“ERM—From Theory toPractice”
Terry Fleming
2010 RIMS President

Montgomery County, Maryland

2About RIMS• “Excellence in Risk Management”
report– 67% want to adopt more strategic
approach• Standards and Practices Committee– Shaping guidelines for profession, increase
profile– Help to make Society primary source indeveloping global risk management
standards
3About RIMS
• “A Practical Guide to Insurance Broker
Compensation and Potential Conflictsof Interest for the Risk Manager”– Empowers risk managers to press for greatertransparency in relationship with brokers– Regulatory reform in their own states4Goals As RIMS President• Further efforts to maintain leadership in ERM• Continue to advocate for risk management
related legislation and regulation• Support efforts to develop international
strategy• Support efforts to encourage students to enterrisk management careers• Encourage more peer‐to‐peer benchmarking,sharing of best practices
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Presentation Goal:
Steps to build an
ERM corporate cultureRIMS Risk Maturity Model

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Definition of ERM• Strategic business discipline, addresses
full spectrum of risks, manages thecombined impact of those risks as aninterrelated risk portfolio• Represents a significant evolution
beyond previous approaches to risk
management8Definition of ERM• Encompasses all areas of organizational
exposure to risk
• Prioritizes, manages exposures asinterrelated risk portfolio• Evaluates risk portfolio in context ofinternal, external environments,systems, circumstances, stakeholders

9Definition of ERM• Recognizes individual risks acrossorganization are interrelated• Provides structured process for
management of all risks• Views effective management of risk ascompetitive advantage• Seeks to embed risk management ascomponent in critical decisions
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ERM is not a guarantee all risks
will be eliminated, or company
will not have losses

Aligning with long‐term goals,
objectives, to embed into
corporate culture
Mission, goals and objectives must
be clearly and simply communicatedERM Principles• Identify• Assess• Evaluate• Mitigate and/or exploit
opportunities• Monitor

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Identify
Basic principle
Gather list of risks that matter tosenior leadership, board of directors,
shareholders14

Identify• What could go wrong?
• What must go right for us to succeed?
• Where are we vulnerable?
• Which assets do we need to protect?
• Do we have liquid assets or assets
with alternative uses?
• How could our operations bedisrupted?
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Identify• How do we know whether or not we areachieving objectives?
• What do we spend the most money on?
• How do we bill and collect ourrevenues?
• Which activities are regulated?
• What are our greatest legal exposures?
16Assess• Process of determining which risks are
more critical than others• Determining how individual risks
might be related to one another17

Assess• Rank the risks:– Gains buy‐in on which risks are mostimportant– Requires consideration of potential
impact/consequences,
probability/likelihood of event
occurring18

Assess
01
9 – joraM

Rank to determine
severity of risk

1‐2
Insignificant
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Assess
Rating for “risk likelihood”
9‐10Highly likely,
at least 90% probability
1‐2Extremely unlikely

20Evaluate• Decide:– How to balance between potential
good and bad outcomes– Which risks need to be addressed, toreduce or mitigate exposure

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Mitigate and/or exploit
opportunities• Develop steps to:– Reduce risks, uncertainties– Increase potential benefits

22Monitor• How do you know whether yourrisk management process has
been effective?
– By monitoring timeliness, effectivenessof the steps to reduce risks, boost gains

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Monitor• If not monitored, mitigation
might lose effectiveness overtime:– Mitigation activity might slow down
or decrease over time
– Nature of risk might change thatmitigation is no longer effective24

Benefits of Creating an
ERM Culture• Boards identifying, mitigating risks inother ways; ERM is the choice• Regulators looking at boards, risk
management in different way thanprior to financial crisis• Fear of onerous legislative initiatives
providing impetus to demonstratecapable of implementing controls25Benefits of Creating an
ERM Culture• Creates risk‐aware culture• Identifies, manages cross‐enterpriserisk• Provides integrated management
reporting• Focuses on most important risks• Enhances risk response decision
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How is risk managementchanging?
• Over past 30 years:– Transition from insurance buyer tooperational risk manager– Increase in interdepartmental
collaboration

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How is risk managementchanging?
• Today, ERM can play role to:– Support company’s objectives, strategic
goals– Improve earnings and cash flow
– Manage growth– Capture opportunities– Allocate capital, resources appropriately

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Implementing ERM main goal
Identify major risks across entire
organization, assure they areappropriately assessed andmanaged

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Domo Arigato. Gozaimasu.
Shigatsu‐ni Boston de aimashou.