ERM
Enterprise Risk Management (ERM) Pilot Project Harbor Services Group Summary Report to Port Audit Committee October 5, 2010 Enterprise Risk Management (ERM) Pilot Project-Harbor Services Group Enterprise Risk Management Defined Enterprise Risk Management A process applied across an enterprise designed to identify potential events that may affect the entity's strategies and objectives; assess the risks of the identified events; and to provide a consistent framework with which to manage the most significant risks in order to provide reasonable assurance to management regarding the achievement of its objectives. Key Points: It is a process implemented within the entity Aligns to support and help achieve entities' strategies and operations Helps to prioritize risks based on entities' tolerance to risk Evaluates risks based on likelihood and impact Includes governance, audit, and compliance Recognizes that risk has both an upside and a downside Creates a common risk assessment platform 1 Enterprise Risk Management (ERM) Pilot Project-Harbor Services Group Overview of Project 1. Port selected Harbor Services Group as the pilot group to evaluate ERM 2. Port selected Aon Risk Services as the consultant to assist with pilot study 3. Port assembled internal team to run the project 4. Interviews conducted of Harbor Services management by consultants June 29-30th 5. 104 risks defined based on interviews and consolidated by consultant and Port team to 25 risks 2 Enterprise Risk Management (ERM) Pilot Project-Harbor Services Group Overview of Project 6. The 25 risks further refined to 20 risks by Port and consultant 7. A facilitated workshop conducted on August 5th to rank risks based on impact and likelihood 8. The Executive Team briefed on September 10th on the results of the pilot study 9. Port received final draft of report from Aon on September 23rd 10. Presentation to Audit Committee on October 5th 3 Enterprise Risk Management (ERM) Pilot Project-Harbor Services Group Overview of Project Focusing on the Most Critical Risks to the Harbor Services Group Reviewed selected documents; conducted industry research Interviewed 10 Harbor Services representatives to identify key enterprise risks Resulted in 104 Mentions of Risk Analyzed interview notes to consolidate similar mentions of risk Resulted in 25 Unique Risks Prioritized 25 unique risks based on frequency of mentions and management attention required Resulted In 20 risks recommended for Assessment Conducted Risk Assessment Workshop Developed Summary Report 4 Critical Risks Assigned to Risk Owners 4 Enterprise Risk Management (ERM) Pilot Project-Harbor Services Group 20 Risks Selected for Risk Assessment # Risk Name # Risk Name 1 Access to Capital 11 Land Use / Zoning 2 Budgeting 12 Legal & Regulatory Compliance 3 Commercial Fishing Industry 13 Litigation 4 Competition 14 Maintenance 5 Customer Service 15 Marketing 6 Economy 16 Natural Disasters/Cat. Events and Business Continuity 7 Employee Costs 17 Political Relations 8 Environmental Regulations 18 Public Relations 9 Hiring & Retention 19 Safety & Security 10 Internal Port Support Services 20 Strategic Business Model Note: Risks are listed in alphabetical order; additional information for each risk can be found in the detailed risk overviews Workshop participants assessed each risk on two criteria: The estimated likelihood of a risk's occurrence within the next 18-24 months The estimated impact on finances, operations, the community, and the environment . 5 Enterprise Risk Management (ERM) Pilot Project-Harbor Services Group Risk Ranking and Assessment Process Initial Prioritization Based Upon Assessments of Impact and Likelihood Risk Ranking Matrix Risk Ranking Overview Risk Ranking provides an initial means of prioritizing assessed risks based upon assessments of Impact and Risk Map Likelihood Critical Risk Rankings are used to identify a risk's position on a Risk Map (see chart to left) Risk Ranking Calculation Steps Major Multiply the Impact assessment (on a scale of 1-9 with 9 being the highest impact and 1 being the lowest) and the Likelihood assessment (on a scale of 1-9 with 9 being Impact Moderate the highest likelihood and 1 being the lowest) for each risk Reference the product against a range of values (see Minor table below) Assign one of four risk rankings (Very High, High, Risk Rankings Medium or Low) based upon referenced range Insignificant Risk is ranked if the product of Impact & as Likelihood is VERY HIGH Greater than 49.0 Rare Unlikely Possible Likely Almost Certain HIGH Greater than 27.0, but less than 49.0 Likelihood MEDIUM Greater than 9.0, but less than 27.0 LOW Less than 9.0 6 Risk Assessment & Prioritization Workshop Results Harbor Services Enterprise Risk Map Harbor Services: Enterprise Risk Map Rank Risk Name Risk Ranking 1 Land Use / Zoning* 53.20 2 Environmental Regulations 50.25 3 Political Relations 49.40 4 Maintenance* 43.55 2 5 Commercial Fishing Industry 42.84 11 1 6 5 6 Access to Capital* 40.12 8 4 3 12 10 7 Internal Port Support Services 38.64 13 18 7 8 Strategic Business Model 37.05 14 9 19 9 Litigation 35.88 Impact 16 20 10 Legal & Regulatory Compliance* 35.28 17 15 11 Natural Disasters, Cat. Events and Business Continuity 30.24 12 Economy 29.61 13 Competition 27.60 14 Public Relations 27.00 15 Budgeting 22.79 16 Employee Costs 19.11 17 Marketing 18.92 18 Customer Service 18.81 Likelihood 19 Safety & Security 18.36 20 Hiring & Retention 17.28 Note: Risks are listed in the order of Risk Ranking; additional information for each risk can be found in the detailed risk overviews 7 Detailed Risk Overview (1 of 20): Harbor Services Group Pilot ERM Land Use / Zoning (selected for Risk Mitigation Discussion) Definition Risk Assessment Results: Risk Map Risk of conflict between zoning laws / regulations and Port's desired or intended use for that land 2 11 11 6 5 8 4 3 12 10 13 18 Risk Drivers 7 14 9 19 Impact 16 20 17 15 Reliance on other's jurisdiction or the City for the revision of land use Restrictions on the use of and improvements to land Uncertainty of changing laws and regulations Threat of re-zoning negatively affecting the Port Likelihood Existing Risk Management Activities Risk Assessment Results: Details Risk Likelihood Impact Ranking Ensuring frequent and regular contact with internal lobbyists and contractors at the state and federal level to ensure we know of proposed and actual changes to zoning laws and regulations. 7.6 7.0 53.20 8 Detailed Risk Overview (2 of 20): Harbor Services Group Pilot ERM Environmental Regulations Definition Risk Assessment Results: Risk Map Risk of not staying current with or non-compliance with existing or new environmental regulations or failing to identify changes in federal, foreign, 22 11 state and/or local regulations 1 6 5 8 4 3 12 10 13 18 Risk Drivers 7 14 9 19 16 Challenges to adapting to changes in environmental regulations (ex. Impact 20 17 15 gray water rule) Demand on resources to comply with environmental regulations (recovering sunken boats, walking the docks, etc.) competes with using those resources elsewhere. Escalating costs of compliance Threat of legal action against the Port Likelihood Existing Risk Management Activities Risk Assessment Results: Details Risk Likelihood Impact Ranking Existing response programs in place to respond to an event Keeping facility inspections up to date 6.7 7.5 50.25 9
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