Risk engineering decision tools for risk management support
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This document discusses risk engineering decision tools from AXA MATRIX Risk Consultants for industrial risk managers. AXA MATRIX provides risk assessment and management support services worldwide with over 150 consultants in 18 countries. They have over 35 years of experience working with over 200 corporate customers. The document introduces several of AXA MATRIX's tools to help risk managers with multi-peril risk analysis, loss prevention investments optimization, and control of exposures to reduce potential losses. In particular, it describes the ISORISK tool, which evaluates risk levels at production plant sites through a matrix of severity and vulnerability parameters to identify risk priorities.
![ISORISK™: methodology
ISORISK™ objective is to define Severity and Probability
parameters for each plant of the industrial
group, in order to display it on a global risk
map for each assessed risk.
For a given peril
80
Plant E
70
Plant A
60
Area C Plant B
50
Plant C
Severity [M€]
Plant D
40
Plant C
Area B Plant E
30
Limit between A - B areas
20 Plant B Plant D Limit between B - C areas
10 Area A Plant A
0
0 10 20 30 40 50 60 70 80 90 100
Vulnerability
Davos - 29/08/2012](https://image.slidesharecdn.com/axamatrix-davos2012-c-120829082752-phpapp01/85/Risk-engineering-decision-tools-for-risk-management-support-11-320.jpg)
![CITRAN™: definition
Critical investments to reach acceptable NLE (CITRAN ™)
While the ISORISKTM mapping system is created to identify the “top risks” and associated “top
improvements”, the CITRANTM curves point out the impact of each loss prevention
recommendation (Loss Expectancy reduction) and the required investment (cost to complete).
. 60
Rec. N. 1
50
Rec. N. 2
40 Rec. N. 3
NLE [M€]
30
Rec. N. 4
20 Rec. N. 5
Rec. N. 6
10
Normal Loss Expectancy
0
0 10 20 30 40 50 60 70 80
Investments [K€]
Cost to complete
Davos - 29/08/2012](https://image.slidesharecdn.com/axamatrix-davos2012-c-120829082752-phpapp01/85/Risk-engineering-decision-tools-for-risk-management-support-16-320.jpg)
![CITRAN™ : methodology
60
Rec. N. 1 Initial Loss Expectancy
50
Rec. N. 2
Rec. N. 3 Delta LE
Rec. N. 3 Post investment Loss Expectancy
40
NLE [M€]
30
Rec. N. 4
Rec. N. 4
20 Rec. N. 5
Rec. N. 6
Rec. N. 5
10 Rec. N. 6
Cost of Recommandations 1 + 2
0
0 10 20 30 40 50 60 70 80
Investments [K€]
By considering an investment based on recommendation 1 and 2, CITRAN curve shifts to the left side,
according to a quantity equal to the investment and later it shifts to the bottom side according to the difference
between Loss Expectancy based on recommendation 1 and 2.
The slope of the curve represents the measure of action effectiveness; it is the result
of loss expectancy mitigation and recommendation implementation cost ratio.
