions, and annual performance reporting. It must also have the staff with the skills and expertise needed to assess proposed projects, identify the right balance of government support and manage the implementation of that support, in particular in the run-up to financial close. ring fence budget allocations intended for government support of PPP projects; reduce the likelihood of diversion of such funds for inefficient use; limit liabilities for government support provided to PPP projects to the value of its capitalization of the fund; reassure the public that government liabilities in the face of PPP projects are less likely to have catastrophic consequences, improving the credit enhancement function of government support; and. obtaining information on government liabilities, in particular contingent liabilities; establishing criteria to guide government decisions (how much risk it will bear, what proportion of each risk it will cover, to which projects it will provide support, etc. By integrating internal control and ERM programs, an agency can prioritize and respond to risks more effectively and efficiently. Adapting ERM for sustainability Integrating ERM with operational risk management Keep in mind that not all steps are required for each contract, and that some of these steps may be done at the same time. Office Risk Management … RIMS provides risk management content, networking, professional development, and certification opportunities. We will conduct behavioural research and engage the farming and insurance sectors in … Where the PPP programme in question is large or high value, the amount of assets that would need to be set aside in the fund may be prohibitive. Wenzhe Tang, David M.Young (Dec 2007) "Risk Management in the Chinese Construction Industry" studied the empirical Chinese industry survey on the importance of project risks, application of risk management techniques, status of the risk management system, and the barriers to risk management, which were perceived by the main project participants. As noted in Government Support in Financing PPPs, efficient financing of PPP projects can involve the use of government support, to ensure that the government bears risks which it can manage better than private investors and to supplement projects which are economically but not financially viable. This framework provides a new model for risk management in government. Hazardous conditions may be present, such as polluted water supplies, damaged power lines, and inadequate housing. risk management in Government Departments and Offices. Guarantee fees set too low encourage indiscriminate applications, and set too high discourage project implementation. managing the government’s total exposure to contingent liabilities, in principle rationing guarantees to their highest value uses while ensuring that the government is exposed only to manageable levels of risk. A risk register or template is a good start, but you’re going to want a robust project management software to facilitate the process of risk management. These contingent facilities would be structured in such a way as to provide confidence to recipients of guarantees that sufficient money will be available without delay to address any liabilities the fund may incur, in particular for calls on guarantees, off-setting some of the capital requirements of the fund. 2) Who will pay for the cost of the guarantee? Members of the board have a critical role in establishing the environment that will allow the effective management of risk to flourish. 114, World Bank 2007, Government Guarantees and Fiscal Risk, International Monetary Fund (IMF), April 2005, For further discussion of this issue, see Irwin, Government Guarantees: Allocating and Valuing Risk in Privately Financed Infrastructure Projects by Timothy C. Irwin, World Bank 2007, Public-Private Partnerships in the New EU Member States - Managing Fiscal Risk Nina Budina, Hana Polackova Brixi and Timothy Irwin, World Bank Working Paper No. Insights gained from this exposure mean we understand not only “what” OMB is requiring with its new ERM guidance, but also “why” and “how”. Where infrastructure projects have large public externalities, some level of direct financial support from the government may be appropriate. Some departments have risk management champions at Board-level whilst others rely on specialist risk managers to build momentum and develop understanding. This document is intended to be the first published “how-to” guide on Outcome Management, with a sequential flow, descriptions on each of the stages and steps, and numerous checklists and templates to follow and use. Unanticipated events, such as natural disasters or liability for accidents and health-related crises, can be dealt with for minimal loss by an experienced risk manager. Georgia State University . [4] Given the complexity of these tasks, it is becoming more popular for governments, and in particular ministries of finance, to create specialist teams to manage fiscal risk arising from contingent liabilities, in particular those associated with PPP. The government may want to be counter indemnified by the grantor or the relevant ministry; this has the added benefit of reducing the moral risk of guaranteeing breaches by another party (a guarantee of a party’s obligation, without any come back by the guarantor against the breaching party, may reduce the incentive for that party to comply with that obligation). TAKAHASHI-Disaster risks and port management system-ID1247-IDRC2014_b 1. 