Risk Mgt 1st Lec

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About …

Risk ManagementRisk Management

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What is Risk Management?What is Risk Management?

Who uses Risk Management?Who uses Risk Management?

How is Risk Management used?How is Risk Management used?

Risk Management in CustomsRisk Management in Customs

How do you use it in Customs?How do you use it in Customs?

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• Good management practice• Process steps that enable

improvement in decision making• A logical and systematic approach• Identifying opportunities• Avoiding or minimising losses


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Risk Management is the name given to a logical and systematic method of identifying, analysing, treating and monitoring the risks

involved in any activity or process.


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Risk Management is a methodology that helps

managers make best use of their available resources


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Risk Management practices are widely used in public and the private sectors, covering a wide range of activities or operations.

These include:


• Finance and Investment

• Insurance• Health

Care• Public

Institutions

• Governments

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• Effective Risk ManagementEffective Risk Management is a recognised and valued skill.

• Educational institutions have formal study courses and award degrees in Risk Management.

• The Risk Management process is well established. (International RM process standards.)


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Risk Management isnow an integral part of

business planning.


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The Risk Management process steps are a generic guide for any organisation, regardless of the type of business, activity or function.

How is Risk Management used?How is Risk Management used?

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There are 77 steps

in the RM process

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The basic process steps are:

Establish the context

Identify the risks

Analyse the risks

Evaluate the risks

Treat the risks

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‘Risk’ is dynamic and subject to constant change, so the process includes continuing:

Communication & consultation

Monitoring and review

and

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The Risk Management process:

The strategic and organisational context in which risk management will take place.For example, the nature of your business, the risks inherent in your business and your priorities.

Communicate & consult


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Communicate & consultMonitor and review

Defining types of risk, for instance, ‘Strategic’ risks to the goals and objectives of the organisation.

• Identifying the stakeholders, (i.e.,who is involved or affected).

• Past events, future developments.

Identify the risks

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Analyse the risks

How likely is the risk event to happen? (Probability and frequency?)What would be the impact, cost or consequences of that event occurring? (Economic, political, social?)

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Evaluate the risks

Rank the risks according to management priorities, by risk category and rated by likelihood and possible cost or consequence.Determine inherent levels of risk.

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Treat the risks

Develop and implement a plan with specific counter-measures to address the identified risks.Consider:• Priorities (Strategic and operational)

• Resources (human, financial and technical)

• Risk acceptance, (i.e., low risks)

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Document your risk management plan and describe the reasons behind selecting the risk and for the treatment chosen.

Record allocated responsibilities, monitoring or evaluation processes, and assumptions on residual risk.


Treat the risks

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Risk Management policies and decisions must be regularly reviewed.

Monitor and review

In identifying, prioritising and treating risks, organisations make assumptions and decisions based on situations that are subject to change, (e.g., the business environment, trading patterns, or government policies).

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Risk Managers must monitor activities and processes to determine the accuracy of planning assumptions and the effectiveness of the measures taken to treat the risk.Methods can include data evaluation, audit, compliance measurement.


Monitor and review

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Identify the risks

Analyse the risks

Evaluate the risks

Treat the risks

Mon

itor

ing

and

revi

ew

Com

mun

icat

ion

& c

onsu

ltat

ion

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Customs administrations have turned increasingly to Risk Management as an effective means of meeting national objectives.

Administrations provide facilitation while maintaining control over the international movement of goods and persons.

Risk management helps in matching Risk management helps in matching Customs priorities to resources.Customs priorities to resources.


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International Organisations encourage International Organisations encourage and support the adoption of modern and support the adoption of modern Customs control techniques, using Customs control techniques, using Risk Management principles., e.g.,Risk Management principles., e.g.,

•WTO/Kyoto Convention.WTO/Kyoto Convention.

•APEC Sub-Committee on Customs APEC Sub-Committee on Customs Procedures.Procedures.

•Transport Industry representative Transport Industry representative bodies.bodies.


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Risk management within Customs can Risk management within Customs can be strategic, operational or tactical.be strategic, operational or tactical.


Strategic:Strategic: Risks to Customs goals and objectives,

e.g.,prohibitions and restrictions, (social or

economic), health,revenue, environment.

