Risk 6

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About …
Risk ManagementRisk ManagementRisk ManagementRisk Management

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What is Risk Management?What is Risk Management?What is Risk Management?What is Risk Management?
Who uses Risk Management?Who uses Risk Management?Who uses Risk Management?Who uses Risk Management?
How is Risk Management used?How is Risk Management used?How is Risk Management used?How is Risk Management used?
Risk Management in CustomsRisk Management in CustomsRisk Management in CustomsRisk Management in Customs
How do you use it in Customs?How do you use it in Customs?How do you use it in Customs?How do you use it in Customs?

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• Good management practice
• Process steps that enable improvement
in decision making
• A logical and systematic approach
• Identifying opportunities
• Avoiding or minimising losses

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Risk Management is the name given
to a logical and systematic method
of identifying, analysing, treating
and monitoring the risks involved in
any activity or process.

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Risk Management is a
methodology that helps managers
make best use of their available
resources

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Risk Management
practices are widely used
in public and the private
sectors, covering a wide
range of activities or
operations.
These include:
• Finance and
Investment
• Insurance
• Health Care
• Public
Institutions
• Governments
• Finance and
Investment
• Insurance
• Health Care
• Public
Institutions
• Governments

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• Effective Risk ManagementEffective Risk Management
is a recognised and valued skill.
• Educational institutions have formal
study courses and award degrees in Risk
Management.
• The Risk Management process is well
established. (International RM process
standards.)

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Risk Management is
now an integral part of business
planning.

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The Risk Management
process steps are a
generic guide for
any organisation,
regardless of the
type of business,
activity or function.
How is Risk Management used?How is Risk Management used?How is Risk Management used?How is Risk Management used?
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There are
77 steps
in the RM
process

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The basic process steps are:
Establish the contextEstablish the context
Identify the risksIdentify the risks
Analyse the risksAnalyse the risks
Evaluate the risksEvaluate the risks
Treat the risksTreat the risks

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‘Risk’ is dynamic and subject to constant
change, so the process includes
continuing:
Communication & consultationCommunication & consultation
Monitoring and reviewMonitoring and review
and

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The Risk Management process:
The strategic and organisational context
in which risk management will take
place.
For example, the nature of your
business, the risks inherent in your
business and your priorities.
Communicate & consultCommunicate & consult

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Monitor and reviewMonitor and review
Defining types of risk, for instance,
‘Strategic’ risks to the goals and
objectives of the organisation.
• Identifying the stakeholders, (i.e.,who
is involved or affected).
• Past events, future developments.

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How likely is the risk event to happen?
(Probability and frequency?)
What would be the impact, cost or
consequences of that event occurring?
(Economic, political, social?)

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Rank the risks according to
management priorities, by risk
category and rated by likelihood and
possible cost or consequence.
Determine inherent levels of risk.

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Develop and implement a plan with specific
counter-measures to address the
identified risks.
Consider:
• Priorities (Strategic and operational)
• Resources (human, financial and technical)
• Risk acceptance, (i.e., low risks)

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Document your risk management plan and
describe the reasons behind selecting the
risk and for the treatment chosen.
Record allocated responsibilities, monitoring
or evaluation processes, and assumptions on
residual risk.

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Risk Management policies and decisions
must be regularly reviewed.
Risk Management policies and decisions
must be regularly reviewed.
In identifying, prioritising and treating risks,
organisations make assumptions and decisions
based on situations that are subject to
change, (e.g., the business environment,
trading patterns, or government policies).

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Risk Managers must monitor activities and
processes to determine the accuracy of
planning assumptions and the effectiveness
of the measures taken to treat the risk.
Methods can include data evaluation,
audit, compliance measurement.

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Monitoringandreview
Monitoringandreview
Communication&consultation
Communication&consultation

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Customs administrations have turned
increasingly to Risk Management as an
effective means of meeting national
objectives.
Administrations provide facilitation while
maintaining control over the international
movement of goods and persons.
Risk management helps in matching CustomsRisk management helps in matching Customs
priorities to resources.priorities to resources.