3. Section 260 of the Office of Management and Budget (OMB) Circular A-11, preparation, submission, and execution of the budget, provides guidance on performance reviews, strategic reviews, and ERM and requires covered organizations to submit a summary of findings to OMB in Spring 2019. Risk management is a management discipline with its own tech-niques and principles. Basic ideas in risk management. This is an extremely conservative and most likely inefficient approach. +1 202 368 0524, Cynthia is a Deloitte Risk & Financial Advisory managing director at Deloitte & Touche LLP’s Government & Public Services practice and assists federal clients in developing and implementing Enterprise... More. A summary of the 2004 Department of Finance Guidelines is provided at Appendix 1. Government’s role in disaster management is to address the degree of risk present within an emergency situation. Government Executive | February 29, 2016, For media inquiries, please contact Megan Doern Risk management plans can lessen the damages of the effects and impacts of risks to the project. The sum of these represents the likely cost to the government of the guarantee. One recent internal audit report observed that “risk management activities are Try it yourself and see, Integrating internal control with an ERM program can enhance an agency’s ability to systematically identify and manage risks across the organization potentially resulting in increased value. Risk management can be very formal, with defined work processes, or informal, with no defined processes or methods. To avoid common pitfalls, ERM and internal control should not be considered as independent risk management functions, but rather as an integrated and cohesive framework to drive strategic decisions across the enterprise. Other methods exist, such as option-pricing techniques, to value guarantees. Concept and impacts of a government-run scheme: the example of CCP 6. The adoption of a risk management framework … The insurance industry uses actuarial tables to quantify contingent liabilities, and set its premium at an amount intended to cover its risk, set aside reserves and earn a profit. Originally developed by the Department of Defense (DoD), the RMF was adopted by the rest of the US federal information systems in 2010. This paper addresses this issue. They provide oversight and they direct marketing and organizational tactics, but the job involves far more than maintenance. When needed, civil defense units such as the National Guard may be called to maintain order within a disaster situation. : The business risk associated with the use, ownership, operation, involvement, influence and adoption of IT within an enterprise or organization . 114, World Bank 2007, Sample Terms of Reference for PPP Advisors, Environmental Standards and Engineering Standards, Utility Restructuring, Corporatization, Decentralization, Management/Operation and Maintenance Contracts, Joint Ventures / Government Shareholding in Project Company, Standardized Agreements, Bidding Documents and Guidance Manuals, Mainstreaming Gender throughout the Project Cycle, Transparency, Good Governance and Anti-Corruption, Les PPP dansle domainede l énergieet de l’électricité, Les PPP dansle domainede la technologiepropre, Les PPP dansle domainede la télécommunicationet des technologies de l’informationet de la communication (TIC), An Operational Framework for Managing Fiscal Commitments from Public-Private Partnerships - The Case of Ghana. Managing Contingent Liabilities in Public- Private Partnerships - Practice in Australia, Chile, and South Africa by Timothy Irwin Tanya Mokdad, World Bank and Public-Private Infrastructure Advisory Facility (PPIAF) 2010. 7. Hence, valuing contingent liabilities is considered more of an art than a science despite a number of sophisticated methodologies and software designed to assist in the process. This was a main criticism of the CSIS regarding US government risk management – the Nuclear Agency is the exception, not the rule. Risk is inseparable from return in the investment world. As a result, the strategic planning process is an ideal place to find—and in some cases respond to—a surprisingly overlooked type of enterprise risk: Strategic risks. Risk appetite can be used within ERM and other programs to inform a risk profile, or risk profiles can be used by organizational leaders to codify their risk appetite to inform risk response planning. The diagram showing the framework. This process will help management recognize the risks it is facing, perform risk assessments, and develop strategies to mitigate risks using management resources available to them. Risk management is one of the most important components in empowering an organization to achieve its ultimate vision. Alternatives to government-run schemes 8. Risk appetite (and tolerance) are a vital to setting parameters around how much risk the organization is willing to accept, where it is over exposed to risk, and provides guideposts for whether risk taking will achieve strategic results. Setting up and managing a guarantee fund would raise issues similar to a financing intermediary, as discussed in Government Support in Financing PPPs, in relation to: An Operational Framework for Managing Fiscal Commitments from Public-Private Partnerships - The Case of Ghana by Riham Shendy, Helen Martin, and Peter Mousley, World Bank 2013. 8. DOJ’s position is that PE firms have an obligation to come up to speed on the myriad and complex laws and regulations that are designed to prevent fraud in highly regulated industries. Further, we stay on top of federal ERM developments through our involvement in the Association for Federal Enterprise Risk Management (AFERM). The Circular modernizes existing agency risk management and internal control efforts by requiring agencies to implement an ERM capability coordinated with the organization’s strategic planning process. Emergency management also involves providing the support necessary to prepare and rebuild a community in the aftermath of a disaster. Specifically, stakeholders can help identify what the problems are, how serious they are and how might they be corrected or mitigated. This is often achieved through debt management departments, which are already responsible for risk analysis and management. Page 10 gives guidance on how to put together an implementation plan and we are sure the whole document can be used in support of this process. Miller also provides a great checklist of the steps usually involved in the process of contractual risk management. The Risk Management Framework (RMF) is a set of criteria that dictate how the United States government IT systems must be architected, secured, and monitored.. As a result of the