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Enterprise risk and opportunity management : concepts and step-by-step examples for pioneering scientific and technical organizations PDF

316 Pages·2017·17.56 MB·English
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Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers' professional and personal knowledge and understanding. The Wiley Finance series contains books written specifically for finance and investment professionals as well as sophisticated individual investors and their financial advisors. Book topics range from portfolio management to e-commerce, risk management, financial engineering, valuation and financial instrument analysis, as well as much more. For a list of available titles, visit our website at www.WileyFinance.com. Table of Contents Cover Title Page Copyright Figures Tables Preface Introduction Chapter 1: An EROM Primer for Organizations Concerned with Technical Research, Integration, and Operations (TRIO Enterprises) 1.1 EROM Scope and Objectives for TRIO Enterprises 1.2 EROM Definitions and Technical Attributes for TRIO Enterprises Notes References Chapter 2: Coordination of EROM with Organizational Management Activities 2.1 The Executive, Programmatic, and Institutional/Technical Management Functions and Their Interfaces 2.2 EROM-Relevant Management Activities 2.3 Coordination of EROM with Management Activities 2.4 Communication across Extended Partnerships 2.5 Contribution of EROM to Compliance with Federal Regulations and Directives Notes References Chapter 3: Overview of EROM Process and Analysis Approach 3.1 Organizational Objectives Hierarchies 3.2 Populating the Organizational Objectives Hierarchies with Risk and Opportunity Information 3.3 Establishing Risk Tolerances and Opportunity Appetites 3.4 Identifying Risk and Opportunity Scenarios and Leading Indicators 3.5 Specifying Leading Indicator Trigger Values and Evaluating Cumulative Risks and Opportunities 3.6 Identifying and Evaluating Risk Mitigation, Opportunity Exploitation, and Internal Control Options Notes References Chapter 4: The Development and Utilization of EROM Templates for Performance Evaluation and Strategic Planning 4.1 Overview 4.2 Demonstration Example: The NASA Next-Generation Space Telescope as of 2014 4.3 Example Objectives Hierarchies 4.4 Risks, Opportunities, and Leading Indicators 4.5 Example Templates for Risk and Opportunity Identification and Evaluation 4.6 Example Templates for Risk and Opportunity Roll-Up 4.7 Example Templates for the Identification of Risk and Opportunity Drivers, Responses, and Internal Controls 4.8 Upward Propagation of Templates for Full-Scope EROM Applications 4.9 Application of the Templates to Organizational Planning and the Selection from among Alternative Candidate Portfolios Notes References Chapter 5: Management and Implementation of EROM at the Institutional/Technical Level (Technical Centers or Directorates) 5.1 EROM from a Technical Center's Perspective 5.2 Extended Enterprises and the Technical Center's Extended Organization 5.3 EROM-Informed Budgeting of Resources across a Technical Center's Extended Organization References Chapter 6: Special Considerations for EROM Practice and Analysis at Commercial TRIO Enterprises 6.1 Overview 6.2 Risk and Opportunity Scenarios and Leading Indicators 6.3 Controllable Drivers, Mitigations, Actions, and Internal Controls Chapter 7: Examples of the Use of EROM Results for Informing Risk Acceptance Decisions 7.1 Overview 7.2 Example 1: DoD Ground-Based Midcourse Missile Defense in the 2002 Time Frame 7.3 Example 2: NASA Commercial Crew Transportation System as of 2015 7.4 Implication for TRIO Enterprises and Government Authorities References Chapter 8: Independent Appraisal of EROM Processes and Results to Assure the Adequacy of Internal Controls and Inform Risk Acceptance Decisions 8.1 Background 8.2 Queries for an Independent Appraisal of EROM in the Contexts of Internal Control and Risk Acceptance References Chapter 9: Brief Overview of the Potential Integration of EROM with Other Strategic Assessment Activities 9.1 Technical Capability Assessment (TCA) 9.2 Strategic Annual Review (SAR) 9.3 Portfolio Performance Review (PPR) References Chapter 10: An Integrated Framework for Hierarchical Internal Controls 10.1 Internal Control Principles and the Integration of Internal Control, Risk Management, and Governance 10.2 Methodological Basis 10.3 Examples 10.4 Incorporation of Internal Control Principles into the Control Loop Approach 10.5 Summary of Observations Note References Appendix A: Acronyms Appendix B: Definitions About the Companion Website About the Author Index End User License Agreement List of Illustrations Chapter 1: An EROM Primer for Organizations Concerned with Technical Research, Integration, and Operations (TRIO Enterprises) Figure 1.1 Decision making is a balance between risk and opportunity Figure 1.2 Risk tolerance relative to diverse goals and objectives Figure 1.3 The elements of RIDM and CRM applied to the TRIO enterprise's management activities at various levels Chapter 2: Coordination of EROM with Organizational Management Activities Figure 2.1 The three levels of management within a typical enterprise Figure 2.2 The principal activities and transfer of information within and between levels of management Figure 2.3 Activities