Turnbull Compliance in Risk Management

Briefing Document on ensuring Turnbull compliance and implementing an enhanced Risk Management programme Introduction Snibbo Metal Fasterners Ltd was initially created by Jonathan Snibb from a patented fastener call “Reepok” in 1926. He turned over control to his son Adrian in 1935 and currently employees over 600 employees which are mostly based in Leeds. The company is currently a Limited organization in which Adrian Snibbo owns 50% and the Ablel family is in control of the other 50%. They currently do not have an operational risk manager and the new Deputy Managing Director is having many problems instituting changes for the organization as he is forced to answer directly to the two major shareholders. Operating within Turnbull compliance along with developing other sound risk management policies should enable Snibbo Metal Fasteners Ltd to increase competitive advantage and increase shareholder value.

The first step to make this a reality is an weekend educational workshop on risk management and it’s future implications to Snibbo Metal Fasteners Ltd. Workshop Section 1- Theory and Gross Action Part A- Identifying what operational risk management (ORM) is- The most basic idea for operational risk management is to look at every process within the organization and break it down into it’s component actions. Each one of these actions are dependent on another which will lead into a web of dependency within the organization. For Snibbo Metal Fasteners the most obvious dependency is that they are dependent on their supplier Plastic Fittings Ltd. ORM is used during this to assess all the processes within the firm to develop strategies and production methods to lower this risk of dependency. The majority of this is done through analysis and continuing production changes to manage the risk and lower the chance for any future problems. Advantages of effective risk management is almost completely implied in the name, a company who has established risk management policies is less likely to fail and generates more consumer confidence and therefore gains competitive advantage along with increased shareholder value. A key ORM action are the ideals outlined in the Turnbull Report in 1999. Part B- Turnbull Report- Continuing ORM for internal control- The Turnbull Report is a guide for managers to establish ongoing risk management for all internal actions.

Policies formulated based on the report are used to create a dynamic risk management environment within the organization that are monitored all the time by the directors. Within this, the directors themselves must operate with these ideals as well by adhering to strict guide lines and goals set at regular monthly if not weekly basis.

Past ORM policies were usually created and monitored yearly which is very different from Turnbull ideas which are required to be embedded into every action that the company takes. Below is a list of the key Turnbull concepts. 1. Policies to be embedded within the firms actions instead of being operated as a separated entity 2. Be able to change in accordance to new risk within and out of the company 3. Empowerment of Managers to implement changes to lower risk in their own areas Section 2 will cover the individual implications on Snibbo Metal Fasteners Ltd. along with the major policy changes to enforce this idea Part C- Action By identifying the large advantages of an established risk management policy we have decided to hire an Operational Risk Manager to encourage change immediately. Section two covers the concerns within Snibbo Metal Fasteners and Section three covers the implementation plan to address these concerns. It should be noted that Turnbull compliance is only one factor in effective risk management and all policies are required to be flexible in accordance to the situation. Section 2- Issues Part A- Goals/ Director Communication Snibbo Metal Fasteners Ltd. Truly needs to establish goals along with pre-established powers granted to the managing bodies.

Currently the new director Cain has been trying to make positive changes only to be stopped by Abel. As Snibb and Abel are both major shareholders and Directors within the company, it should be them who sit down along with Cain and establish a business strategy for the next period. Within this Cain along with the new operational risk manager should be in charge of the implementation of this and given the necessary authority to make change. This would create a more positive environment for the firm to operate within and allows the organization to operate more like a limited entity which is out to create shareholder value over the current situation of a glorified partnership. Part B- Current Production Analysis As there was not a previous risk manager, a thorough assessment of the firms production methods needs to be analyzed to determine if any current risk of not delivering to clients exists. These need to be looked at to establish a current risk level within the firm and then to implement any required changes based on the level.

Once all immediate changes are instituted employees should be educated and guided through nonstop risk management processes in order to establish ongoing risk management in accordance with the Turnbull report. Part C- Human Resource Protection The strongest factor in the risk management process are the people (Crouhy and Mark, 2003). This is even more true with Turnbull compliance as it is dependent on it’s employees to constantly monitor risk levels in the firm. Currently Snibbo Metal Fasteners Ltd pays its employees all under 20,000 a year with no perks at all. This will contribute to the overall risk as they must have a higher then normal turnover rate.

The more experienced an employee has within the firms environment, the better they will produce and more appropriately for this brief, the better they will be able to access current risk and be able to make required adjustments. The end result is by implementing a bonus and/ or benefits scheme into the employment package Snibb and Abel will be able to increase production and lower risk which all contributes to increased shareholder value. Part D- Suppliers With the current notion of changing their sole supplier, they need to assess several possibilities. The current delivery of products to the clients from order is 10 days. With the current supplier being near, this decreases the overall risk of the value chain as any production problems will not be delayed further from supplier delivery. By taking on a supplier half way across the world, the risk increases even if the costs decrease as any problems will be amplified by the large increase in delivery time. A look at the Chinese firms production methods and quality assurance policy should be required before any action is taken.

Once this is done, the current supplier still should not be completely cut out of the business as they have been dependable for years and could help if there are any delays from China. Part E- Value Chain Analysis- Internal/ External The basis of managing risk is for effective strategies to operate within in order to generate value for consumers and therefore increase competitive advantage. To do this, you need to determine how you compare to your competitors. A value chain analysis would be a requirement on any competitors that Snibbo Metal Fasteners Ltd. has in order to compare to their own.

This would then be assessed and any required changes to either meet or defeat the competitors be implemented if possible. This would enable Snibbo to possibly increase their market share but at the very least maintain their current one. Within this, research should be done into new international markets to determine if there are any future possibilities for expansion. Part F- Indirect Risk Assessment As there is an obvious production engine which needs to be analyzed, there can be other factors of risk that could harm Snibbo’s performance.