study, the CSIS came up with some best practices in seven categories, strategic environment and objectives, risk lexicon, identifying/assessing risk, implementing risk management systems, communicating risk, organizational culture, and … ); developing and housing specialist know-how in relation to the management of fiscal risk and its reporting; establishing rules governing the steps to be taken before public-money support can be offered; reviewing PPP project proposals to determine whether the proposed contract represents an appropriate investment of government resources and allocation of risk between the government and private investors and how much government support that project should receive; estimating the fiscal costs and fiscal risks of proposed public-money support; determining the type and level of government support to be extended to any given PPP project; monitoring government liabilities and disclosing them in the relevant forums, to give early warnings of required payments and any need to cut back on the issuance of new commitments; budgeting, accounting for and disclosing the fiscal risks associated with public-money support and setting the amount of reserve (if any) that the government must set aside with respect to the contingent liabilities borne, supporting the overall government fiscal management regime; improving collection through the counter-indemnities obtained from the party whose breach or failure resulted in the liability, to reduce moral hazard; and. Jim has been appointed to the NACD Directorship 100 list from 2012 to 2017. Hazardous conditions may be present, such as polluted water supplies, damaged power lines, and inadequate housing. Risk management is the process of identifying, assessing and controlling threats to an organization's capital and earnings. All those involved in risk management Each government department, agency and public body should now consider with their board how to implement the framework to suit their specific needs before 30th June 2017. In order to unlock those gains, agencies should build on what is already in place, and working well within the agency, so that implicit risk information can be used and acted upon—thereby increasing the value of the information. The government will need to allocate the costs of providing guarantees, in particular the transaction costs associated with allocating government support, the cost of reserves set-aside for the guaranty, and any profit or additional funding to be used to increase available support. Guidelines to reduce economic distortions of government-run schemes 7. What is new is the need to integrate risk management into the strategic and decision- making processes that cut across the organization, and abandon the outdated practice of managing risks within functional silos and stovepipes. Risk management … The government needs to protect itself from the practical and financial implications of calls on its guarantees. Briefly summarize alternativ e theories of … STEP ONE: Establish your context . Alternatives to government-run schemes 8. The table below shows which types of organizations are covered by OMB’s guidance. The ERM guidance in Circular A-11 is expanded on in OMB Circular A-123, management’s responsibility for ERM and internal control. At the same time, advances in technology have continued to evolve, creating vast amounts of new opportunities and new complex risks. Discover Deloitte and learn more about our people and culture. Formal risk evaluation includes the use of checklists, brainstorming, and expert input. Integrating ERM with strategy As long as the facilities are properly constructed and made “available” to the grantor, the actual use of the facilities has only limited relevance for the availability payment. Governance, risk management and compliance (GRC) is the term covering an organization's approach across these three practices: Governance, risk management, and compliance. If ERM is disconnected from the offices responsible for mission delivery, then risks may be identified but not elevated. This requires access to a significant amount of information and resources needed to perform appropriate due diligence. In light of major corporate risk failures, many executives favor more of a bottom-up approach to reputational risk management, rather than the current top-down approach. Raising the bar on managing enterprise risks, Integrating ERM and operational risk management, Integrating ERM with management activities, Using ERM to inform OMB’s strategic review process, Managing Director | Deloitte & Touche LLP, Telecommunications, Media & Entertainment, Our view: How to advance Federal Enterprise Risk Management, Video: OMB guidance on ERM: What it is and why it’s important, How federal employees can become card-carrying experts on risk management, Update on enterprise risk management in government, Federal CFO: Preparing for ERM implementation, Agencies get a new playbook for managing risks, 7 steps to raise the bar on your agency’s enterprise risk management strategy, OMB prepares to ratchet up enterprise risk management, Reduces chance of crises and problems, thereby allowing leadership to focus more on mission priorities, Creates a culture where risk identification and elevation is encouraged and rewarded, Builds line-of-sight into risks across organizational stovepipes to create the opportunity to leverage mitigation approaches for risks with similar root causes, Provides greater knowledge and insights into enterprise risk to improve resource allocation and strategic decision-making, Acquiring and maintaining buy-in from top leadership, Framing ERM as a program to help achieve its mission, not as a “gotcha” exercise, Using a consistent and common framework to identify and manage risk across the agency, Integrating the framework into the agency’s current risk-management capabilities, Tailoring the framework to the agency’s mission and programs, culture, and organizational and management structure, Creating a culture where identification and elevation of risks is encouraged and rewarded. 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