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Extended Enterprise: Managing Risk in Complex 21St Century Organisations Resources for Practitioners Our Supporters Institute of Risk Management Extended Enterprise: Managing risk in complex 21st century organisations Resources for practitioners Our supporters ©2014 The Institute of Risk Management. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the express permission of the copyright owner. Permission will generally be granted for use of the material from this document on condition that the source is clearly credited as being the Institute of Risk Management. IRM does not necessarily endorse the views expressed or the products described by individual authors within this document. extended enterprise resources for practitioners Contents Our Project Team ............................................................................................................................................................................ 2 Foreword ....................................................................................................................................................................................... 3 Chapter 1: Extended enterprise - an overview ......................................................................................................................... 4 Chapter 2: Modelling the extended enterprise ..................................................................................................................... 14 Chapter 3: Leadership, management and governance in the extended enterprise ......................................................... 26 Chapter 4: Assurance for the extended enterprise ............................................................................................................... 36 Chapter 5: Questions for the Board......................................................................................................................................... 38 Chapter 6: Building trust across an extended enterprise ..................................................................................................... 43 Chapter 7: Risk, innovation and the extended enterprise .................................................................................................... 53 Chapter 8: Partnerships, collaboration and shared services in the public and third sectors ........................................... 67 Chapter 9: Risk capability in the extended enterprise .......................................................................................................... 80 Chapter 10: Risk communication in the 21st Century extended enterprise ....................................................................... 85 Chapter 11: Standards and assurance ..................................................................................................................................... 95 Chapter 12: Supplier assurance - advancing from assessment to risk management ......................................................103 Chapter 13: IT and cloud computing .....................................................................................................................................108 Chapter 14: A practical approach to managing supply chain for the sector-level extended enterprise ......................115 Chapter 15: Relationship risk management: perception or pragmatism ..........................................................................122 Case study 1: Joint risk management for mutual benefit ....................................................................................................126 Case study 2: Heathrow Terminal 5 - a new paradigm for major programme risk management ...................................127 Case study 3: Total Place - whole systems leadership .........................................................................................................133 1 extended enterprise resources for practitioners Our project team IRM would like to thank our own extended enterprise which has come together to draft and review this guidance. Those that took on the task of writing individual chapters and case study authors are also named against their sections. Neil Allan SIRM, Systemic Consult Ltd & University of Bristol, UK Richard Anderson FIRM, Anderson Risk, UK, IRM Chairman Mike Bartlett FIRM, Network Rail, UK Jeremy Bendall, Bendall Advisory, NZ Darren Brooks, BAE Applied Intelligence, UK Andy Bulgin FIRM, AB Risk Consulting, UK Philip Coley CIRM, Zurich Risk Engineering, UK Colette Dark MIRM, Gallagher Bassett, UK Christos Ellinas, Systemic Consult Ltd & University of Bristol, UK Depeche Elliot SIRM, Maclear SA Dean Fathers, Cass Business School & Nottinghamshire Healthcare, UK Steve Fowler FIRM, IRM, UK Roger Garrini, IRM Affiliate, Selex ES, UK Sarah Gordon CIRM, Satarla, UK and South Africa Louise Gravina, IRM Affiliate, Sainsbury’s, UK Jeremy Harrison FIRM, IRM, UK David E Hawkins, Institute for Collaborative Working, UK Richard Hibbert, SureCloud, UK Alex Hindson FIRM, Amlin AG, Switzerland John Joyce SIRM, Allianz Insurance, UK Patrick Kiryowa, IRM Student, Eskom Uganda Mike Morley Fletcher, IRM Affiliate, ARC & Associates, UK Peter Neville-Lewis MIRM, Principled Consulting, UK Jeremy Philpott MIRM, Lloyd’s Banking Group, UK Dan Roberts SIRM, First Central Insurance Management, UK Keith Smith FIRM, RiskCovered, UK, IRM Director ManMohan Sodhi, Cass Business School, UK Jake Storey, IRM Affiliate, Gearbulk, UK Amelia Stubbs, IRM Affiliate, Korn Ferry Whitehead Mann, UK IRM Director Colin Tester SIRM, AXA, UK John Thirlwell, Institute of Operational Risk, UK Steve Treece FIRM, Health & Social Care Information Centre, UK Elliot Varnell, IRM Affiliate, Pension Insurance Corporation, UK David Welbourn, Eutropia Ltd and Cass Business School (Visitor), UK Nick Wildgoose, Zurich, UK Carolyn Williams MIRM, IRM, UK Thanks also to many others who have helped with resources, comments, references and support and who responded to our consultation documents. 2 extended enterprise resources for practitioners Foreword Each year the Institute of Risk Management (the IRM) to extend beyond the areas within the organisation’s undertakes a major study expanding the limits of immediate control. Our study looks at how these understanding and consensus about risk management. issues interact and explores some tools and Previously we have produced critically welcomed techniques that can help us understand and address guidance on Risk Appetite and Tolerance, on Risk the extended enterprise challenge. Culture and on Cyber Risk. This document - ‘Resources for Practitioners’ comprises This time we are examining how we manage risk in a series of chapters written by different members of today’s complex organisations, their value chains and our project group. Some chapters provide academic networks of relationships - what many call the ‘extended analysis; others focus on highly practical applications enterprise’. We’re looking at how all organisations are and experience. affected by the way that others in their value chain and network manage risk and the complexities that can arise The group has also produced a shorter document from these relationships. which distils the contents of this detailed resource pack into an executive summary with a particular I am grateful to the IRM members and other experts (all focus on the questions that boards, assisted by their named in this document) who came together to produce risk professionals, should be asking about risk in their this work over the past 18 months. I would also like to own extended enterprises. This executive summary is thank the wider group of IRM members, practitioners and available for free download from IRM’s website and academics who have commented on the work, attended those of its partner organisations for this project. our workshops and otherwise supported the group. As with all our thought leadership work, we have tackled Extended enterprise is about far more than ‘supply a new subject where practice is still being developed. chain risk management’ (although that is an important We have suggestions to make, based on practitioner component): we are looking beyond supply into and academic input, but we don’t believe this will be the the complex network of relationships that underpin last word on the subject - we expect to see new ideas public and private economic activity in modern emerging and welcome comments. economies. In fact our work grew to focus on the nature of complex 21st century organisations in a Thanks are also due to our very patient sponsors, world of ‘VUCA’ (volatility, uncertainty, complexity SureCloud. As well as contributing their expertise and ambiguity) and how risk can be managed in that to the content, their support has made possible the context. Outsourced services, IT security, supplier design and print of these documents. As a not for profit assessments, joint ventures and partnerships, organisation, IRM is reliant on enlightened industry alliances and informal arrangements, together with support like this to help us maximise our investment in the speed of change can all present challenges. And the development and delivery of world-class education management of risk in the value chain can only ever and professional development activities. be as effective as the management of the weakest link Richard Anderson, Chairman in it. Likewise, concern about values and ethics needs SureCloud is proud to support this thought-provoking study which
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