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International Organisations encourage andInternational Organisations encourage and
support the adoption of modern Customssupport the adoption of modern Customs
control techniques, using Risk Managementcontrol techniques, using Risk Management
principles., e.g.,principles., e.g.,
• WTO/Kyoto Convention.WTO/Kyoto Convention.
• APEC Sub-Committee on CustomsAPEC Sub-Committee on Customs
Procedures.Procedures.
• Transport Industry representative bodies.Transport Industry representative bodies.

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Risk management within Customs can beRisk management within Customs can be
strategic, operational or tactical.strategic, operational or tactical.
Strategic:Strategic: Risks to
Customs goals and objectives,
e.g.,prohibitions and
restrictions, (social or
economic), health,
revenue, environment.
Strategic:Strategic: Risks to
Customs goals and objectives,
e.g.,prohibitions and
restrictions, (social or
economic), health,
revenue, environment.
- usually longer term strategies
- usually longer term strategies

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Operational:Operational: Decisions
and action plans
on measures taken to deal
with the assessed risks.
Deployment of resources;
monitoring and review.
Operational:Operational: Decisions
and action plans
on measures taken to deal
with the assessed risks.
Deployment of resources;
monitoring and review.- medium term strategies
- medium term strategies

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Tactical:Tactical: Used by
officers at their workplace,
to deal with immediate
situations, working within
set parameters and
to approved procedures.
Tactical:Tactical: Used by
officers at their workplace,
to deal with immediate
situations, working within
set parameters and
to approved procedures.
- short term strategies
- short term strategies

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• Economic benefits, by facilitating theEconomic benefits, by facilitating the
movement of goods, ships, aircraft andmovement of goods, ships, aircraft and
people – when rated low risk.people – when rated low risk.
• Makes more effective use of existing skillsMakes more effective use of existing skills
and experience – giving better results.and experience – giving better results.
• Improves the quality of Customs controls –Improves the quality of Customs controls –
information and accountability.information and accountability.
Why you should use Risk Management:Why you should use Risk Management:

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The process helps AdministrationsThe process helps Administrations
focus on priorities and in decisions onfocus on priorities and in decisions on
deploying limited resources to deal withdeploying limited resources to deal with
the highest risks.the highest risks.
Why you should use Risk Management:Why you should use Risk Management:

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The first step is to look at your CustomsThe first step is to look at your Customs
context.context.
• What is the role of Customs?What is the role of Customs?
• What are your national priorities and theWhat are your national priorities and the
expectations of the government and theexpectations of the government and the
public?public?
• What is the nature of your operationalWhat is the nature of your operational
environment?environment?
Where do you start?Where do you start?Where do you start?Where do you start?

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The next steps in the Risk ManagementThe next steps in the Risk Management
process are to:-process are to:-
• Identify the risksIdentify the risks
• Analyse the risks; andAnalyse the risks; and
• Evaluate the risks,Evaluate the risks,
…… but, if you are just starting on Riskbut, if you are just starting on Risk
Management planning:Management planning:
Where does the information come from?Where does the information come from?Where does the information come from?Where does the information come from?
Who does this?Who does this?

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Responsibilities must be allocated:Responsibilities must be allocated:
•Appoint a Risk Management champion withAppoint a Risk Management champion with
appropriate qualifications, includingappropriate qualifications, including
experience and analytical skills.experience and analytical skills.
•Form a Risk Management Committee,Form a Risk Management Committee,
representative of operational areas.representative of operational areas.
•Conduct Risk Management Workshops.Conduct Risk Management Workshops.
•Determine operating procedures.Determine operating procedures.
Who does the Risk Assessment?Who does the Risk Assessment?Who does the Risk Assessment?Who does the Risk Assessment?

