Strategic Risk Management at The LEGO Group
This chapter delves into the strategic risk management practices at The LEGO Group, covering its history, enterprise risk management implementation, Monte Carlo simulations, Active Risk Assessment of Business Projects (AROP), and preparing for uncertainty. The LEGO Group's iconic history, strategic mission, and growth strategies are highlighted, along with the evolution of its risk management framework through four key stages. The chapter emphasizes proactive risk management approaches to mitigate potential threats and uncertainties effectively.
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Presentation Transcript
ITS 835 ENTERPRISE RISK MANAGEMENT CHAPTER 6 STRATEGIC RISK MANAGEMENT AT THE LEGO GROUP
INTRODUCTION LEGO Group history Strategy Legacy risk management Enterprise risk management at LEGO Initial ERM Monte Carlo simulation Active Risk Assessment of Business Projects (AROP) Preparing for Uncertainty The PAPA model Risk management ROI 2
LEGO GROUP HISTORY Headquarters in Billund, Denmark Family owned Second largest toy manufacturer (globally) Founded in 1932 Iconic bricks first introduced Bricks manufactured since 1958 fit with one another 2400 different brick shapes Manufactured in plants across four countries 3
LEGO STRATEGY LEGO mission Inspire and develop the builders of tomorrow LEGO vision Inventing the future of play Growth strategy Innovation strategy 4
ERM AT LEGO Risk management developed in 4 stages Step 1: Enterprise risk management Step 2: Monte Carlo simulations Step 3: Active Risk & Opportunity Planning (AROP) Step 4: Preparing for Uncertainty Order is by initiation sequence Steps 1 & 2 are damage control Steps 3 & 4 are proactive 5
ERM STEP 1: ENTERPRISE RISK MANAGEMENT 6
ERM STEP 2: MONTE CARLO SIMULATIONS Monte Carlo simulation Method of evaluating the effect of input variances on a model of a complex system In short, it helps to see how input variances affect outcomes Helps to define risk tolerance Implemented in three areas Budget simulation Credit risk portfolio Consolidation of risk exposure 7
ERM STEP 3: AROP Active Risk Assessment of Business Projects (AROP) Formal approach to defining and handling project risk Includes multiple steps Identification Assessment Handling Reassessment Follow-up Reporting 8
ERM STEP 4: PREPARING FOR UNCERTAINITY Preparing for Uncertainty Defining and Testing Strategies Workshops precede strategic planning sessions Four scenarios Agree on two key drivers of uncertainty Describe each of four quadrants of 2x2 matrix Define strategic issues Actions to take who is doing what by when? 9
THE PAPA MODEL Park, Adapt, Prepare, Act: PAPA Park Adapt Prepare Act 10
RISK MANAGEMENT ROI Strong support from upper management Efforts have resulted in value Many LEGO key planning processes now include risk management More visibility of enterprise risk More opportunity to address risk 11
SUMMARY Risk management is not risk aversion ERM allows LEGO to take risks when appropriate Grow Create value LEGO strategic risk management mission Drive conscious choices 12
