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Preface to the Second Edition xxxi
Acknowledgements xxxv
About the Author xxxvii
PART I ENTERPRISE RISK MANAGEMENT IN CONTEXT 1
1 Introduction 3
1.1 Risk Diversity 4
1.2 Approach to Risk Management 5
1.3 Business Growth Through Risk Taking 5
1.4 Risk and Opportunity 6
1.5 The Role of the Board 7
1.6 Primary Business Objective (or Goal) 8
1.7 What is Enterprise Risk Management? 9
1.8 Benefits of Enterprise Risk Management 10
1.9 Structure 12
1.10 Summary 16
1.11 References 16
2 Developments in Corporate Governance in the UK 19
2.1 Investor Unrest 19
2.2 The Problem of Agency 20
2.3 The Cadbury Committee 21
2.4 The Greenbury Report 23
2.5 The Hampel Committee and the Combined Code of 1998 23
2.6 Smith Guidance on Audit Committees 23
2.7 Higgs 24
2.8 Tyson 24
2.9 Combined Code on Corporate Governance 2003 25
2.10 Companies Act 2006 26
2.11 Combined Code on Corporate Governance 2008 26
2.12 Sir David Walker’s Review of Corporate Governance, July 2009 (Consultation Paper) 27
2.13 Sir David Walker’s Review of Corporate Governance, November 2009 (Final Recommendation) 29
2.14 House of Commons Treasury Committee 2009 30
2.15 UK Corporate Governance Code, June 2010 32
2.16 The "Comply or Explain" Regime 34
2.17 Definition of Corporate Governance 34
2.18 Formation of Companies 35
2.19 The Financial Services Authority and Markets Act 2000 36
2.20 The London Stock Exchange 36
2.21 Summary 37
2.22 References 38
3 Developments in Corporate Governance in the US 41
3.1 Corporate Governance 41
3.2 The Securities and Exchange Commission 42
3.3 The Laws That Govern the Securities Industry 44
3.4 Catalysts for the Sarbanes-Oxley Act 2002 45
3.5 National Association of Corporate Directors 2008 55
3.6 Summary 56
3.7 References 57
4 The Global Financial Crisis of 2007–2009: A US Perspective 59
4.1 The Financial Crisis in Summary 59
4.2 How the Financial Crisis Unfolded 60
4.3 The United States Mortgage Finance Industry 61
4.4 Subprime Model of Mortgage Lending 61
4.5 Why this Crisis Warrants Close Scrutiny 68
4.6 Behaviours 70
4.7 Worldwide Deficiencies in Risk Management 76
4.8 Federal Reform 76
4.9 Systemic Risk 79
4.10 The Future of Risk Management 81
4.11 Summary 82
4.12 References 82
5 Developments in Corporate Governance in Australia and Canada 85
5.1 Australian Corporate Governance 85
5.2 Canada 90
5.3 Summary 94
5.4 References 94
6 Internal Control and Risk Management 97
6.1 The Composition of Internal Control 97
6.2 Risk as a Subset of Internal Control 98
6.3 Allocation of Responsibility 102
6.4 The Context of Internal Control and Risk Management 106
6.5 Internal Control and Risk Management 107
6.6 Embedding Internal Control and Risk Management 107
6.7 Summary 107
6.8 References 108
7 Developments in Risk Management in the UK Public Sector 109
7.1 Responsibility for Risk Management in Government 109
7.2 Risk Management Publications 112
7.3 Successful IT 113
7.4 Supporting Innovation 115
7.5 The Orange Book 116
7.6 Audit Commission 118
7.7 CIPFA/SOLACE Corporate Governance 120
7.8 M_o_R 2002 121
7.9 DEFRA 123
7.10 Strategy Unit Report 124
7.11 Risk and Value Management 125
7.12 The Green Book 126
7.13 CIPFA Guidance on Internal Control 127
7.14 Managing Risks to Improve Public Services 129
7.15 The Orange Book (Revised) 131
7.16 M_o_R 2007 132
7.17 Managing Risks in Government 132
7.18 Summary 134
7.19 References 136
PART II THE RISK MANAGEMENT PROCESS 137
8 Establishing the Context: Stage 1 141
8.1 Process 141
8.2 Process Goal and Subgoals 142
8.3 Process Definition 143
8.4 Process Inputs 143
8.5 Process Outputs 145
8.6 Process Controls (Constraints) 145
8.7 Process Mechanisms (Enablers) 146
8.8 Process Activities 149
8.9 Summary 156
8.10 References 156
9 Risk Identification: Stage 2 159
9.1 Process 159
9.2 Process Goal and Subgoals 159
9.3 Process Definition 160
9.4 Process Inputs 161
9.5 Process Outputs 162
9.6 Process Controls (Constraints) 162
9.7 Process Mechanisms (Enablers) 163
9.8 Process Activities 171
9.9 Summary 182
9.10 References 182
10 Risk Analysis: Stage 3 185
10.1 Process 185
10.2 Process Goal and Subgoals 186
10.3 Process Definition 186
10.4 Process Inputs 186
10.5 Process Outputs 188
10.6 Process Controls (Constraints) 188
