Managing Risk for Sustainable Business by Dr David Hillson

Copyright © 2021, The Risk Doctor Partnership
MANAGING RISK FOR SUSTAINABLE BUSINESS
Dr David Hillson, The Risk Doctor
© Copyright 2021, The Risk Doctor Partnership, Slide 1
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MANAGING RISK FOR
SUSTAINABLE BUSINESS:
A practical approach
Presented by
Dr David Hillson
PMI Fellow, HonFAPM, CFIRM
The Risk Doctor The Risk Doctor Partnership
david@risk-doctor.com www.risk-doctor.com
2021
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Key questions
What drives sustainability?
Timely availability of necessary resources in required
quantity and quality
What makes a business sustainable?
Manages necessary resources in a way that avoids
long-term depletion, and ideally adds to the resource
pool in future
“Conserve and enhance”
What is sustainability?
“Meeting the needs of the present without compromising
the ability to meet the needs of the future”
(UN Brundtland Commission, 1987)

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Defining sustainability risk
“The effect of uncertainty on sustainability” ?
“Any uncertainty that can affect timely availability of
necessary resources in required quantity and quality” ?
No!
A business & its projects exist to meet their objectives
Risk is any uncertainty that, if it occurs, will affect
achievement of objectives

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Defining sustainability risk
Risk is:
Any uncertainty
that, if it occurs,
will affect achievement of objectives
Sustainability risk is:
in availability of necessary resources
Availability of necessary resources is a risk to the business,
not an impact type
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Sustainability Risk Management
Like standard risk management, but three essential prior steps:
1. Link strategic objectives with “necessary resources”
2. Determine which resources are most vulnerable
3. Set risk assessment criteria to reflect effect of resources on objectives
 We should know our objectives (?!)
 SMART?
 Agreed, communicated, understood?
 But how do we know which resources are “necessary”?

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1. Framework for identifying resources
RSA Tomorrow’s Company/Forum for the Future (2007)
Five Capitals Model [https://www.forumforthefuture.org/the-five-capitals]
Provides a basis for understanding sustainability in terms of the
economic concept of wealth creation or ‘capital’
Any organisation will use five types of ‘capital’ to deliver its products
or services: Natural, Human, Social, Manufactured, Financial
A sustainable organisation will maintain and where possible enhance
these stocks of capital assets, rather than deplete or degrade them
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Five Capitals Model
Source: ACE Report “Measures for successful outcomes: The Five Capitals approach” (April 2020)
Sustainable
business
1. Framework for identifying resources

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1. Link resources to objectives
For each strategic objective:
Take each of the Five Capitals in turn
Decompose into sufficient detail: What specific resources must we
have in order to achieve this objective?
OBJECTIVE 1 OBJECTIVE 2 OBJECTIVE 3
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1. Link resources to objectives
Examples
CapEx, OpEx, shareholder funds, bonds, bank loans, cash reserves…
Raw materials (steel, timber…), fuel (electricity, gas…), water, air…
Knowledge, skills, energy, motivation, commitment, wellbeing…
Factories, offices, comms, IT services, infrastructure, transport…
Supply chain, partners, trades unions, NGOs, community goodwill…

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2. Determining vulnerable resources
Vulnerability assessment, using two dimensions
(LACK
OF)
AVAILABILITY
CRITICALITY
HI (4)
SEVERELY
LIMITED
MED (3)
CONSTRAINED
LO (2)
GENERALLY
AVAILABLE
VLO (1)
UNRESTRICTED
VLO (1)
NON-ESSENTIAL
MED (5)
REQUIRED
LO (3)
IMPORTANT
HI (7)
BUSINESS-
CRITICAL
1 3 5 7
2 6 10 14
3 9 15 21
4 12 20 28
CRITICALITY (LACK OF) AVAILABILITY
VLO (1)
Non-essential. The
business can function well
even if this resource is
limited or absent.
VLO (1)
Unrestricted. This
resource is freely available
in the quantity and quality
required.
LO (3)
Important. Lack of this
resource would impose
some limitations on
performance.
LO (2)
Generally available. In
normal times, there are no
restrictions in supply of this
resource.
MED (5)
Required. Significant
difficulties would arise if
this resource was limited.
MED (3)
Constrained. Some
conditions exist that limit
availability of this resource.
HI (7)
Business-critical. The
business is unable to
perform in the absence of
this resource.
HI (4)
Severely limited. Special
arrangements are required
to obtain this resource.
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3. Set risk assessment criteria
 Select relevant measures to reflect effect of resource on objectives
 Turn these into impact scales
 Specific example (mining company)
FINANCIAL
PERFORMANCE
PROJECT
PERFORMANCE
OPERATIONS LEGAL/COMPLIANCE
HEALTH &
SAFETY
ENVIRONMENT
STAKEHOLDER
RELATIONS
Core operating
margin
Cash generation
from operations
Working capital
Net cash
Total asset base
Schedule variance
Cost variance
Project scope
change
Variation in project
ROI
Production levels
Productivity rate
Critical systems
availability
Energy usage
Water usage
Systems & services
availability
Facility closure due to
non-compliance
Legal fines
Potential civil liability
Death, disability
or lost time
injuries (LTI)
Occupational
exposures
Occupational
diseases
Reportable
environmental
incidents
Media attention
Stakeholder
relations
Local community
relations
Analyst ratings

