i'r*ffiguF
MBOMBELALOCALMUNICIPALITY
RISKRESPONSE
MODEL
FORTHE 201512016
FINANCIAL
YEAR
FINAL
Date:
26 May 2015
Place:
Mbombela
RISKRESPONSE
MODELFORTHE
20151201
6 FINANCIAL
YEAR
IN D E X
INTRODUCTTON
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D O C U M E NFTR A M E W O R K
. . . . . . . . . . . . 3. . . . . ,
D E F T N | T |O F
NK E yC O N C E P T S
. . . . . . . . . . . .3. . . . .
R t s KM t T t c A T l o N . . . . . . . . . .
. . . . . . . . . . . . 3. . . . . .
R r s KR E S P O N S E . . . . . . . . . . . .
...........3
R I S KT R E A T I N G
..,........4
R r s KT R A N S F E R E N Q E
............4
R r s KD E F E R R A L . . . . . . . . . .
........4
R l s KA V O T D A N .C. .E. . . . . . .
...............4
R l s KA C C E P T A N C E . . . . .
. . . . . . . . . .4. . . .
A C T T OPNL A N S
( R E S P O N SPEL A N S ) . . . . . . . . . . . . . . .
.......4
INDICATION
OF WHICHRESPONSE
STRATEGY
MIGHTBE THE BESTFORA SPECIFIC
R t s KC A T E G O R Y . . . . . . .
..............5
2
YEAR
FINANCIAL
MODEL:201512016
RISKRESPONSE
INTRODUCTION
shoulddecideon
andrated,the municipality
categorized
Afterall risksare beingidentified,
howto respondto theserisks.
modelis developed.
a riskresponse
To assistin thedecisionmakingprocess,
Framework
of the municipality.
modelis partof the RiskManagement
Theriskresponse
FRAMEWORK
DOCUMENT
The followingwill be coveredin this document:
.
Definitionof key concepts.
.
Riskresponsesfor threatsand riskresponsesfor opportunities.
o
lndicationof which responsestrategymightbe the best for a specificrisk category.
OF KEYCONCEPTS
DEFINITION
RISKMITIGATION
Reducing
the probability
or impactof the risk.
Alsoknownas riskreduction.
RISKRESPONSE
thethreats
withdeveloping
actionplansto reduceor eliminate
is concerned
Riskresponse
therange
to risk,involves
identifying
andevaluating
andeventsthatcreaterisk.Responding
the chosenoption.
of possible
optionsto mitigaterisksandimplementing
to improve
for the exploitation
of opportunities
shouldalsomakeprovision
Riskresponse
of the institution.
the performance
and riskresponseactionplans.
betweenriskresponsestrategies
Thereis a difference
Thefollowingare riskresponsestrategies:
o
Risktreating
.
Risktransference
o
Riskdeferral
.
Riskavoidance
.
Riskacceptance
riskresponsestrategyhas beendecided.
Riskactionplansfollowafterthe appropriate
3
RISKTREATING
Somerisksare withinthe ambitof management
to reduceto a levelwherethe riskis no
longerunacceptable.
Stepscan be takenby management
to for example,improveinternal
controlsystemsto mitigatethe riskof hugescalemisuseof fleet.
RISKTRANSFERENCE
Movingthe impact(andownership)
of the riskto a thirdparty.The aim is to ensurethatthe
riskis ownedand managedby the party,bestableto dealwith it effectively.
Risktransfer
usuallyinvolvespaymentof a premium,and the cost-effectiveness
of this must be
considered
whendecidingwhetherto adopta transferstrategy.
RISKDEFERRAL
Deferring
aspectsof the planto a datewhenthe riskis lesslikelyto occur.
RISKAVOIDANCE
Alsoknownas riskremovalor riskprevention.
Riskavoidance
canincludethefollowing:
1.
Alteringthe projectplanso thatthe circumstances
whichmay give riseto the riskno
longerexist.
2.