10.7 Process Mechanisms (Enablers) 188
10.8 Process Activities 189
10.9 Summary 195
10.10 References 196
11 Risk Evaluation: Stage 4 197
11.1 Process 197
11.2 Process Goal and Subgoals 197
11.3 Process Definition 198
11.4 Process Inputs 198
11.5 Process Outputs 198
11.6 Process Controls (Constraints) 199
11.7 Process Mechanisms (Enablers) 200
11.8 Process Activities 215
11.9 Summary 221
11.10 References 222
12 Risk Treatment: Stage 5 223
12.1 Process 223
12.2 Process Goal and Subgoals 223
12.3 Process Definition 224
12.4 Process Inputs 224
12.5 Process Outputs 224
12.6 Process Controls (Constraints) 225
12.7 Process Mechanisms 225
12.8 Process Activities 226
12.9 Risk Appetite 226
12.10 Risk Response Strategies 228
12.11 Summary 230
12.12 References 231
13 Monitoring and Review: Stage 6 233
13.1 Process 233
13.2 Process Goal and Subgoals 234
13.3 Process Definition 234
13.4 Process Inputs 235
13.5 Process Outputs 235
13.6 Process Controls (Constraints) 235
13.7 Process Mechanisms 236
13.8 Process Activities 236
13.9 Summary 239
13.10 Reference 240
14 Communication and Consultation: Stage 7 241
14.1 Process 241
14.2 Process Goal and Subgoals 242
14.3 Process Definition 242
14.4 Process Inputs 243
14.5 Process Outputs 243
14.6 Process Controls (Constraints) 244
14.7 Process Mechanisms 244
14.8 Process Activities 244
14.9 Internal Communication 245
14.10 External Communication 245
14.11 Summary 245
14.12 Reference 246
PART III INTERNAL INFLUENCES – MICRO FACTORS 247
15 Financial Risk Management 249
15.1 Definition of Financial Risk 249
15.2 Scope of Financial Risk 250
15.3 Benefits of Financial Risk Management 250
15.4 Implementation of Financial Risk Management 251
15.5 Liquidity Risk 251
15.6 Credit Risk 253
15.7 Borrowing 259
15.8 Currency Risk 259
15.9 Funding Risk 260
15.10 Foreign Investment Risk 262
15.11 Derivatives 263
15.12 Summary 264
15.13 References 265
16 Operational Risk Management 267
16.1 Definition of Operational Risk 268
16.2 Scope of Operational Risk 269
16.3 Benefits of Operational Risk 270
16.4 Implementation of Operational Risk 270
16.5 Strategy 270
16.6 People 275
16.7 Processes and Systems 292
16.8 External Events 303
16.9 Outsourcing 305
16.10 Measurement 307
16.11 Mitigation 307
16.12 Summary 307
16.13 References 308
17 Technological Risk Management 309
17.1 Definition of Technology Risk 310
17.2 Scope of Technology Risk 310
17.3 Benefits of Technology Risk Management 311
17.4 Implementation of Technology Risk Management 311
17.5 Primary Technology Types 312
17.6 Responding to Technology Risk 324
17.7 Summary 330
17.8 References 331
18 Project Risk Management 333
18.1 Definition of Project Risk 334
18.2 Definition of Project Risk Management 334
18.3 Sources of Project Risk 335
18.4 Benefits of Project Risk Management 335
18.5 Embedding Project Risk Management 336
18.6 Project Risk Management Process 342
18.7 Responsibility for Project Risk Management 346
18.8 Project Director’s Role 347
18.9 Project Team 347
18.10 Optimism Bias 349
18.11 Software Tools Used to Support Project Risk Management 351
18.12 Techniques Used to Support Project Risk Management 352
18.13 Summary 352
18.14 References 354
19 Business Ethics Management 355
19.1 Definition of Business Ethics Risk 355
19.2 Scope of Business Ethics Risk 356
19.3 Benefits of Ethics Risk Management 357
19.4 How Unethical Behaviour can Arise 357
19.5 Recognition of the Need for Business Ethics 358
19.6 Factors that Affect Business Ethics 361
19.7 Risk Events 361
19.8 Implementation of Ethical Risk Management 365
19.9 Summary 374
19.10 References 374
20 Health and Safety Management 375
20.1 Definition of Health and Safety Risk 375
20.2 Scope of Health and Safety Risk 376
20.3 Benefits of Health and Safety Risk Management 376
20.4 The UK Health and Safety Executive 378
20.5 The European Agency for Safety and Health at Work 379
20.6 Implementation of Health and Safety Risk Management 380
20.7 Workplace Precautions 382
20.8 Contribution of Human Error to Major Disasters 382
20.9 Improving Human Reliability in the Workplace 388
20.10 Risk Management Best Practice 389
20.11 Summary 390
20.12 References 390
PART IV EXTERNAL INFLUENCES – MACRO FACTORS 391
21 Economic Risk 393
21.1 Definition of Economic Risk 393
