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Home My WebLink About04.a. Receive annual update on Strategic Risk Inventory/ERM Program (Cont. from 01-26-21) Page 1 of 10 Item 4.a. CENTRAL SAN February 3, 2021 TO: FINANCE COMMITTEE FROM: SHARI DEUTSCH, RISK MANAGEMENT ADMINISTRATOR PHILIP R. LEIBER, DIRECTOR OF FINANCEAND ADMINISTRATION REVIEWED BY: ROGER S. BAILEY, GENERAL MANAGER SUBJECT: RECEIVE ANNUAL UPDATE ON STRATEGIC RISK INVENTORY/ ENTERPRISE RISK MANAGEMENT (ERM) PROGRAM [CONTINUED FROM JANUARY 26, 2021] In January 2020, staff presented to the Board the District's initial Strategic Risk Inventory. At that time it was noted that the risk inventory would be used as the foundation for an Enterprise Risk Management (ERM) program. A mid-year update was presented in June 2020. This report represents the annual update. Background on Enterprise Risk Management Organizations have traditionally managed risks in a distributed way, with a variety of internal functions that identify and manage risks. Prior to ERM, these efforts were not typically centrally coordinated or reported on. A central goal of ERM is improving this capability and coordination, while providing summary level reporting to provide a unified picture of risk for stakeholders and improving an organization's ability to manage these risks effectively. The Central San Strategic Risk Inventory is used for two purposes: 1. As an input to the internal auditor's annual work plan. The Strategic Risk Inventory was used to develop the 2020 internal audit plan (execution of which is pending the hiring of a replacement internal auditor; a hiring process is currently underway). 2. For monitoring, control, and reporting on risks. The ERM Team meets twice per year to discuss progress on mitigating the risks identified in the Strategic Risk Inventory. Updates to the Strategic Risk Inventory are reported to the Administration Committee and Board semiannually. The attached presentation constitutes the annual update on the Strategic Risk Inventory, and highlights changes in risk rankings as well as new risks identified (if any). Strategic Plan Tie-In GOAL TWO: Environmental Stewardship Strategy 1—Achieve 100% compliance in all regulations GOAL FIVE:Infrastructure Reliability Strategy 3—Protect personnel and assets from threats and emergencies February 3, 2021 Special FINANCE Committee Meeting Agenda Packet- Page 3 of 186 Page 2 of 10 GOAL SEVEN:Agility and Adaptability Strategy 2—Plan ahead for scenarios of direct adverse impacts ATTACHMENTS: 1. Presentation February 3, 2021 Special FINANCE Committee Meeting Agenda Packet- Page 4 of 186 Page 3 of 10 2020 Year-End Enterprise Risk Management Update _ Finance Committee Meeting January 26, 2021 / February 3, 2021 _ Shari Deutsch, Risk Management Administrator Phil Leiber, Director of Finance and Administration 1 ENTERPRISE RISK MANAGEMENT Traditional Risk Management • Included insurance risk