Davos - 29/08/2012](https://image.slidesharecdn.com/axamatrix-davos2012-c-120829082752-phpapp01/85/Risk-engineering-decision-tools-for-risk-management-support-17-320.jpg)
![ISORISK™ & CITRAN™ : an application
Example of FIRE plant grading – current situation
Citran - Current Situation
100
80 Rec 01
NLE Before [M€]
60
Rec 02
40 Rec 03
Rec 04
Rec 05
20
Rec 06
Rec 07
0
0 100 200 300 400 500
Proposed Loss Prevention Investment [k€]
Davos - 29/08/2012](https://image.slidesharecdn.com/axamatrix-davos2012-c-120829082752-phpapp01/85/Risk-engineering-decision-tools-for-risk-management-support-18-320.jpg)
![ISORISK™ & CITRAN™ : an application
Example of plant grading – Simulation of Recs. n° 1-3
Citran - Simulation of Recs. 01-03
100
80 Rec 01
NLE Before [M€]
60
Rec 02 Rec 02
Rec 03 Rec 03
40
Rec 03 Rec 04 Rec 04
Rec 05 Rec 05
20 Rec 04
Rec 05 Rec 06 Rec 06
Rec 06 Rec 07 Rec 07
Rec 07
0
0 100 200 300 400 500
Proposed Loss Prevention Investment [k€]
Davos - 29/08/2012](https://image.slidesharecdn.com/axamatrix-davos2012-c-120829082752-phpapp01/85/Risk-engineering-decision-tools-for-risk-management-support-19-320.jpg)
![RISK ENGINEERING DECISION TOOLS FOR RISK
MANAGER SUPPORT: CONCLUSIONS
ISORISK MAP
Actions simulation
The development of new means of communication and 90
80 Simulation 1
synthesis underlines on one hand how much it is important to 70
Simulation 2
Plant E
use quantitative tools for different risks analysis and, on the
60 Plant E
Simulation 1
Severity [M€]
50
Simulation 2
other one, the need for new synthesis and reporting
Simulation 3
40
Series 1
30 Series 2
Simulation 3
methods for the risk management process. 20
10
0
0 10 20 30 40 50 60 70 80 90 100
Citran - Simulation of Recs. 01-03 Vulnerability
100
80 Rec 01
Output analysis reporting and communication should be possible
NLE Before [M€]
60
Rec 02
Rec 03
Rec 02
Rec 03
as quickly as possible, in an increasingly efficient way: it is
40
Rec 03 Rec 04
Rec 05
Rec 04
Rec 05
important to use tools suitable to highlight, quickly and
Rec 04
effectively, every detailed risk level concerning the plant and/or
20
Rec 05 Rec 06 Rec 06
Rec 06 Rec 07 Rec 07
Rec 07
0
0 100 200 300 400
Proposed Loss Prevention Investment [k€]
500 group of plants under control.
The possibility of visualization, benchmarking and cross-data ensures a strict control over
quality and reliability of the risk analysis information, amount of current and coming
exposures, cost estimated necessary for their mitigation, cost/benefits ratio, quantifiable
objectives definition about risk mitigation, thus resulting a tool suitable for risk management
activity.
Davos - 29/08/2012](https://image.slidesharecdn.com/axamatrix-davos2012-c-120829082752-phpapp01/85/Risk-engineering-decision-tools-for-risk-management-support-20-320.jpg)
Risk engineering decision tools for risk management support
- 1. IDRC DAVOS 2012 Davos, 29/08/2012 Marcello Forte marcello.forte@axa-matrixrc.com Emanuele Salvador emanuele.salvador@axa-matrixrc.com RISK ENGINEERING DECISION TOOLS FOR INDUSTRIAL RISK MANAGERS SUPPORT
- 2. « a snap-shot » AXA MATRIX Risk Consultants is the AXA Group entity and brand which delivers world-wide services for the development and implementation of consulting products and industrial risk analysis. More than 150 Risk Consultants located in 18 countries across 4 continents Specialized in multidisciplinary Risk Assessment and Risk Management support Over 35 years of risk consulting experience and collaboration with the most important world-wide Corporate Clients Over 200 Corporate Customers Davos - 29/08/2012
- 3. Risk Management support Risk Managers’needs in order to: Protect all Company assets. MULTI- Guarantee business continuity by PERIL RISK ANALYSIS preserving brand value and market CONTROL EXPOSURES AND share. REDUCE Optimize Company risk-transfer. PROBABILITY AND SEVERITY OF Provide Balance Sheet protection. POTENTIAL LOSSES LOSS PREVENTION INVESTMENTS OPTIMIZATION For optimised Risk Management Davos - 29/08/2012