within the executive level and transfer of information from/to external and internal sources Figure 2.4 Activities within a program directorate (programmatic level) and transfer of information from/to external and internal sources Figure 2.5 Activities within a technical center (institutional/technical level) and transfer of information from/to external and internal sources Figure 2.6 Interfaces between EROM activities and management activities in the development of an organizational plan Figure 2.7 Interfaces between EROM activities and management activities in the evaluation of performance relative to the organizational plan Figure 2.8 The relationship between governance, enterprise risk management, and internal controls according to the new OMB Circular A-123 Chapter 3: Overview of EROM Process and Analysis Approach Figure 3.1 Types of objectives developed at the executive level Figure 3.2 Types of objectives developed at the programmatic level Figure 3.3 Types of objectives developed at the institutional/technical level Figure 3.4 Conceptualization of an enterprise-wide objectives hierarchy Figure 3.5 Associating risk and opportunity information with objectives in the organizational objectives hierarchy Figure 3.6 Risk and opportunity response and watch boundaries Figure 3.7 Example taxonomy for enterprise risks and opportunities Figure 3.8 Risk and opportunity leading indicator triggers Figure 3.9 Hypothetical results showing how the elimination of a risk driver affects cumulative risk and the elimination of an opportunity driver affects cumulative opportunity Figure 3.10 Iterative process for identifying and evaluating a risk response, opportunity action, and internal control plan that balances cumulative risk, cumulative opportunity, and cost Chapter 4: The Development and Utilization of EROM Templates for Performance Evaluation and Strategic Planning Figure 4.1 Executive-level objectives for the example demonstration Figure 4.2 Programmatic-level objectives for the example demonstration Figure 4.3 Center-level objectives for the example demonstration Figure 4.4 Integrated objectives hierarchy showing primary interfaces between objectives Figure 4.5 Individual risks and associated leading indicators for executive-level objectives Figure 4.6 Individual risks and associated leading indicators for program-level objectives Figure 4.7 Individual risks and associated leading indicators for center-level objectives Figure 4.8 Individual opportunities, introduced risks, and associated leading indicators for executive-level objectives Figure 4.9 Secondary objective interfaces for the example demonstration Figure 4.10 Schematic of roll-up method alternative 1 for Objective E (>10) #1 Figure 4.11 Schematic of roll-up method alternative 2 for Objective E (>10) #1 Figure 4.12 Schematic of risk roll-up for Objective P (1) #11 in the example demonstration Figure 4.13 Illustration of risk and opportunity scenario drivers and their time-frame criticalities Figure 4.14 Illustration of risk and opportunity constituent drivers and their time-frame criticalities Figure 4.15 Schematic showing the upward propagation of templates for full-scope EROM applications Chapter 5: Management and Implementation of EROM at the Institutional/Technical Level (Technical Centers or Directorates) Figure 5.1 The extended organization for a NASA center Figure 5.2 NASA example of how each center takes risk and opportunity inputs from a variety of entities and supports multiple strategic objectives of the agency Figure 5.3 A representative EROM organizational chart for a technical center that manages extended enterprises Figure 5.4 The success of a technical center's inherited strategic objectives is dependent on the “right-sizing” of the resources available to the center (NASA example) Figure 5.5 Outline of the steps in the iterative process for optimizing asset distributions based on costs and current and projected values of leading indicators Figure 5.6 Illustration of iterative process for optimizing asset distributions based on costs and current and projected values of leading indicators Chapter 6: Special Considerations for EROM Practice and Analysis at Commercial TRIO Enterprises Figure 6.1 Integration of qualitative and quantitative modeling to evaluate the likelihood of success of a commercial TRIO enterprise Figure 6.2 Example enterprise risk taxonomy for a commercial TRIO enterprise Figure 6.3 Example opportunity taxonomy for a commercial TRIO enterprise Figure 6.4 Example risk scenario statement and scenario event diagram for a risk in the taxonomic category “Competition from other companies” Figure 6.5 Example risk scenario statement and scenario event diagram for a risk in the taxonomic category “Customer satisfaction” Figure 6.6 Example risk scenario statement and scenario event diagram for a risk in the taxonomic category “Leadership mortality and succession issues” Figure 6.7 Example risk scenario statement and scenario event diagram for a risk in the taxonomic category “Accident causing human deaths” Figure 6.8 Example risk scenario statement and scenario event diagram for a risk in the taxonomic category “Changes in foreign exchange rates and interest rates” Figure 6.9 Example risk scenario statement and scenario event diagram for a risk in the taxonomic category “Labor strikes” Figure 6.10 Example