management and management of various risks by individual managers. am,re,re,mreDr m(gale leve tnrmgn SiIDW ReacLve .nsrra0l[riei Irrymae enNerY IndecendemlV Ino 6dma ovDenanmernl nary i Fa IanlB�cl la i arganzaoenaawe '" 1h esses nse organlxallDnY NreDAn lncreax0 dsgpDwNni1•es Holistic imarxe Enlemnse xioe peiAomwnce, eglawtnp ana OelkY ccnlinually ueing imanAlge+ tledaion maa+ng. naManrrafrenur lik Yepuuaen. ENTERPRISE RISK MANAGEMENT Enterprise Risk Management • Adds centralized oversight and reporting. • Broad consideration of what can go wrong, what are we doing about it, how are risks changing over time. Portfolio approach. 66 CENTRAL SAN 2 1 February 3, 2021 Special FINANCE Committee Meeting Agenda Packet- Page 5 of 186 Page 4 of 10 BACKGROUND • Central San created a strategic risk inventory in 2018-2019 • Presented results of the risk inventory in December 2019 • Committee desired periodic updates; two times per year is the current plan • Summary update in July • More detailed update in January • 25+ strategic risks identified; top 10 were focus of presentation to the Board in June 2020 • Risk mitigation plans developed for each • Year-end update: • Rescore the risks and consider trends • Update the mitigation plans • Present all strategic risks FAITIFETT."W-1 M2I i, 3 CENTRAL SAN ERM PROGRAM ERM Team • Meets twice per year to review and update risk inventory and mitigation plans, then re-scores all strategic risks • Members are the Executive Team, Risk Management Administrator and Internal Auditor Risk Scoring • Risks assessed on four factors, each scored from 1-10 • Risk Score is the total of factor scores • Ranking based on Risk Score: Highest score = Highest Rank nPtl �m� 1-10 Score J,Rlsk onomic Uncertainty/Recession 7 8 2 8 25 1 obal Pandemic 6 10 3 5 24 2 ternal Controls Failure 4 3 2 7 16 3 4 2 February 3, 2021 Special FINANCE Committee Meeting Agenda Packet- Page 6 of 186 Page 5 of 10 TOP 10 STRATEGIC RISKS No changes to the Top 10 List since mid-2020 Seventy !frequency 0t Currentand Trend Gnomon Rank Risk Oesaiptions Nftw Onset Scare pr]oracora Jluf� Na W,111 asAV 10 3 9 10 32 3i 2 Mair Spill to 6 7 9 32 at �R JMP 3 1-JnAfLi n-mM RrA 10 3 9 9 31 30 JMP 9 t—ol Mapr Meet H a 7 f0 M w 40* 5 CWNN*Th"?P"lamic 95 f0 3 S 275 m � 5 Semte or Product i atlure 9 2 5 10 2.6 26 �I 7 1.ass ofUff&a+Su Chan 10 5 3 8 26 26 1"1 PL 8 9 4 3 9 25 25 �1 PL 9 SelLicwranoe�F2eaerve Inmkieray 7 3 5 9 24 74 4`► PL 10 F-nw—OovmWmlRearvaion 7 7 2 a I - 5 TOP TEN STRATEGIC RISKS IN 2020 35 30 25 — 20 JS JO 1 1 1 `+ate oa` ph sP�e �' ta'ae c'cac a�a`o tea` Po�em t r d `�co3d S¢dF �o o,J 0 S MSe—iry EFrequency Mhigaden ■Speedo/ Needed Onset onsomor4rkff.F7-lixf-I ME 6 3 February 3, 2021 Special FINANCE Committee Meeting Agenda Packet- Page 7 of 186 Page 6 of 10 STRATEGIC RISKS RANKED #11 -20 • Some movement due to recalibration of scoring and differing views of status • Anticipate some additional movement with