- 4. Risk Management: a continuous “(r)evolution” External factors set off insurance market difficulties, amplified for 2001-2003 those companies without adequate Risk Management structures Global financial crisis forces 2007-2008 Companies to adopt reliable Risk Management actions Awareness of a more 2010 integrated Risk Management approach Davos - 29/08/2012
- 5. Enterprise Risk Manager (ERM) This new trend generates the need to implement the Risk Management organization, by concentrating all the RM functions inside one structure, where they can interact between each other. This structure will be coordinated by the “Enterprise Risk Manager” (ERM), who reports directly to Company Management Board. Industrial Risk Engineering (pure risks) Davos - 29/08/2012
- 6. Analysis objectivation and quantification Working into a multidisciplinary context, it’s vital that: • analysis methods and criteria are as homogenous as possible with the ones used in other areas (financial, strategic, operational ecc). • analysis evolve from qualitative to quantitative parameters: •Qualitative Insurance Manager Reliability of the outputs Complexity level (cost) Applicability on a large scale •Semi-Quantitative Risk Manager •Quantitative Operational Risk Manager Davos - 29/08/2012
- 7. AXA MATRIX: Our “traditional” decision support tools ACCESS@RISK© Dedicated on-line portal VISIORISK™ Visualization & Cumulative Risk Analysis CITRAN™ Investments optimization ISORISK™ • Fire Risk mapping • Machinery Breakdown • Theft CONSTRUCTION@RISK • NAT-CAT risks •Preliminary analysis of new projects PROPERTY@RIS •Risk monitoring during construction K GEAR™ and commissioning phases Tool to collect data in self-assessment Benchmark with peers SCAN@RISK™ ENVIRONMENT@RIS K Environmental Risk Analysis • • Loss Prevention & Sustainability Davos - 29/08/2012
- 8. AXA MATRIX: ISO@RISK ACCESS@RISK VISIO@RISK CITRAN ISO@RISK PROPERTY@RISK CONSTRUCTION@RISK GEAR SCAN@RISK ENVIRONMENT@RISK Davos - 29/08/2012
- 9. ISORISK™: definition ISORISK™ is a graphic tool that aims to: Share immediately with the Customer the risk level existing at its premises Benchmark the different production plants, regardless of business activity sector Identify the priority plants to be implemented Simulate the effect of prevention and protection implementations Davos - 29/08/2012
- 10. ISORISK™: basic methodology R = S x V R = Risk. S = Severity: assessment of loss arising from harmful events, typically expressed in economic terms. V = Vulnerability, a measure of the probability of occurrence of a major loss. Since it is not possible to fix any “numerical” value concerning an industrial plant made up of thousands of parameters, an alternative value called “Vulnerability” is used. It is based on the evaluation, and following processing, of some typical parameters (indicative) of frequency of claim occurrence. Vital Trivial Few Many Davos - 29/08/2012
- 11. ISORISK™: methodology ISORISK™ objective is to define Severity and Probability parameters for each plant of the industrial group, in order to display it on a global risk map for each assessed risk. For a given peril 80 Plant E 70 Plant A 60 Area C Plant B 50 Plant C Severity [M€] Plant D 40 Plant C Area B Plant E 30 Limit between A - B areas 20 Plant B Plant D Limit between B - C areas 10 Area A Plant A 0 0 10 20 30 40 50 60 70 80 90 100 Vulnerability Davos - 29/08/2012
- 12. ISORISK™: Example of FIRE vulnerability assessement Parameters and values, as well as the algorithm that provides vulnerability value, depend on: - risk under investigation - occupancy - company’s objectives Example of Fire vulnerability assessment concerning any industrial site (warehouses or production plants): it is based on 8 parameters, responsible for the variation of harmful events occurrence frequency. Davos - 29/08/2012
- 13. ISORISK™: Actions simulation through Isorisk map ISORISK MAP Actions simulation 80 Simulation 1 Plant E 70 60 50 Severity 40 Simulation 2 30 20 10 0 20 30 40 50 60 70 80 90 100 Vulnerability Davos - 29/08/2012
