Enterprise Risk Management

Case study

Background

The University of California system operates in an inherently
risky environment, giving rise to many types of liability. The
funding required to cover these liabilities is referred to as the
“Cost of Risk.” The annual direct Cost of Risk associated with
UC’s hazard risks (workers’ compensation, general liability,
employment practices liability, professional liability, auto
liability, and property) is alone over $250 million. However,
hazard risk is just one risk category; the University also faces
strategic, operational, financial, and reputational risks.

Goal

As a strategic approach to managing enterprise‐wide risk, the
University has migrated from a traditional risk program to an
Enterprise Risk Management (ERM) program, which aims to
protect people, prevent loss, and reduce the Cost of Risk.

Successes

The ERM program has grown exponentially since the
University’s Chief Risk Officer joined the Office of the President
(UCOP) in December 2004. The UCOP Risk Services website is continuously enhanced with
new tools to help managers at all levels identify, assess, and
manage risk, thus reducing Cost of Risk.

  • Enterprise Risk Management Information System
    (ERMIS)
    provides users a single portal through which they
    can access and analyze data related to their area.

  • UC Action enhances the efficiency of monitoring controls
    established in response to specific incidences through
    continuous monitoring and automated follow‐up.

  • UC Tracker facilitates the review and documentation of
    key financial controls related to preparation of the
    University’s financial statements.

  • UC Ready is an award‐winning Mission Continuity Tool
    that allows all UC departments systemwide to develop
    plans to ensure continuation of operations.

  • ERM Maturity Level Model provides a framework for
    campuses and medical centers to plan ERM programs and
    measure and monitor their progress.

  • Risk Assessment Workbooks support risk assessments at
    each UC location.

  • UC Risk Services website, webinars, and Risk Summit provide educational materials and training systemwide.

  • Be Smart About Safety, 6% Prescription, Employment
    Practices Improvement Committee (EPIC), Integrated
    Safety & Environmental Management (ISEM), and
    Emergency Management
    are innovative loss‐prevention
    and loss‐control programs.

  • Risk Management Leadership Council (RMLC),
    Occupational Health Physicians (OEHAC),
    and others are
    systemwide groups supported by UCOP Risk Services.

  • UCIP, the University’s Construction Insurance Program;
    UC TRIPS, providing travel insurance and travel services;
    CampusConnexions, providing insurance to student and
    support groups; and Cyber Coverage, focused on
    implementation of best practices are risk financing
    strategies and new insurance products that facilitate UC’s
    mission.

Challenges

The greatest challenges come from the size and many locations
of the University. Advancement

Initial investment

All programs and costs associated with ERM are funded by
internal premium determined by independent actuaries. By
shifting premium dollars to loss‐prevention and loss‐control
activities totaling approximately $20 million per year, we have
reduced the Cost of Risk by over $380 million over the last five
years through cost savings and cost avoidance.

Fiscal results, current and anticipated

Since Fiscal Year 2003‐2004, ERM has reduced total Cost of
Risk to $13.31 per $1,000 of operating revenue, a 28%
reduction.6 We expect to see a steady pattern of reduced Cost
of Risk over the coming years. Rating agencies now explicitly
examine organizations’ approach to managing enterprise‐wide
or holistic risk. UC’s proactive approach to ERM will contribute
to the maintenance of the University’s excellent credit rating.
ERMIS is reducing current workload by eliminating redundancy
in the preparation of numerous reports and automating the
manual documentation of the performance and certification of
internal controls critical to the University’s annual financial
audit. ERMIS enables easy, efficient sharing of analyses and
information across multiple locations.

Current action and next steps

UC campuses continue to enhance the maturity of their ERM
programs through a collaborative effort systemwide. UCOP
Risk Services continues to support the campuses through
development of new systems and tools to facilitate the
effective and efficient management of risk.

Concluding statement

Through the ERM program, UCOP Risk Services has helped the
University save or avoid millions of dollars in costs. ERM has
the potential to save or avoid millions more by reducing the
Cost of Risk and protecting the lives of patients, students,
faculty, and staff.