participation of the new Director of Operations. Fm9u�Y mmmn SPW of Current Trend Nooded Omni Score end prior wore [Teter frank 37ixk Ikremplwne TO 11 1owofMUM)rInjury 1f1 23 s 1'3 JUP 12 Ph I Seco rty Hnwh r 2 3 10 22 7.i 4R JMP 13 Nawfp *1obm 6 2 HJ 1 21 12 40R 14 SbwRespoimTrme 5 3 2 10 20 26 40R Ta_ 15 Work SWpage 7 3 9 1 20 14 t _AL 16 Fajen of Wmal Caie6 4 4 3 7 18 16 i AL 17 Exiernsd DwW Corrnecivily Rok 5 3 2 7 17 15 i ill 1S j y Tmh Irnpi.iiie::U—Fnlure 6 3 2 a 16 IS l 1'1 i9 Need fnr I arge Itala Inrmame 7 3 2 3 15 16 4► , 2LI Icor Junsdlctonal f_:mrdr tet 5 4 2 2 14 11 4R 7 STRATEGIC RISKS RANKED #21 -28 • Risks with lower scores/rank still require attention, reassessment, as environment and circumstances will change over time. S-Mrtiy Fr MA5 Hkm 5pew1 of Gurrerrt Trend Needed Onset Score and prior more Wncr Rank Risk Ocsaiptim[s TO 21 Ghan i Wmkkx 3 6 3 1 2 14 1: 4-* PL 72 1=CA Map,C:rA�nrA'adnmr 9 1 3 1 1A 1:S 4-R ,W. 23 Poor Connfsution m t anja Proonts 2 5 5 1 13 14 1 f ighcr f3orrovnng CosL4 PL 24 l.OMto[.xloriimcis 5 3 2 3 13 9 PL 25 Scoai 7Poih ag Risk Gail Unrest etc 5 2 2 4 13 12 4R PL 76 1 Mum In Ad New 1o&n 3 3 4 3 13 12IM 4�R 21 Poor Gwbrnnr Gnmmunr bonen 4 2 2 2 70 _ 111 �R TO 28 Change 17eadimm Risk 2 2 7 1 B !l I 8 4 February 3, 2021 Special FINANCE Committee Meeting Agenda Packet- Page 8 of 186 Page 7 of 10 NOTABLE MOVEMENTS SINCE LAST REVIEW CURRENT PRIOR TREND 15 Work Stoppage 20 14 t 16 Failure of Intemal Controls 18 16 t 17 External Data Connectivity Risk 17 15 it 18 Lq Tech Implementation Failure 16 18 j 23 Poor Coordination on Large Projects 13 19 Higher Borrowing Costs/ 24 Lose Tax Ex for Bonds 13 9 *Work Stoppage-recognition of mitigation work needed Lre*Large Project Coordination -significant progress made in mitigation efforts *Borrowing -severity increased based on financial impact which was calibrated with standard scale across all risks. I 9 BUBBLE CHART OF ALL STRATEGIC RISKS • Placement of bubble:top right is more concern. Lower left is less. • Size of bubble: composition of speed of onset and mitigation work remaining Risk Heat Map:Pro babi Iity of Occurrence,Severity of Impact,and Mitigation Opportunity/Speed of Onset 12 f N Serviced O Product jor 10 Failure lury y oss of Maj a Natural Disa16r-16r _O Customer/Pa ` II 8 Is xe��(eri -ssao nWork Stoppage_—Self-Ilnsuffide/enReserve Economic v o Downtum/Recessian Physical Security B42r ^a[lo`Need for Large N _ rr^ g Slow oo di Rate Increase CL ELou TaxaExemw'^ gesponse...F— EMernal Da(a 4 ��p"98or Curtomer Connectiviry Risk Ke to bubble i Communications a1 Soclal/ e p owls Politica Ris Chan g Risk Nam Civll gm .T. —,n nev, ( I WoMorce Size of bubble is based on ge a fof 2 Reatliness fe`^oology P000rC eraages > Risk mitig tion to do and Large Projects speed of onset 0 a 2 4 6 8 Probability of Event(1 =low,10=high) I CENTRALSAN 10 5 February 3, 2021 Special FINANCE Committee Meeting Agenda Packet- Page 9 of 186 