This could include health and safety issues, improper accounting methods, discrimatory employment practices, or even improper levels of employee training which could lead to neglect. These are all legal issues which need to be enforced efficiently and effectively. Although these risks are minimal, any one of them is capable of bringing production to a halt or be extremely expensive. Proper polices need to be addressed to ensure all of these risk problems are handled correctly. Section 3- The Plan Part A- Hire Operational Risk Manager (ORM) This needs to be done first as the best risk managers are experienced which mean they will know what to look for in concerns to problems.

The first task of the manager is assess any current risk and implement policies or structural changes to fix the problems. The scope of the ORM’s job is to be an informer to the Directors and an educator to the employees. By having a risk specialist on the factory floor the overall risk management capabilities will be increase everyday as he/she creates a learning environment within the workplace. This is an important factor to operate within the Turnbull guidelines as education institutes risk management into every action. On a monthly basis (unless something requires immediate attention) the ORM will produce risk reports to the Directors along with any suggestions for change. Conceptually it should be important to keep the manager in close relation to the Directors in concerns to company strategy but kept a part from developing company direction to ensure risk assessment is done as impartial as possible(Crouhy and Mark, 2003). Part B- Research Current Competitive Advantage Done to create an accurate picture of the industry and to determine any future strengths, weaknesses opportunities and threats.

Once this is established both internally and externally, proper competitive advantage can be recognized and possible opportunities or threats can be noted for future strategic action. This research should also include analysis into the new supplier option for packaging. Part C- Development of Concise Goals and Direction Snibbo Metal Fasteners Ltd has been having problems with the direction. Snibbs and Abel both want the company to be successful but are unwilling to give Cain the power to make the required changes. Snibbs, Abel , Cain and the new ORM need to sit down and discuss their operations with the idea of instituting change.

These goals are not necessarily just for sales but for change in any operations. To be effective risk managers they need to look at the companies efficiency, technological changes, competitors, branding, financial, procedural, political and determine what changes can be made to maximize good for the firm with all these forces (Blackburn, 1999). Once established Cain and the ORM need to be empowered to make these changes. Part D- Policy Formation Once the company goals have been established, it is up to Cain and the new ORM to establish new policies to produce the desired results.

The following is a list of policies to combat the recognized risk problems: 1. Production Streamlining- See if increased technology, training, or operational management can lower costs or increase production. This includes decisions made on the supplier change (a mix of the two would lower risk while gaining some cost saving benefits) 2. Quality Control- Step by step quality control measures need to be implemented in order to protect all stages of the production system from any risk. 3. Employee Education- Workshops similar to the current one to keep employees updated with risk management processes 4. Bonus/ Benefit Schemes for Employees- developed to increase production and lower turnover 5. Health and Safety Committee- A core group of employees created to assess and handle any health and safety concerns in the work place 6. Standardized Processes- To ensure quality control, all steps in the process will require quality checks. This extends past actual production to standardize any query formation, sales, changes etc. What this will do is set everything into it’s own monitorable process so that any changes/ requests within the company will be authorized by the right people before action takes place.

The end results is the people who have the most knowledge of risk on a subject will be able to review the request before taking action. The key with this to promote Turnbull compliance is to ensure that the processes are created to be hassle free so not to hinder the operating activities of the company from bureaucracy. Plan E- Reporting Different from normal ORM, the Turnbull Report encourages constant reporting which is developed with the regular production methods. On a monthly or possibly even weekly or daily basis risk management reports need to be generated for all fields in the business. During production, quality control tests need to be done before components are passed to the next stage, periodic employee reviews need to be done to assess the labor force, monthly financial reports along with sales invoices need to be checked for performance problems. All of this gives an up to date picture of performance and risk which can be used to determine if any changes need to be made.

Plan F- Assessment With the constant reporting to management, company strategies can be adjusted on a short term basis to compensate for changes in the market or internally (Blackburn, 1999). This assessment and ability to change current policy very quickly will allow Snibbo a competitive advantage in their industry. Plan G- Constant Improvement/ Research Turnbull compliance is all about continuing change and Snibbo should take advantage of this. The competition is constantly changing and Snibbo needs to be educated at every step internally and externally. The process for risk assessment as laid out before is used to improve current operations but as it is repeated on a daily, weekly, monthly level the company starts to become more and more dynamic.

The ability to change enables the company to constantly lower risk while becoming more and more competitive (Crouhy and Mark, 2003). This may require an investment into market research but the majority of the information will be available to the company as they maintain a learning environment. Everytime the process repeats itself, employees are becoming more and more educated on risk management which allows for a constantly increase capacity to manage risk. After this, the directors and ORM gather together to determine the next periods goals and to assess any other risk related issues. Conclusion The main problems with Snibbo Metal Fasteners Ltd is that the shareholders are also the directors. This skew of shareholder value versus managerial competence makes it hard for a none owning director to make changes.

Turnbull ideals is very effective in lowering this risk as goals are set before the changes which empowers the manager to institute change. Cain’s ideas are good but required a ORM to communicate their risks along with the ability to accurately weigh these risks.

The introduction of a ORM is important to any company but they are only limited by their own knowledge so should not be completely dependent on. The best risk management practice is the employment of an educated and competent human resource which can predict and lower risk before any problems occur. References S Blackburn (1999) “Managing Risk and achieving Turnbull compliance” Accountants issue 417, October isbn 1 84140 416 Stephen Ward, (2004) “Risk Management: organisation and context” Witherby & Co Ltd Crouhy, Michel and Mark, Robert( 2003)”Risk Management” McGraw-Hill.

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