Removingthe causeof the riskor executingthe projectin a differentway,whilestill
aimingto achieveprojectobjectives.
RISKACCEPTANCE
withthe riskvia contingency
Dealing
ratherthanaltering
the plan.
ACTTON
PLANS(RESPONSE
PLANS)
Aftermanagement
decideson a responsestrategy,actionplansshouldbe developedto
realizethe responsestrategy.
Actionplansreferto the practicalstepstakenby a RiskOwner/Risk
Championand must
include
thefollowing:
1.
Specificactionsplannedto realizethe responsestrategy
2.
(suchas budgetandpersonnel)
Resources
3.
Nameof the actionowner/s
4.
Duedatefor evaluation
5.
Duedatefor finalimplementation
:
4
OF WHICHRESPONSE
STRATEGY
MIGHTBE THEBESTFOR
INDICATION
A SPECIFIC
RISKCATEGORY
SUITABLEFOR THE FOLLOWING
RISK
DESCRIPTION/EXAMPLE
RISKS
RESPONSE
THREA
Avoid
Transfer
Reduce
Accept
.S
Possible
adversepublicopinion.
Some
risk
technical/operational/infrastructure
The risk is avoidedby
problems.
e.g.
maintenance
and
Legal
:hangingthe projectin
regulatory
riskse.g.regulatory
somewayto by passthe risk,
licensing
requirements.
controls,
Riskssuchas theft,damageto
property
municipal
Someor all of the riskis
andenvironmental
party
to a third
for riskssuchas naturaldisasters,
storms
transferred
exampleinsurance.
and/orflooding.
Technical/operational/infrastru
cture
performance
failure,
e.g.negligence,
Actionis takento reduce
unclearexpectations.
:itherthe likelihood
of the
isational/management/h
Organ
uman
riskoccurring
or the impact
poor
factorse.g.personality
clashes,
lhatit willhave.
leadership
andpoorstaffselection.
fhe risk may be accepted
perhapsbecausethereis a
low impactor likelihood.
A
planwill be
contingency
identifiedshouldit occur.
Somepolitical,legaland regulatory,
andeconomic/financial
risksmay need
:o be acceptedwith a contingency
r lansin placee.g.war and disor der ,
-.xchangerate fluctuation.
Economiclfinancial/market
Political
Legaland regulatory
Herea planis put in placeto
Contingencyiespond
if the riskis realised.
Arguarbly
all riskscan and shouldhave
plan in place.
a contingency
OPPORTUNITIES
Share
xploit
An opportunity
is sharedwith
to
a partner
or supplier
Iechnical/operationa
l/infrastru
cture
maximise
the benefits
-5.9.
newtechnology,
improved
throughthe useof shared
Jesigns.
resource/tech
nologyetc.
A projectcouldbe adjusted
;otakeadvantageof a
Economic/financial/market
e.g.new
positive
markets,
:hangein technology
or a
andemerging
newmarket.
changesin exchange
or interestrates.
RISK
UITABLEFORTHEFOLLOWING
RESPONSE SCRIPTION/EXAMPLE
is takento increase
likelihoodof the
rategiclcommerciaI opportun
ities
as newpartnership$,
newcapital
vestment,newpromoters.
ity occurringor the
itiveimpactit couldhave.
Hereno actionis takenand
e chanceto gainfrom the
nityis rejected.
ontingency
plansmaybe
ut intoplaceshouldthe
pportunity
occur.
Political
or environmental
e.g.new
transport
links,changeof government
ging positivechangesin
icy/opportunities
for lobbyingetc.
Thisdocument
wasconsidered
by the RMCat a meeting
thattookplaceon Friday,2g
M a y2 0 1 5 .
It was resolvedto recommend
the approvalof the RiskResponseModelfor
2016financialyear.
,^*,tct[o6ls
Approved/Not
ffovea
M SEANEGO
MUNICIPAL
MANAGER
Date:rrfo6trg
6
the 2015to