21.2 Scope of Economic Risk 393
21.3 Benefits of Economic Risk Management 394
21.4 Implementation of Economic Risk Management 394
21.5 Microeconomics and Macroeconomics 394
21.6 Macroeconomics 395
21.7 Government Policy 397
21.8 Aggregate Demand 398
21.9 Aggregate Supply 401
21.10 Employment Levels 403
21.11 Inflation 403
21.12 Interest Rate Risk 404
21.13 House Prices 405
21.14 International Trade and Protection 405
21.15 Currency Risk 407
21.16 Summary 412
21.17 References 412
22 Environmental Risk 413
22.1 Definition of Environmental Risk 413
22.2 Scope of Environmental Risk 415
22.3 Benefits of Environmental Risk Management 415
22.4 Implementation of Environmental Risk Management 415
22.5 Energy Sources 416
22.6 Use of Resources 419
22.7 Pollution 420
22.8 Global Warming 420
22.9 Response to Global Warming 422
22.10 Stimulation to Environmental Considerations 429
22.11 Environmental Sustainability 431
22.12 Summary 432
22.13 References 433
23 Legal Risk 435
23.1 Definition of Legal Risk 435
23.2 Scope of Legal Risk 435
23.3 Benefits of Legal Risk Management 436
23.4 Implementation of Legal Risk Management 436
23.5 Business Law 437
23.6 Companies 438
23.7 Intellectual Property 441
23.8 Employment Law 447
23.9 Contracts 447
23.10 Criminal Liability in Business 448
23.11 Computer Misuse 451
23.12 Summary 452
24 Political Risk 453
24.1 Definition of Political Risk 454
24.2 Scope of Political Risk 454
24.3 Benefits of Political Risk Management 455
24.4 Implementation of Political Risk Management 455
24.5 Zonis and Wilkin Political Risk Framework 457
24.6 Contracts 459
24.7 Transition Economies of Europe 459
24.8 UK Government Fiscal Policy 460
24.9 Pressure Groups 461
24.10 Terrorism and Blackmail 461
24.11 Responding to Political Risk 462
24.12 Summary 464
24.13 References 465
25 Market Risk 467
25.1 Definition of Market Risk 467
25.2 Scope of Market Risk 468
25.3 Benefits of Market Risk Management 470
25.4 Implementation of Market Risk Management 470
25.5 Market Structure 470
25.6 Product Life Cycle Stage 475
25.7 Alternative Strategic Directions 476
25.8 Acquisition 482
25.9 Competition 483
25.10 Price Elasticity/Sensitivity 489
25.11 Distribution Strength 490
25.12 Market Risk Measurement: Value at Risk 490
25.13 Risk Response Planning 496
25.14 Summary 496
25.15 References 497
26 Social Risk 499
26.1 Definition of Social Risk 499
26.2 Scope of Social Risk 500
26.3 Benefits of Social Risk Management 500
26.4 Implementation of Social Risk Management 501
26.5 Education 501
26.6 Population Movements: Demographic Changes 502
26.7 Socio-Cultural Patterns and Trends 504
26.8 Crime 504
26.9 Lifestyles and Social Attitudes 505
26.10 Summary 510
26.11 References 511
PART V THE APPOINTMENT 513
27 Introduction 515
27.1 Change Process From the Client Perspective 515
27.2 Selection of Consultants 517
27.3 Summary 522
27.4 Reference 522
28 Interview with the Client 523
28.1 First Impressions/Contact 523
28.2 Client Focus 524
28.3 Unique Selling Point 524
28.4 Past Experiences 526
28.5 Client Interview 527
28.6 Assignment Methodology 528
28.7 Change Management 529
28.8 Sustainable Change 529
28.9 Summary 530
28.10 References 531
29 Proposal 533
29.1 Introduction 533
29.2 Proposal Preparation 533
29.3 Proposal Writing 534
29.4 Approach 535
29.5 Proposal 535
29.6 Client Responsibilities 538
29.7 Remuneration 539
29.8 Summary 539
29.9 References 539
30 Implementation 541
30.1 Written Statement of Project Implementation 541
30.2 Management 541
30.3 Customer Delight 548
30.4 Summary 548
30.5 References 548
Appendix 1: Successful IT: Modernising Government in Action 549
Appendix 2: Sources of Risk 553
Appendix 3: DEFRA Risk Management Strategy 557
Appendix 4: Risk: Improving Government’s Capability to Handle
Risk and Uncertainty 561
Appendix 5: Financial Ratios 567
Appendix 6: Risk Maturity Models 573
Appendix 7: SWOT Analysis 579
Appendix 8: PEST Analysis 583
Appendix 9: VRIO Analysis 587
Appendix 10: Value Chain Analysis 589
Appendix 11: Resource Audit 591
Appendix 12: Change Management 595
Appendix 13: Industry Breakpoints 599
Appendix 14: Probability 601
Appendix 15: Value at Risk 611
Appendix 16: Optimism Bias 613
Index 621
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