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1.1. Identify commodity or control risks;Identify commodity or control risks;
e.g., high duty rates or quantitye.g., high duty rates or quantity
controls, the demand for prohibitedcontrols, the demand for prohibited
goods, such as drugs, pornography,goods, such as drugs, pornography,
traffic in CITES wildlife.traffic in CITES wildlife.
2.2. Research existing databases andResearch existing databases and
records on commodity and traderrecords on commodity and trader
histories.histories.
3.3. Evaluate current procedures to identifyEvaluate current procedures to identify
potential control weaknesses.potential control weaknesses.
Sources of information for Risk AssessmentsSources of information for Risk AssessmentsSources of information for Risk AssessmentsSources of information for Risk Assessments

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After identifying and analysingAfter identifying and analysing
the risks, you can evaluate.the risks, you can evaluate.
• What is the likelihood of the riskWhat is the likelihood of the risk
event occurring?event occurring?
Evaluate the risksEvaluate the risksEvaluate the risksEvaluate the risks
•Almost certainAlmost certain
•LikelyLikely
•ModerateModerate
•UnlikelyUnlikely
•Rare?Rare?
•Almost certainAlmost certain
•LikelyLikely
•ModerateModerate
•UnlikelyUnlikely
•Rare?Rare?
What is theWhat is the
consequenceconsequence
if the riskif the risk
eventevent
occurs?occurs?
What is theWhat is the
consequenceconsequence
if the riskif the risk
eventevent
occurs?occurs?
•ExtremeExtreme
•Very highVery high
•ModerateModerate
•LowLow
•Negligible?Negligible?
•ExtremeExtreme
•Very highVery high
•ModerateModerate
•LowLow
•Negligible?Negligible?

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You need to describe or to quantifyYou need to describe or to quantify
exactly what the ‘Likelihood’ andexactly what the ‘Likelihood’ and
‘Consequence’ terms means to you.‘Consequence’ terms means to you.
This helps in ensuring a consistentThis helps in ensuring a consistent
approach in future risk assessment andapproach in future risk assessment and
review and monitoring.review and monitoring.
It promotes a common understandingIt promotes a common understanding
within the Administration.within the Administration.

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After establishing ‘After establishing ‘LikelihoodLikelihood’ and’ and
‘‘ConsequenceConsequence’ you can use a table like’ you can use a table like
this to set a level of risk.this to set a level of risk.
Extreme Very high Moderate Low Negligible
Almost
certain
Severe Severe High Major Moderate
Likely Severe High Major Significant Moderate
Moderate High Major Significant Moderate Low
Unlikely Major Significant Moderate Low Very low
Rare Significant Moderate Low Very low Very Low
You must define what these risk levels mean toYou must define what these risk levels mean to
you.you.
You must define what these risk levels mean toYou must define what these risk levels mean to
you.you.

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Low and very low level risks can normallyLow and very low level risks can normally
be accepted, subject to on-goingbe accepted, subject to on-going
monitoring.monitoring.
All other risks are included in theAll other risks are included in the
management plan.management plan.
The plan catalogues the risks, the level ofThe plan catalogues the risks, the level of
risk, and describes a treatment.risk, and describes a treatment.
The treatment is the action proposed,The treatment is the action proposed,
(and perhaps the resources allocated).(and perhaps the resources allocated).
Treating the risksTreating the risksTreating the risksTreating the risks

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Targeted
selections
Targeted
selections
Development ofDevelopment of
Risk Profiles
Development ofDevelopment of
Risk Profiles
PhysicalPhysical
examinationexamination
PhysicalPhysical
examinationexaminationIndustry auditsIndustry audits
RandomRandom
examinationsexaminations
RandomRandom
examinationsexaminations
Compliance
improvement
Compliance
improvement

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A common method of treating risks is to
develop risk profiling and targeting
systems.
This means – in the case of goods –
selecting transactions for specific
checks, according to trader, agent,
origin of goods, commodity code, duty
rate, routing, value, etc.