- usually longer term strategies

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Operational:Operational: Decisionsand action plans

on measures taken to deal with the assessed risks.

Deployment of resources; monitoring and review. - medium term strategies

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Tactical:Tactical: Used byofficers at their workplace,

to deal with immediate situations, working within

set parameters andto approved procedures.- short term strategies

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• Economic benefits, by facilitating the Economic benefits, by facilitating the movement of goods, ships, aircraft and movement of goods, ships, aircraft and people – when rated low risk.people – when rated low risk.

• Makes more effective use of existing skills Makes more effective use of existing skills and experience – giving better results.and experience – giving better results.

• Improves the quality of Customs controls Improves the quality of Customs controls – information and accountability.– information and accountability.


Why you should use Risk Management:

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The process helps The process helps Administrations focus on priorities Administrations focus on priorities and in decisions on deploying and in decisions on deploying limited resources to deal with the limited resources to deal with the highest risks.highest risks.


Why you should use Risk Management:

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How do you use it in Customs?How do you use it in Customs?

The first step is to look at your The first step is to look at your Customs context. Customs context.

• What is the role of Customs?What is the role of Customs?• What are your national priorities What are your national priorities and the expectations of the and the expectations of the government and the public?government and the public?

• What is the nature of your What is the nature of your operational environment?operational environment?

Where do you start?Where do you start?

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How do you use it in Customs?How do you use it in Customs?The next steps in the Risk The next steps in the Risk

Management process are to:- Management process are to:- • Identify the risks Identify the risks • Analyse the risks; andAnalyse the risks; and• Evaluate the risks,Evaluate the risks,… … but, if you are just starting on but, if you are just starting on

Risk Management planning:Risk Management planning:

Where does the information come Where does the information come from?from?

Who does this?

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Responsibilities must be Responsibilities must be allocated:allocated:•Appoint a Risk Management Appoint a Risk Management

champion with appropriate champion with appropriate qualifications, including experience qualifications, including experience and analytical skills.and analytical skills.•Form a Risk Management Form a Risk Management

Committee, representative of Committee, representative of operational areas.operational areas.•Conduct Risk Management Conduct Risk Management

Workshops.Workshops.•Determine operating procedures. Determine operating procedures.

Who does the Risk Assessment?Who does the Risk Assessment?

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1.1. Identify commodity or control Identify commodity or control risks; e.g., high duty rates or risks; e.g., high duty rates or quantity controls, the demand for quantity controls, the demand for prohibited goods, such as drugs, prohibited goods, such as drugs, pornography, traffic in CITES pornography, traffic in CITES wildlife.wildlife.

2.2. Research existing databases and Research existing databases and records on commodity and trader records on commodity and trader histories. histories.

3.3. Evaluate current procedures to Evaluate current procedures to identify potential control identify potential control weaknesses.weaknesses.

Sources of information for Risk AssessmentsSources of information for Risk Assessments

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After identifying and analysing After identifying and analysing the risks, you can evaluate.the risks, you can evaluate.

• What is the likelihood of the What is the likelihood of the risk event occurring? risk event occurring?

Evaluate the risksEvaluate the risks

•Almost Almost certaincertain

•LikelyLikely•ModerateModerate•UnlikelyUnlikely•Rare?Rare?

What is the What is the consequenconsequen

ce if the ce if the risk event risk event occurs?occurs?

•ExtremeExtreme•Very Very highhigh

•ModeratModeratee

•LowLow•NegligiblNegligible?e?

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You need to describe or to You need to describe or to quantify exactly what the quantify exactly what the ‘Likelihood’ and ‘Consequence’ ‘Likelihood’ and ‘Consequence’ terms means to you.terms means to you.

This helps in ensuring a consistent This helps in ensuring a consistent approach in future risk approach in future risk assessment and review and assessment and review and monitoring.monitoring.

It promotes a common It promotes a common understanding within the understanding within the Administration.Administration.


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After establishing ‘After establishing ‘LikelihoodLikelihood’ and ’ and ‘‘ConsequenceConsequence’ you can use a table ’ you can use a table like this to set a level of risk.like this to set a level of risk.


