john-lewis-partnership-plc-annual-report-2015

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42 John Lewis Partnership plc Annual Report and Accounts 2015 Managing our Partnership risks EFFECTIVE RISK MANAGEMENT IS SIMPLY ABOUT GOOD MANAGEMENT. IT HELPS US MAINTAIN PARTNERS’ TRUST AND BUILD VALUE FOR THE PARTNERSHIP. Loraine Woodhouse Acting Group Finance Director How do we define risk? We define risk as ‘anything that can adversely affect our ability to meet the Partnership’s objectives, protect its reputation and comply with regulatory standards’. Our approach to risk Risk is not something that we can avoid. It is an inherent part of how the Partnership seeks to grow and create value. In the pursuit of our Partnership Aims, strategy and business plan objectives, we seek to understand and harness risks, but operate within an acceptable level of risk taking – our perceived ‘risk tolerance’ in accordance with parameters set by our Constitution and the Board. All Partners should strive to be aware of risks in their area of responsibility and manage those risks intelligently in their day-today activities. Risks or opportunities? Risks can come in different forms, some arising from challenges from the external environment in which we compete, but others internally from uncertainties and issues with our strategic responses and how we operate our business model. Some may threaten our success or viability directly with a financial, operational and/or reputational impact; others could be opportunities we might miss for further growth and a sustainable future. By understanding our risks more clearly and managing them more proactively we should be in a better position to build future value and achieve Principle 1. Our risk management process To improve our ability to consistently identify, manage and monitor risks, and take advantage of opportunities, we have developed a structured approach to assessing, managing and communicating risk. E ACTIONING AND MONITORING RISKS D ASSESSING RISK TOLERANCES A PRACTICAL APPROACH AS PART OF OUR STRATEGIC, BUSINESS PLANNING AND REVIEW PROCESS C EVALUATING RISKS AND CONTROLS A UNDERSTANDING THE CONTEXT B IDENTIFYING RISKS
Annual Report and Accounts 2015 John Lewis Partnership plc 43 HEAT MAP Partnership risks to the achievement of Principle 1 and The Business Plan 5. Critical 9 3 2 1 The top ten Partnership risks 1 Competition 2 Pension obligations 4. Significant 10 7 6 5 8 4 3 Property valuation 4 Efficiency 5 Economic environment 6 Operating model strain 7 IT infrastructure capability 8 Change delivery 9 Data protection breach 10 Talent Risk management in practice Our risk management process is used to stress-test key decision-making points in our planning and review procedures. We do this before we commit, so we can make any changes to our plans and deliver them with confidence. A structured risk assessment is a requirement of our strategic and business planning and review process, as well as being an essential part of our management of projects and compliance activities. In this way, risks are assessed by Divisions and Directorates half-yearly, considering the potential impact of the risk and the likelihood of its occurrence – see Heat Map. Evaluation of impact and likelihood is made after consideration of the effectiveness of current mitigating controls we have in place – to give a ‘net’ profile. If this net profile is deemed to be placing us at too much risk for the return expected and against our risk tolerance (demonstrated by being evaluated in the ‘red zone’), a response will be needed to bring the risk back within an acceptable level of risk taking. UNDERSTANDING OUR RISKS, AND THEIR IMPACT ON OUR BUSINESS PLANS AND DAY-TO-DAY OPERATIONS, IS VITAL TO CREATING SUSTAINABLE VALUE. Loraine Woodhouse Acting Group Finance Director IMPACT 1. Minor 2. Moderate 3. Major 1. Remote 2. Unlikely 3. Possible 4. Likely 5. Very likely LIKELIHOOD Net risk profile, after current mitigating controls Target risk profile, if further actions are successful To help visualise this for analysis and decision making, risks are plotted on a Heat Map. In general, risks evaluated in: RED ZONE AMBER ZONE GREEN ZONE the ‘red zone’ are ones where we feel we are taking too much risk for the return and against our risk tolerance. Desired ‘target profiles’ are set and further actions identified to bring the risk back within our risk tolerance. the ‘amber zone’ are ones which we feel we are managing satisfactorily against our tolerance. They will be formally monitored to ensure they do not deteriorate to the red zone, but no further actions are expected. the ‘green zone’ are ones felt currently to be immaterial and unlikely to affect our Partnership objectives. Risk owners are responsible for monitoring them and raising the alarm if they show significant deterioration. Details of our risk profiles, current mitigating controls, risk tolerances and further actions are captured in Risk Registers in each Division and at a Partnership level. The output from the Divisional risk assessments is consolidated, per their net profile, to produce the Partnership Risk Profile. This is reviewed and challenged by the Chairman’s Committee, before being submitted to the Partnership Board for final review and approval. The outcome of this review is fed back to the Divisions for consideration of any changes. The top ten risks are highlighted above. To ensure that we are managing and taking risk at the right level, the Chairman’s Committee and Divisional Risk Committees monitor the ongoing status and progress of key further action against each risk and its tolerance, on a quarterly basis. Introduction Partnership difference Principles Strategy Performance Governance Financial statements
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