13
Case Study: Managing Risk at the OPAC du Rhône

Interviewee: Samiha Viand, Directeur Gestion des Risques et Assurances, The OPAC du Rhône

Interviewer: Professor Jean-Paul Louisot, Formerly Université Paris 1 Panthéon-Sorbonne, Directeur Pédagogique du CARM Institute, Paris, France

Date: August 10, 2013

13.1 THE ORGANIZATION

13.1.1 Context

The OPAC1 du Rhône, later OPAC, is the public housing office related to the local authority in charge of the department (Conseil Général du Rhône2); it operates under the statutes of public establishment with commercial and industrial activity (EPIC3), meaning it is a not-for-profit entity in France.

Therefore, the OPAC has a public service mission, to provide social housing, and it is the first social lessor in the department. It is currently managing 42,570 housing units after having sold all the units outside of the department (the French equivalent of a county in the USA).

13.2 ACTIVITY

The OPAC is engaged in three main activities:

  • Builder and Developer:
    • Housing for the public.
    • Specialized housing for the elderly, the handicapped, students, and young workers, including assisted living housings that are rented to management associations.
    • Public equipment like sports venues, media centers, and nurseries. For these, the OPAC acts as project manager on behalf of the final owner.
  • Lessor: Managing family housing and commercial premises.
  • Planning and urban renewal: Interventions in assistance to local authorities for the development of new commercial and habitation zones.

In addition to these main activities, the OPAC conducts many real estate rehabilitation projects.

OPAC acts as a managing company for condominiums for mixed property.

OPAC also sells housing units:

  • Either through transactions of social home (new home sales to first-time buyers); or
  • As part of the sale to tenants of existing assets; the sale of assets HLM4 is part of a legal obligation: social landlords have to sell 1% of their family housing of more than 10 years in age.

13.3 TURNOVER AND COMPETITION

The OPAC and its staff number 990 associates. OPAC 2012 revenue was 178 million euros – rent income. Housing units are rarely empty, except for repairs, as there is a constant flow of request for housing and a waiting list. However, since the beginning of the economic crisis, the number of families who have difficulty paying their rent has increased. As far as competition is concerned, there are other “social lessors” in the same region but with a smaller number of housing units.

13.4 MAIN STAKEHOLDERS

Because of its intervention in the social housing sector, the OPAC has many stakeholders. Principal stakeholders are:

  • Local authorities – and state representatives.
  • Elected officials.
  • Lessees/tenants.
  • Associations for the tenants.

13.5 VISION AND SOCIAL LICENSE TO OPERATE

The housing policies are highly sensitive to the public and there is a ministry of the government in charge of housing. Therefore the local authorities are in charge of making sure that these national policies are implemented at the local level. The OPAC is a key player in this implementation so it is highly dependent on current policies.

OPAC may have to adapt decisions when the policies change with the election of a new government, a new mayor, a new county chair. The rules and amount of subsidies and aids may be substantially impacted.

The future will bring the creation of a major metropolis in Lyon, which will change the context in which the OPAC operates, including the membership of its board of directors.

13.6 THE IDENTIFIED NEED FOR ERM

The ERM process is still in the first stage of implementation. The concept of a global approach to risk management has been introduced with the insurance portfolio as a starting point. In fact, with the activities in which OPAC is involved, the insurance budget is important and many of the main exposures linked with real estate, construction, maintenance and management, are insurable.

The main task of the director of insurance to ensure the executive commitment to an ERM program was to stress the first step, risk mapping, so that the initial investment is limited and the advantage, even at the level of the insurance budget, should appear as the underwriters would have a better understanding of the risks and feel secure by the effort.

Furthermore the approach would allow getting the operational entities “on board” since the beginning of the process as they would be handed a tool to better manage their own risks.

It is for this dual purpose that the director of insurance developed the proposal for initiating an ERM program using Table 13.1 to initiate the discussion at the executive committee level.

The table approach is in line with the way the executive committee discusses and makes decision in an objective and transparent fashion. Table 13.1 summarizes the executive committee main questions to be answered for the implementation of the ERM process and stresses the creation of value the implementation would bring.

Table 13.1 OPAC Risk mapping process. Reproduced by permission. © 2013 OPAC du Rhône, all rights reserved

