Newsletter

AFERM Newsletter, Issue 32, March 2020

This 32nd issue of the quarterly AFERM Newsletter includes thought leadership articles from ERM practitioners with Crowe, Deloitte, RMA Associates, and RSA. Also, AFERM’s 2020 Summit will be virtual and the date has been moved up to September 10th – a full day of connectivity, idea sharing, and continuing professional education, with the risk of COVID-19 minimized.

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President’s Corner

Ken FletcherThe value of enterprise risk management (ERM) to agencies operating in the wake of COVID-19

By Ken Fletcher

The on-going public health crisis directly impacts AFERM as it affects all federal agencies. Perhaps the largest impact on the association is on our planning for the 2020 AFERM Summit. On behalf of AFERM’s Board of Directors, I want to thank the members who responded to the Summit survey and for sharing your comments. More than half of the respondents indicated a preference to shift to a virtual Summit. Your inputs informed the Board’s deliberations during the April meeting. Because of the uncertainties concerning how the virus might impact the National Capital Region in late October and the increasing financial impact on AFERM, the Board unanimously decided that the 2020 Summit will be a virtual event. The Board also approved moving the date for the Summit to September 10th and lowering the registration fee. More details will be provided by our Summit Planning Committee Chair and Vice-Chair, Meredith Stein and Marianne Roth, as they shift their focus to an on-line Summit agenda.

That said, I want to focus this President’s Corner on the potential opportunities presented by the current public health crisis and the potential value of ERM across four (4) time frames: Immediate, short-term, intermediate, and long-term. The impact of the on-going COVID-19 pandemic is disruptive and requires us to adapt in both our professional and personal lives. Understandably, the current focus of government and society is on mitigating the systemic risk to public health and the economy. As the virus began disrupting global supply chains and then the core functionality of agencies and businesses, several articles were published about how ERM principles can help organizations navigate through the hyper-uncertainty of this global health and economic crisis. There is clearly a role for agency ERM functions in supporting leadership during this crisis, and part of that role is helping understand the adverse impacts and developing response actions.

Quite naturally agencies are concentrating on the threats posed by this risk. From necessity, nearly every organization is being forced to change the way they conduct business from converting to wide scale telework to changing how goods or services are delivered to their customers. Continuity of operations plans and information technology systems are being stress tested and enterprise risks identified as a direct result of this low-probability high-consequence event. However, as reflected in the government’s definition, risk can also present an opportunity. As Niccolò Machiavelli is reported to have said, “Never waste the opportunity offered by a good crisis.”

On March 2nd, McKinsey & Company began posting a series of informational articles to provide insights into the implications of COVID-19 for businesses (available at https://www.mckinsey.com/business-functions/risk/our-insights/covid-19-implications-for-business). While these articles focus primarily on private sector businesses, I find several of their insights very useful for government agencies and ERM functions. One particularly beneficial article from March 30th discusses five broad planning perspectives reflecting the immediate, recovery, near-term, intermediate and long-term horizons, referred to by the authors as the “5Rs.” They are Resolve; Resilience; Return; Reimagine; and Reform. From an agency perspective, the ERM function can help identify and manage potential risks that may exist from planning for recovery through the long-term. The crisis also presents the potential opportunity to accelerate and apply new capabilities and advance aspects of the ERM program to the advanced or strategic levels of maturity.

Recent comments from public health officials indicate two broad areas of concern: 1) Resurgence of the virus immediately after current mitigation measures are relaxed; and 2) Subsequent waves of the virus this fall and until a vaccine is available. These concerns span the immediate and short-term time horizons and the associated risks to agencies.

ERM principles and approaches are valuable during the immediate phase in identifying the potential key risks the agency may confront and developing agency response actions for those risks. Several different articles I have read recently identify potential recovery risks related to the following:

  • Managing vulnerable employee populations
  • Accommodating employees with vulnerable family members
  • Preventing introduction of the virus into the workplace
  • Establishing and enforcing workplace social distancing
  • Addressing sanitization and cleaning of the workplace

ERM principles and approaches are equally applicable to the short-term time horizon for helping posture the agency for better preparedness in responding to anticipated future waves of COVID-19. Within this time horizon, ERM functions can help agencies address potential risks to include mitigating the impact and/or likelihood of a repeat of major challenges encountered during the short-term wave and mitigating the impact of pandemic response outcomes with potential enduring negative effects on the agency.

Pursuing potential opportunities present over the intermediate and long-term horizons increases value to agencies; and, similarly, the potential value and contribution of the ERM program also increases during these time frames. Key risk opportunities in intermediate and long-term time horizons include:

  • Strengthening agency resiliency
  • Streamlining / reengineering processes to increase operational efficiency and cost-effectiveness based on lessons learned from the crisis
  • Understand the linkage and dependencies between the external risk environment (such as supply chain risks) and the agency’s risk profile
  • Improving agency crisis management capabilities and COOP operations
  • Identifying activities that can be stopped or reduced to re-purpose agency resources
  • Realigning mission critical systems, mission critical functions and resource allocations to these critical areas

Beyond the broader opportunities this crisis presents at the agency level, it presents specific opportunities for agency ERM programs to realize a discontinuous shift in their maturity curve and to increase the value the program provides agencies through the following:

  • Accelerating ERM program capabilities (i.e., earlier adoption of scenario planning and risk modeling)
  • Implementing/improving agency risk appetite statements, risk tolerances, and risk limits
  • Developing a broader set of key risk indicators (KRI) working in alignment with agency key performance indicators (KPI)

Thank you for the honor of serving as President of this wonderful Association. I hope each of you and your loved ones remain safe and healthy during these trying times.

All the best,
Ken

Ken Fletcher, AFERM President, may be contacted at president@aferm.org.