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FINANCIAL
PERFORMANCE
PROJECT
PERFORMANCE
OPERATIONS LEGAL/COMPLIANCE
HEALTH &
SAFETY
ENVIRONMENT
STAKEHOLDER
RELATIONS
LOW
(1)
<0.5% change in
core operating
margin
<1% change in cash
generation from
operations
<0.25% change in
working capital
<1% change in total
asset base
<1% variation in
remaining project
schedule
<1% variation in
total project costs
<1% change in
project scope
elements
<1% variation on
project ROI
<1% variation in
production
<1% variation in
productivity
Loss of non-critical
systems for <½ day
(without data loss)
No non-compliance
directives
No legal fines
Zero civil liability
Only minor
injuries requiring
first aid
treatment
Only non-reportable
environmental
incidents
Local media
attention lasting <1
week
No change in local
community relations
MED
(3)
1-2% change in
core operating
margin
2-5% change in
cash generation
from operations
0.5-1% change in
working capital
2-5% change in
total asset base
2-5% variation in
remaining project
schedule
2-5% variation in
total project costs
2-5% change in key
project scope
elements
2-5% variation on
project ROI
2-5% variation in
production
2-5% variation in
productivity
Loss of critical
systems for 1-2 days
(without data loss)
Temporary facility
closure due to non-
compliance
Legal fines between
$1-5M
Potential civil liability
Lost time injuries
(LTI) with no
irreversible loss
of quality of life
Level 2 reportable
environmental
incident resulting in
moderate
environmental
effect and/or short-
term reversible
ecological
disturbance
National media
attention lasting
less than one week
Local media
attention lasting 1-2
weeks
Temporary change
(<4 weeks) in local
community relations
VHI
(5)
>5% change in core
operating margin
>10% change in
cash generation
from operations
>2% change in
working capital
>10% change in
total asset base
>10% variation in
remaining project
schedule
>10% variation in
total project costs
>10% change in
key project scope
elements
>10% variation on
project ROI
>10% variation in
production
>10% variation in
productivity
Loss of critical
systems for >5 days
and/or irrecoverable
data loss
Permanent facility
closure due to non-
compliance
Legal fines >$10M
Unacceptable civil
liability
Death or
multiple
permanent
disabilities
Level 3 reportable
environmental
incident resulting in
extreme
environmental
effect and/or
irreversible
ecological
disturbance
International media
attention lasting >1
week
National & local
media attention
lasting >2 weeks
Permanent change
in local community
relations
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Sustainability Risk Management
Then
Identify risks to vulnerable resources that would affect objectives (+/–)
Prioritise
Quantify & model where appropriate
Plan & implement responses
Review & update
Like standard risk management, but three essential prior steps:
1. Link strategic objectives with “necessary resources”
2. Determine which resources are most vulnerable
3. Set risk assessment criteria to reflect effect of resources on objectives

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Extending to projects/programmes
Strategic business-level risk
assessment criteria reflect
corporate risk appetite
Risk thresholds at lower levels
must be coherent & aligned
with corporate level
Develop lower-level risk
assessment criteria to support
tactical risk management
INTERMEDIATE
[PORTFOLIO/PROGRAMME]
LEVELS
PROJECT/OPERATIONAL LEVEL
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FINAL THOUGHTS

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“Sustainability is A Good Thing”
Ability to achieve sustainability is uncertain
Sustainability Risk Management
Define sustainability in measurable terms for your business
Map “Five Capitals” to strategic objectives  risk assessment criteria
Perform vulnerability assessment
Manage risks to key vulnerabilities (threats & opportunities)
Outcomes  Sustainable businesses, projects, future
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Over to you...
New ideas: “blah blah blah” or valuable insights?
Ensuring sustainable business requires hard
thinking and work
Turn framework into reality
What will you do differently?

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Thank you
Any questions?
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For further information
Dr David Hillson
The Risk Doctor Partnership
+44(0)7717.665222
david@risk-doctor.com
www.risk-doctor.com
YouTube.com/RiskDoctorVideo
2021

Managing Risk for Sustainable Business by Dr David Hillson

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