N° Step Modus Operandi Objectives Actors Time Agenda Sentinel points
Step 1 Defining a methodology Proposal for the Members of the Executive committee Validate the process and the criteria defined that all risk owners will have to appropriate for risk-management purposes. Take into account executives' remarks and advice. Members of the Executive committee A key is to define a common language, to use the appropriate pedagogy, and to ensure that the proper “risk culture” is grafted at all levels in the organization in a climate of open cooperation.
Step 2 IDENTIFICATION Assessment Individual interview: On the basis of a declaration by “risk owners” during the course of an interview based on a pre-established questionnaire allowing for changes Who should be involved?
This is one of the questions that the RM opened to debate with the Exec Committee 		Information gathered must be checked and validated, data must be cross-examined to ensure a transversal and coherent vision shared by all risk owners within the organization.
TOP DOWN
The initiative must start with the CEO and the members of the Executive Committee and then their deputies and so on: max two levels depending on the size of the department
  1. Identify risks to list those of strategic implications for the organization, the major risks and also those that are significant.
  2. Evaluate risks to determine a first approach to their probability and potential financial impact.
 Persons to be “individually” interviewed
  • Cross examining processes will allow to gather a maximum of information but the risks criteria defined must be kept in mind at all times.
  • It is essential that the risk-owner provides his/her own evaluation of the risk therefore both probability (P) and impact/severity (S) scales must be relevant for all departments within the organization.
BOTTOM UP
In the same time the ascending process will start with the Operational Agencies and territories
  1. Detect risks or set up a risk register for the organization, define the risks in concrete terms “Catalogue des risques de l'OPAC du Rhône”
  2. Evaluate risks to determine a first approach to their probability and potential financial impact
 Persons to be “individually” interviewed:
Additional individual interviews *Should the need appear, the identification process may be pursued to complete or improve the list of identified risks.
Step 3 EVALUATION: “Risk Evaluation Workshop” In project mode
  1. Exchanges and sharing about risk and discuss the evaluation
  2. Develop objective criteria to evaluate risks within a global and transversal vision.
 “Risk Evaluation” Workshops
1- Pilot:
2- Sponsor:
3-
4-
5-
6-
7-
8-
Step 4 CLASSIFICATION Development of the Risk Manager
Summary base program directives for the Risk Management Dept
  1. Set-up risk sheet for each exposure identified in the risk identification process
  2. Set up the risk register that will have to be regularly updated.
  3. Develop a provisional risk classification grid to be validated by the executive committee.
Step 5 HIERARCHIZATION “Risk Vision” Workshop In project mode
  1. Discussion on risk categories and sources of risks
  2. Discussion on the major risks and priority risks
  3. Draw the first risk map
 “Risk Vision” Workshops
1- Pilot:
2- Sponsor:
3-
4-
5-
6-
7-
8-
Step 6 Project MAPPING Risk Mapping workshop In project mode
  1. Discussion on the first iteration of the Risk map
  2. Revisit risk categories: major risks & high priority risks (heat map)
 Risk Mapping workshops
1-
2-
3-
4-
5-
6-
Step 7 Presentation of the MAPPING Executive committee
  • Validate risk mapping
  • Provide instructions to the next step with the mapping first iteration
 Members of the Executive committee

Approved by the top management, it becomes the roadmap for the risk-manager to initiate implementation throughout the organization as summarized in Table 13.2.

Table 13.2 OPAC ERM final process. Reproduced by permission. © 2013 OPAC du Rhône, all rights reserved

Questions Answers Benefit for the Organization Sentinel Points Impacts
What is risk management about? To put in place a process to IDENTIFY, EVALUATE, TREAT and MONITOR RISKS
  1. Limit the human, legal and financial consequences of risk.
  2. Avoid crisis for the organization
  3. Enhance the organization's image, its reputation
  4. Enhance the organization's capacity to anticipate competitive move and improve its performance
  1. For the success of such a mission, the will and support of the CEO and the executive committee are essential.
  2. Instill & develop a risk culture within the organization in a serene climate.
  3. Manage the project by associating staff of all levels in the organization so as to secure and maintain the adhesion of all to the project.
  4. Be careful in choosing a vocabulary that all in the organization can understand and own.
 Take into account impact on governance and strategy:
  • To fill the mission and be more effective in offering social housing.
  • To provide excellent service for the tenants, and the elected officials.
  • To enhance development and remain a major player in social housing.
What tools are needed to initiate the RM process? RISK MAPPING
Constitute the cornerstone of an efficient Risk Management exercise
  1. Organize transversal exchange of information
  2. Prioritize risks to highlight major risks, those that the organization must pay attention to immediately.
  3. Offer a shared vision of risks in the organization.
  4. Enhance decision making process and assist in strategic orientation and governance issues.
  5. Facilitate a homogeneous iterative approach to update the program regularly?
  1. The interview step must be conducted with judiciously chosen staff so that risks can be consolidated at all levels in the organization.
  2. Take into account predefined criteria to prioritize risks.
 Operational dimension:
  • Impact on human resources through empowerment, implication & cohesion of all the actors in the organization.
  • Impact on the organization through fluid processes, resources optimization, return on information system investments.
What are the limits of Risk Management? Beyond a shared vision, risk management must lead to optimizing risk taking through the search for systemic solutions, the development of action plans with implementation follow-up Identify those risks that are transferable and those that are not Analyze with each concerned actor the appropriate transfer solutions

13.7 SUMMARY

As illustrated above, the ERM program is still at the first stage of implementation at OPAC and the road ahead is still long before the process will reach maturity. However, in many medium size organizations convincing top management of the need for an ERM program and getting on board the operational managers will often prove the two potentially key factors in the successful implementation. Therefore, the tables included could help any organization in the process of developing and implementing an ERM program, recognizing that risk mapping is often the initial stumbling block.

QUESTIONS FOR STUDENTS AND PRACTITIONERS

  1. Public, quasi-public and some private enterprises can be subject to radical changes in policy by government mandate. Legislative changes may take years to develop but sometimes administrative rule changes can be implemented very quickly. How does an organization in such an environment, especially when its operation is subject to governmental control, prepare for such contingencies?
  2. If risk mapping were often a stumbling block for an organization, what would you do as the project leader for ERM to help the organization prepare for the risk mapping exercise? How would you establish the risk mapping process so that it can capture changes in the organization's risk profile over time?
  3. The social license to operate OPAC is derived not only by its mandate from public authorities but also by its service to society. It is required to support the elderly, the poor and others who need assistance in housing and other services. OPAC also faces competition in this sector. OPAC must walk a fine line between meeting the exacting requirements of the public authority and the needs of its customer stakeholders. For example, it may not be able to disburse funds beyond that which the law requires even if there is evidence that the need for such additional funds would resolve certain social issues. If you were the executives at OPAC, how would you develop a strategic statement that expresses the organization's social license to operate?
  4. OPAC is in the first stage of its ERM initiative. What do you see are the immediate next steps in its process of integrating ERM into the enterprise?

NOTES

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