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2GCLimitedAlbanyHouse,MarketStreetMaidenhead,BerkshireSL68BEUK+44(0)1628421506@2gc.co.ukIntegratingRiskManagementwithexistingmethodsofStrategicControl:AvoidingduplicationwithintheCorporateGovernanceagenda2GCConferencePaperAnoriginalpaperbyG.J.GLawrie,D.C.KalffandH.V.Andersenpresentedat6thInternationalConferenceonCorporateGovernanceandBoardLeadershipheldatHenleyManagementCollege,UK,inAugust2003.©20032GCLtd.Allrightsreserved.Thisdocumentisprotectedundercopyrightby2GCLtd.Thefollowingtermsandconditionsapplytoitsuse:Photocopying-singlephotocopiesmaybemadeforpersonaluseasallowedbynationalcopyrightlaws.Permissionfrom2GCandpaymentofafeeisrequiredforallotherphotocopying,includingmultipleorsystematiccopying,copyingforadvertisingorpromotionalpurposes,resale,andallformsofdocumentdelivery;DerivativeWorks–Permissionfrom2GCisrequiredforallderivativeworks,includingcompilationsandtranslations;ElectronicStorageorUsage-Permissionfrom2GCisrequiredtostoreoruseelectronicallyanymaterialcontainedinthisdocument.Exceptasoutlinedabove,nopartofthisdocumentmaybereproduced,storedinaretrievalsystemortransmittedinanyformorbyanymeans,electronic,mechanical,photocopying,recordingorotherwise,withoutpriorwrittenpermissionofthe2GCLimited.RiskManagementandStrategicControl:AvoidingduplicationofeffortPage1of16©2GCLimited,2003.Allrightsreserved.2GCConferencePaperAbstractThispaperconsiderstheoverlapbetweenrecentdiscussionsrelatingtoRiskManagementandthewiderliteraturerelatingtoCorporateGovernance,particularlyasitappliestoissuesofstrategiccontrol.Thepaperobservesthatcorporateperformancemanagementmethodologiesarenowinwidespreadusebybothprivateandpublicsectororganisations,andthattheseformakeypartofthetoolsusedbyManagementBoardstoaffectstrategiccontrol.Italsoobservesthatrecentinterestinriskmanagementhasleadtothecreationofriskmanagementtools/methodsthattypicallyhavebeendevelopedinparalleltoexistingperformancemanagementsystems.ThepapernotesthatperformancemanagementsystemsintendedforuseatBoardlevelalreadyhavemuchincommon,bothindesignandusage,withproposalsforbestpracticeRiskManagementprocessessuggestingthattheuseoftwodistinctsystemsisnotoptimal.Drawingonexistingperformanceandriskmanagementliterature,andonthecasebasedexperiencesofpublicsectororganisationsinAustraliaandEuropeweproposeanalternativetothedevelopmentofparallelcontrolsystems.Theproposedintegratesdistinctdesignprocessesforeachofthetwosystems,andsupportstheirsubsequentintegrationforongoingusage.Wesuggestthatthisapproachwilldeliversignificantefficiencybenefitstoseniormanagers,whileretainingtheeffectivenessofseparatesystems.RiskManagementandStrategicControl:AvoidingduplicationofeffortPage2of16©2GCLimited,2003.Allrightsreserved.IntroductionThewidely-heldperceptionintheAnglo-Saxoneconomiesthattoday’sbusinessenvironmentismorevolatile,faster-evolvingandthereforelesspredictablethaninthepasthashadprofoundimpactsonboththeregulatorylandscapeandthemanagementagenda.Regulatorshavebeenincreasinglyactiveinpassingnewlegislationintendedtoimprovecorporategovernanceinitsbroadestdefinition,butwithparticularfocusonthemanagementofrisk.InthefinancialservicesindustrythissituationisevenmorenoticeablewithlegislativecompliancebeingacoreprocessforBoardsinthissectorandaparticularformofriskmanagement,whichisnotthesubjectofthispaper.Adivisionexistsbetweenrisksthatarebothunmitigatableandexogenous(e.g.unpredictablecatastrophes)andthosethatrelatetothepoorexecutionofmanagerialcontrolwithinanorganisation(e.g.failuretomaintainsafeworkingpracticesinafactory).Thislatergroupofrisksarelargely(butnotexclusively)endogenous.Akeyelementofourpropositionisthatthemanagementofendogenousrisks(e.g.systemsfailure,lossofkeyexecutives,etc.)isbynecessityanintegralpartofcorporateperformancemanagement,whereasmanagingexogenousorexternalrisks(e.g.impactoflegislativechanges,abnormalweatherpatterns,etc.)isprincipallyamatterofensuringthatcontingencyplanningiscarriedoutonaperiodicorcampaignbasistoanticipateandmitigatethemostcatastrophicpossiblescenarios.Thispaperaddressesprimarilytheformerelementofthisdivision.Thispaperproposesthattheimplementationofanynewapproachtoriskmanagementneedstoberegardedandtreatedasanamendmenttoexistingapproachestocorporateperformancemanagementandthatthoseworkingontheseapproachesindistinctseparate“silos”shouldbebroughttogether.Thepropositionrequiresthatarobustapproachtocorporateperformancemanagementalreadyexistsandisbeingusedeffectively.Wherethisisnotthecase,itisrecommendedthatimplementinganeworimprovedapproachtocorporateperformancemanagementneedstoprecedeanyotherinvestmentinriskmanagementsystems.Thisproposition,wewillargue,isnecessitatedbythecloseaffinitybetweenriskmanagementandcorporateperformancemanagementorstrategiccontrol(Hoffman,2002).Asstrategicchoicesdefineanorganisation’sexposuretoriskaswellthedegreeofacceptablerisk,aninherentpartofthisprocessmustbetheprioritisationofriskmitigatingactivitiesinthecontextofstrategicchoicesingeneral.ExistingthinkingonconceptsofCorporateGovernance,StrategicControl&RiskManagementRis