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Risk Profiles are developed as a means of
putting risk management into practice at
the Operational level.
A Risk Profile is normally specific to a
Customs office. It describes:
• The risk areas
• Assessment of the level of risk
• The countermeasures adopted
• Activation date and review dates
• Means of measuring effectiveness.
A Risk Profile is normally specific to a
Customs office. It describes:
• The risk areas
• Assessment of the level of risk
• The countermeasures adopted
• Activation date and review dates
• Means of measuring effectiveness.

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Using the profile information, consignments
of goods, means of transport and people
are targeted.
The profile information is used as the
basis for Selection Criteria.
Documents received and processed
by Customs, i.e., cargo and
passenger manifests, goods
declarations, are compared
against the Selection Criteria
Documents received and processed
by Customs, i.e., cargo and
passenger manifests, goods
declarations, are compared
against the Selection Criteria
Selection
Criteria
Selection
Criteria

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Selections are made by manual checks of
documents, or by using automated systems.
Selected transactions or movements are
subject to the actions detailed in the profile
or plan, e.g., physical examination, audit, etc.
Selection
Criteria
Selection
Criteria
Documents
and Data
Documents
and Data
Selected
movements
Selected
movements

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Monitor & ReviewMonitor & ReviewMonitor & ReviewMonitor & Review
The initial assessment made of the
existence and level of risks must be
evaluated on a regular basis.
You need to measure the effectiveness
of risk profiles and update as necessary.
• Reliable reporting of examination resultsReliable reporting of examination results• Reliable reporting of examination resultsReliable reporting of examination results
• Compliance measurement activitiesCompliance measurement activities• Compliance measurement activitiesCompliance measurement activities
• Feedback from the business communityFeedback from the business community• Feedback from the business communityFeedback from the business community
• Results analysis and data comparisonsResults analysis and data comparisons• Results analysis and data comparisonsResults analysis and data comparisons

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The starting point is theThe starting point is the Action PlanAction Plan::
1.1. Allocate responsibilities, e.g., a RiskAllocate responsibilities, e.g., a Risk
Management Champion and a working party.Management Champion and a working party.
2.2. Evaluate how Risk Management processesEvaluate how Risk Management processes
can be best applied incan be best applied in youryour nationalnational
environment.environment.
3.3. Survey existing skills and do a trainingSurvey existing skills and do a training
needs assessment.needs assessment.
4.4. Catalogue existing sources of data orCatalogue existing sources of data or
information that can help in identifyinginformation that can help in identifying
risks.risks.
Using Risk ManagementUsing Risk ManagementUsing Risk ManagementUsing Risk Management

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5.5. Flow chart existing processes.Flow chart existing processes.
6.6. Communicate and consult – within Customs,Communicate and consult – within Customs,
with other Agencies, the trading communitywith other Agencies, the trading community
and transport industry.and transport industry.
7.7. Obtain IT tools or set up processes forObtain IT tools or set up processes for
effectively operating a selectivity system.effectively operating a selectivity system.
8.8. Provide training in profiling/selectivity skills.Provide training in profiling/selectivity skills.
9.9. Test and gain confidence in the RiskTest and gain confidence in the Risk
Management process.Management process.
Using Risk ManagementUsing Risk ManagementUsing Risk ManagementUsing Risk Management

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This presentation endeavors to coverThis presentation endeavors to cover
briefly the concepts and the benefitsbriefly the concepts and the benefits
of using Risk Management practices,of using Risk Management practices,
particularly within Customsparticularly within Customs
Administrations.Administrations.
The processes and the many controlThe processes and the many control
options deserve further study, andoptions deserve further study, and
many other sources of information onmany other sources of information on
this topic are available.this topic are available.
ControlControl ANDAND FacilitationFacilitationControlControl ANDAND FacilitationFacilitation
By.. Risk ManagementBy.. Risk ManagementBy.. Risk ManagementBy.. Risk ManagementEndEndEndEnd

Risk 6

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Risk 6