- 14. Risk Mapping… … “Qualitative” VS “Semi-Quantitative” analysis Transition from a qualitative to a semi-quantitative approach allows to: benchmark different plants with objective criteria; develop a set of actions for the RM process; define risk control strategies Qualitative Quantitative 50 40 Severity (Mill €) Gravité (en M EUR) 30 20 10 0 0 10 20 30 40 50 60 70 80 90 100 Vulnérabilité Vulnerability Davos - 29/08/2012
- 15. AXA MATRIX: CITRANTM ACCESS@RISK© VISIORISK™ CITRAN™ ISORISK™ PROPERTY@RISK CONSTRUCTION@RISK GEAR™ SCAN@RISK™ ENVIRONMENT@RISK Davos - 29/08/2012
- 16. CITRAN™: definition Critical investments to reach acceptable NLE (CITRAN ™) While the ISORISKTM mapping system is created to identify the “top risks” and associated “top improvements”, the CITRANTM curves point out the impact of each loss prevention recommendation (Loss Expectancy reduction) and the required investment (cost to complete). . 60 Rec. N. 1 50 Rec. N. 2 40 Rec. N. 3 NLE [M€] 30 Rec. N. 4 20 Rec. N. 5 Rec. N. 6 10 Normal Loss Expectancy 0 0 10 20 30 40 50 60 70 80 Investments [K€] Cost to complete Davos - 29/08/2012
- 17. CITRAN™ : methodology 60 Rec. N. 1 Initial Loss Expectancy 50 Rec. N. 2 Rec. N. 3 Delta LE Rec. N. 3 Post investment Loss Expectancy 40 NLE [M€] 30 Rec. N. 4 Rec. N. 4 20 Rec. N. 5 Rec. N. 6 Rec. N. 5 10 Rec. N. 6 Cost of Recommandations 1 + 2 0 0 10 20 30 40 50 60 70 80 Investments [K€] By considering an investment based on recommendation 1 and 2, CITRAN curve shifts to the left side, according to a quantity equal to the investment and later it shifts to the bottom side according to the difference between Loss Expectancy based on recommendation 1 and 2. The slope of the curve represents the measure of action effectiveness; it is the result of loss expectancy mitigation and recommendation implementation cost ratio. Davos - 29/08/2012
- 18. ISORISK™ & CITRAN™ : an application Example of FIRE plant grading – current situation Citran - Current Situation 100 80 Rec 01 NLE Before [M€] 60 Rec 02 40 Rec 03 Rec 04 Rec 05 20 Rec 06 Rec 07 0 0 100 200 300 400 500 Proposed Loss Prevention Investment [k€] Davos - 29/08/2012
- 19. ISORISK™ & CITRAN™ : an application Example of plant grading – Simulation of Recs. n° 1-3 Citran - Simulation of Recs. 01-03 100 80 Rec 01 NLE Before [M€] 60 Rec 02 Rec 02 Rec 03 Rec 03 40 Rec 03 Rec 04 Rec 04 Rec 05 Rec 05 20 Rec 04 Rec 05 Rec 06 Rec 06 Rec 06 Rec 07 Rec 07 Rec 07 0 0 100 200 300 400 500 Proposed Loss Prevention Investment [k€] Davos - 29/08/2012
- 20. RISK ENGINEERING DECISION TOOLS FOR RISK MANAGER SUPPORT: CONCLUSIONS ISORISK MAP Actions simulation The development of new means of communication and 90 80 Simulation 1 synthesis underlines on one hand how much it is important to 70 Simulation 2 Plant E use quantitative tools for different risks analysis and, on the 60 Plant E Simulation 1 Severity [M€] 50 Simulation 2 other one, the need for new synthesis and reporting Simulation 3 40 Series 1 30 Series 2 Simulation 3 methods for the risk management process. 20 10 0 0 10 20 30 40 50 60 70 80 90 100 Citran - Simulation of Recs. 01-03 Vulnerability 100 80 Rec 01 Output analysis reporting and communication should be possible NLE Before [M€] 60 Rec 02 Rec 03 Rec 02 Rec 03 as quickly as possible, in an increasingly efficient way: it is 40 Rec 03 Rec 04 Rec 05 Rec 04 Rec 05 important to use tools suitable to highlight, quickly and Rec 04 effectively, every detailed risk level concerning the plant and/or 20 Rec 05 Rec 06 Rec 06 Rec 06 Rec 07 Rec 07 Rec 07 0 0 100 200 300 400 Proposed Loss Prevention Investment [k€] 500 group of plants under control. The possibility of visualization, benchmarking and cross-data ensures a strict control over quality and reliability of the risk analysis information, amount of current and coming exposures, cost estimated necessary for their mitigation, cost/benefits ratio, quantifiable objectives definition about risk mitigation, thus resulting a tool suitable for risk management activity. Davos - 29/08/2012
- 21. IDRC DAVOS 2012 Davos, 29/08/2012 Thank you for your attention Do not hesitate to contact us for any explanation marcello.forte@axa-matrixrc.com emanuele.salvador@axa-matrixrc.com RISK ENGINEERING DECISION TOOLS FOR RISK MANAGER SUPPORT