risk scenario statement and scenario event diagram for a risk in the taxonomic category “Exploitation of new technology” Figure 6.11 Example risk scenario statement and scenario event diagram for a risk in the taxonomic category “Act of terror” Figure 6.12 Example risk and opportunity matrix for quantitative financial objectives Figure 6.13 Example risk scenario statement, scenario event diagram, and scenario matrix for a risk in the taxonomic category “Competition from other companies” Figure 6.14 Example risk scenario statement, scenario event diagram, and scenario matrix for a risk in the taxonomic category “Exploitation of new technology” Chapter 7: Examples of the Use of EROM Results for Informing Risk Acceptance Decisions Figure 7.1 Objectives and hypothetical cumulative risk parity table for GMD example Figure 7.2 Risks and leading indicators for GMD example (2002 time frame) Figure 7.3 Hypothetical composite leading indicator parity table for GMD example Figure 7.4 Objectives and hypothetical cumulative risk parity table for CCTS example Chapter 9: Brief Overview of the Potential Integration of EROM with Other Strategic Assessment Activities Figure 9.1 Relationship between the TCA process and the EROM objectives interface and influence template Figure 9.2 Relationship between the EROM risk-and-opportunity-based asset optimization process and the TCA asset right-sizing objective Figure 9.3 Relationship between the EROM risk and opportunity identification and leading indicator evaluation templates and the SAR process Figure 9.4 Relationship between the EROM risk and opportunity roll-up templates and the SAR process Chapter 10: An Integrated Framework for Hierarchical Internal Controls Figure 10.1 Conceptualization of the relationship between governance, risk management, and internal controls: strategic planning Figure 10.2 Conceptualization of the relationship between governance, risk management, and internal controls: organizational performance evaluation Figure 10.3 Simplified schematic of the interfaces between organizational management functions and organizational management levels Figure 10.4 Standard control loop form Figure 10.5 Example simple control loop for a mechanical system Figure 10.6 Example form of a hierarchical system of internal control loops Figure 10.7 Example primary control loop for the objective of improving risk management and system safety methodology and practice within the enterprise Figure 10.8 Process diagram for the selected control activity: “Develop and update risk management and system safety policies, procedures, standards, and guides” Figure 10.9 Secondary control loop for the selected control activity: “Develop and update risk management and system safety policies, procedures, standards, and guides” Figure 10.10 Process diagram and tertiary control loop for the selected control activity: “Develop and update RM and SS policies, procedures, standards, and guides” Figure 10.11 Example primary control loop for CCP's objective of achieving acceptable safety within schedule and budget using the RBA process and shared assurance model Figure 10.12 Example generic primary control loop for achievement of internal control principles Figure 10.13 Example primary control loop for demonstration of a commitment to integrity and ethical values List of Tables Chapter 2: Coordination of EROM with Organizational Management Activities Table 2.1 Typical Executive, Program Directorate, and Technical Directorate Managerial Roles and Responsibilities (Adapted from NASA 2014a, Table D-1) Table 2.2 Executive, Program Directorate, and Technical Directorate Standards of Support to Be Provided by EROM Consistent with Roles and Responsibilities Outlined Previously Table 2.3 Example Risk Profile from the New OMB-Circular A-123 Chapter 3: Overview of EROM Process and Analysis Approach Table 3.1 Typical Risk and Opportunity Scenario Types and Associated Leading Indicators Table 3.2 Published Guidelines for Roughly Estimating the Ratio of the System Failure Probability from UU Risks to the System Failure Probability from Known Risks at Time of Initial Operation (Benjamin et al. 2015) Table 3.3 Example Likelihood Scale for a Risk or Opportunity Relative to a Critical Organizational Objective Table 3.4 Example Impact Scale for a Risk or Opportunity Relative to a Critical Organizational Objective Chapter 4: The Development and Utilization of EROM Templates for Performance Evaluation and Strategic Planning Table 4.1 A View of the Form of the Outcome for Cumulative Risks and Opportunities Table 4.2 Risk and Opportunity Identification Template Table 4.3 Leading Indicator Evaluation Template Table 4.4 Example Entries for Leading Indicator Evaluation Template for Objective P(1) #11: Deliver the Cryocooler Subsystem Table 4.5 Objectives Interface and Influence Template Table 4.6 Known Risk Roll-Up Template Table 4.7 Example Entries for Known Risk Roll-Up Template for Objective P(1) #11:

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"Risk management strategy for the pioneering technological sector Enterprise Risk and Opportunity Management provides much-needed guidance tailored specifically to the technological sector. While most enterprise risk management guides are written for traditional businesses and finance firms, this bo
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