Page 8 of 10 BUBBLE CHARTS BY RISK OWNER: ENGINEERING Risk Heat Map:Probability of Occurrence,Severity of Impact,and Mitigation Opportunity/Speed of Onset 12 ew/Prpposed II Regs �� /Legislation Natural Disaster Major Spill 10 2.0 10 zo Loss of Major Asset 00 S.S \9.5 4.00 8.0 0.0 II 8 8.5 U L 6 N tT sial ev to bubble info: C L Security Risk Name 4 Breach Poor Probability 0 2 Coord,.,, Impact T 7 on Lug,Prolccts Avg of Mitigation&Speed of Onset 6.5 5.0 2.0 > -WTO U) 0 2 4 6 8 0 Probability of Event(1 =low,10=high) I 11 BUBBLE CHARTS BY RISK OWNER: HUMAN RESOURCES Risk Heat Map:Probabi I ity of Occurrence,Severity of Impact,and Mitigation Opportunity/Speed of Onset t; 'C Loss ort+ryrag4r ipirry lT L t` 20 is 1 � s O —kstoppage 0 II 70 � 50 0 Q Cnarylki�. ace Keyta bubbleinfo: O Ay'. VRisk Name [nen{eReetl'mes Rist 3L - Probability 2.0 2i- Impdtt > z.e Avg of Mitigaupn&SpeedotOoset al l o 2 4 6 { Probability of Event(1=low,10=high) f CENTRALSAN 12 6 February 3, 2021 Special FINANCE Committee Meeting Agenda Packet- Page 10 of 186 Page 9 of 10 BUBBLE CHARTS BY RISK OWNER: FINANCE AND ADMINISTRATION Risk Heat Map:Probability of Occurrence,Severity of Impact,and Mitigation Opportunity/Speed of Onset 12 Loss arMajor L ne+ Neeor age PaCerS _ Self-insurance/ Yer � ReelauRicien ySOCus 3.0 g L.O.. 7.0 2. P }T $ p tgTecn Implemlreauon Emnpmk Failure External Data ConnectOw Mufn/ReLess�en Risk 3.0 7.0 6 6.0 , 5.0 7_0 ro 3.5 e55.0 5.0 Q Higher Borrowing Costs/ Failreotln[emateentrol5'S E a Lose Tax Exemption to 4.0 aands 4.0 Keyto bubble Info: A3.0 Fa�'ure[oAdop[Nev,30 Rusk N.- 50 -e[nnowgy Scr-a./POIRral R.n. 75 30 unresrE_ Probability > 3.o 51 Impact 3.5 3.1 Avg of Mitigation&Speed of Onset 3.0 0 0 2 6 F Probability of Event(1 =low,10=high) idol. 13 BUBBLE CHARTS BY RISK OWNER: OPERATIONS Risk Heat Map:Probability of Occurrence,Severity of Impact,and Mitigation Opportunity/Speed of Onset t Loss of L1jWgVj5upp1y to Continuity Threat/ r m Semor.Pn;dll�r,Failure P II 2�. 0 1[1.0 9.5 4.0 0 p Slow Reponse 7in>� � ;`ss:4Rljlrisdictional Poor Customer -- Coordination a e Communis 60 aevtobubblelnfo: E 20 L.0 Risk Name I QU Probability a i 2.9 2'0 Impaa Avg of Mitigation&Speed of Onset '0 o 0 2 6 9 l� Probabilityof Event(1=low,t6=high) I� CENTRALSAN I 14 7 February 3, 2021 Special FINANCE Committee Meeting Agenda Packet- Page 11 of 186 Page 10 of 10 ALL STRATEGIC RISKS - DECEMBER 2020 35 30 25 20 111 lip 15 10 5 0 c4 011.0 Q`°11,c®c94S es e�'o c°110a°oo �Qa ceMs eeacoe�$.eCvFSOQ&-A�°Oeaulo P -6 1,,*h d CQ�c0Qla�3p"µlt �41 p P?eF°a�'�,;\� e `c�ce pQ�o P�\9�eee 0�"aQ�aoe\5e of od.�a��a eoa a4 ao 0P .E a c y e o d 0 5 3�a .v� �caP oPaQ.a�ozc�lseE3FQ Oaa Ja So c`&eooJ`\a�F\ 4, Qoo``�W" 0 e Q 110 o "-c. el Qa de\Q` ooia o R 5 c ao� 0 c Qoo Fa 5e�s �a ■Severity ■Probability Mitigation TO Do ■Speed of Onset I\I 15 Questions? CENTRAL SAN 16 8 February 3, 2021 Special FINANCE Committee Meeting Agenda Packet- Page 12 of 186