Extreme Very high Moderate Low NegligibleAlmost certain Severe Severe High Major Moderate

Likely Severe High Major Significant ModerateModerate High Major Significant Moderate LowUnlikely Major Significant Moderate Low Very low

Rare Significant Moderate Low Very low Very Low

You must define what these risk levels mean You must define what these risk levels mean to you.to you.

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Low and very low level risks can Low and very low level risks can normally be accepted, subject to normally be accepted, subject to on-going monitoring.on-going monitoring. All other risks are included in the All other risks are included in the management plan.management plan.The plan catalogues the risks, the The plan catalogues the risks, the level of risk, and describes a level of risk, and describes a treatment. treatment. The treatment is the action The treatment is the action proposed, (and perhaps the proposed, (and perhaps the resources allocated).resources allocated).

Treating the risksTreating the risks

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Targetedselections

Development ofDevelopment of Risk Profiles

PhysicalPhysicalexaminationexaminationIndustry audits

RandomRandomexaminationsexaminations

Complianceimprovement

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A common method of treating risks is to develop risk profiling and targeting systems.

This means – in the case of goods – selecting transactions for specific checks, according to trader, agent, origin of goods, commodity code, duty rate, routing, value, etc.

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Treating the risksTreating the risksRisk Profiles are developed as a

means of putting risk management into practice at the Operational level.A Risk Profile is normally specific

to a Customs office. It describes:• The risk areas• Assessment of the level of risk• The countermeasures adopted• Activation date and review dates• Means of measuring

effectiveness.

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Treating the risksTreating the risksUsing the profile information,

consignments of goods, means of transport and people are targeted.

The profile information is used as the basis for Selection Criteria.

Documents received and processed by Customs, i.e., cargo and passenger manifests, goods declarations, are compared against the Selection Criteria

Selection Criteria

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Selections are made by manual checks of documents, or by using automated systems.Selected transactions or movements

are subject to the actions detailed in the profile or plan, e.g., physical examination, audit, etc.

Selection Criteria

Documentsand Data

Selected movements

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Monitor & ReviewMonitor & ReviewThe initial assessment made of the

existence and level of risks must be evaluated on a regular basis.You need to measure the

effectiveness of risk profiles and update as necessary.• Reliable reporting of examination Reliable reporting of examination

resultsresults• Compliance measurement Compliance measurement activitiesactivities• Feedback from the business Feedback from the business communitycommunity• Results analysis and data Results analysis and data comparisonscomparisons

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The starting point is the The starting point is the Action PlanAction Plan::1.1. Allocate responsibilities, e.g., a Risk Allocate responsibilities, e.g., a Risk

Management Champion and a working party.Management Champion and a working party.2.2. Evaluate how Risk Management processes Evaluate how Risk Management processes

can be best applied in can be best applied in youryour national national environment.environment.

3.3. Survey existing skills and do a training Survey existing skills and do a training needs assessment.needs assessment.

4.4. Catalogue existing sources of data or Catalogue existing sources of data or information that can help in identifying information that can help in identifying risks. risks.

Using Risk ManagementUsing Risk Management

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5.5. Flow chart existing processes. Flow chart existing processes. 6.6. Communicate and consult – within Communicate and consult – within

Customs, with other Agencies, the Customs, with other Agencies, the trading community and transport trading community and transport industry.industry.

7.7. Obtain IT tools or set up processes for Obtain IT tools or set up processes for effectively operating a selectivity system.effectively operating a selectivity system.

8.8. Provide training in profiling/selectivity Provide training in profiling/selectivity skills.skills.

9.9. Test and gain confidence in the Risk Test and gain confidence in the Risk Management process. Management process.

Using Risk ManagementUsing Risk Management

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This presentation endeavors to This presentation endeavors to cover briefly the concepts and the cover briefly the concepts and the benefits of using Risk benefits of using Risk Management practices, Management practices, particularly within Customs particularly within Customs Administrations.Administrations. The processes and the many The processes and the many

control options deserve further control options deserve further study, and many other sources of study, and many other sources of information on this topic are information on this topic are available.available.

Control Control ANDAND Facilitation FacilitationBy.. Risk ManagementBy.. Risk ManagementEndEnd