Information Systems

Strategic Risk Management at the LEGO Group

introduction

LEGO Group history

Strategy

Legacy risk management

Enterprise risk management at LEGO

Initial ERM

Monte Carlo simulation

Active Risk Assessment of Business Projects (AROP)

Preparing for Uncertainty

The PAPA model

Risk management ROI

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Lego group history

Headquarters in Billund, Denmark

Family owned

Second largest toy manufacturer (globally)

Founded in 1932

Iconic bricks first introduced

Bricks manufactured since 1958 fit with one another

2400 different brick shapes

Manufactured in plants across four countries

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Lego strategy

LEGO mission

“Inspire and develop the builders of tomorrow”

LEGO vision

“Inventing the future of play”

Growth strategy

Innovation strategy

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ERM at lego

Risk management developed in 4 stages

Step 1: Enterprise risk management

Step 2: Monte Carlo simulations

Step 3: Active Risk & Opportunity Planning (AROP)

Step 4: Preparing for Uncertainty

Order is by initiation sequence

Steps 1 & 2 are damage control

Steps 3 & 4 are proactive

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Erm Step 1: enterprise risk management

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ERM Step 2: Monte Carlo Simulations

Monte Carlo simulation

Method of evaluating the effect of input variances on a model of a complex system

In short, it helps to see how input variances affect outcomes

Helps to define risk tolerance

Implemented in three areas

Budget simulation

Credit risk portfolio

Consolidation of risk exposure

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Erm step 3: arop

Active Risk Assessment of Business Projects (AROP)

Formal approach to defining and handling project risk

Includes multiple steps

Identification

Assessment

Handling

Reassessment

Follow-up

Reporting

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Erm step 4: preparing for uncertainity

Preparing for Uncertainty

Defining and Testing Strategies

Workshops precede strategic planning sessions

Four scenarios

Agree on two key drivers of uncertainty

Describe each of four quadrants of 2×2 matrix

Define strategic issues

Actions to take

“who is doing what by when?”

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The papa model

Park, Adapt, Prepare, Act: PAPA

Park

Adapt

Prepare

Act

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Risk management roi

Strong support from upper management

Efforts have resulted in value

Many LEGO key planning processes now include risk management

More visibility of enterprise risk

More opportunity to address risk

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summary

Risk management is not risk aversion

ERM allows LEGO to take risks when appropriate

Grow

Create value

LEGO strategic risk management mission

“Drive conscious choices”

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