Tn Risk Management Framework

Takaful Nasional Sdn Berhad Risk Management Manual

Appendix 3 Qualitative Risk Measures Classifications Table 3.1: Qualitative Measure of Likelihood Example of qualitative measure of Likelihood for (A) Enterprise and (B) Business Unit: (A)

Rating

Description

5

Almost certain

High likelihood of occurrence unless controlled, i.e. almost certain to occur more than once within the next twelve months

4

Likely

The risk is almost certain to occur within the next twelve months, unless controlled

3

Possible

Some likelihood of risk occurring unless controlled, i.e. the risk could occur at least once in the next 3 years

2

Unlikely

The risk could occur at least once in the next 3 to 5 years

1

Rare

Very low potential for occurrence, i.e. unlikely to occur in the next 5 to 10 years

(B)

Rating

Description

5

Almost certain

Is expected to occur in most circumstances. High likelihood of occurrence unless controlled, i.e. almost certain to occur more than once within the next 12 months.

4

Likely

Will probably occur in most circumstances. The risk is almost certain to occur at least once within the next 12 months, unless controlled.

3

Possible

Might occur at some time. Some likelihood of risk occurring unless controlled. i.e. the risk could occur at least once in the next 24 months.

2

Unlikely

Could occur at some time. The risk could occur at least once in the next 24 to 36 months (i.e. 2 to 3 years).

1

Rare

May occur only in exceptional circumstances. Very low potential for occurrence, e.g. unlikely to occur in the next 3 to 5 years.

Takaful Nasional Sdn Berhad Risk Management Manual

Table 3.2: Qualitative Measure of Impact Example of qualitative measure of Consequence or Potential Impact (Enterprise): Rating 5

4

3

Qualitative Description of Impact

Quantitative or Financial Impact

Catastrophic Viability of ongoing operations threatened - failure to meet key strategic objective - loss of key competitive advantage / opportunity - significant loss of reputation and production capability - large number of key employees or directors leave - material breach of legislation with very significant financial or reputational consequences

•

Major

Significantly reduced ability to achieve business objectives - major impact on business strategy - loss of market confidence - short term loss of production capability - some key employees leave; high staff turnover; poor reputation as an employer - regulatory breach with material consequences but which cannot be readily rectified

•

Disruption to normal operations with a limited effect on achievement of business strategy - temporary loss of production capabilities - reputation damaged to some extent - widespread staff morale problems; key employee leaves - regulatory breach with material consequences but which can be readily rectified

•

Moderate

• •

•

•

Direct loss or opportunity cost > RM20m Solvency threatened Sustained negative investment return

Direct loss or opportunity cost of RM10m-RM20m Negative investment return in a period

Direct loss or opportunity cost of RM5m –RM10m Lower investment return than budget

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Rating 2

1

Minor

Insignificant

Qualitative Description of Impact Minor impact on achievement of business strategy - minor loss of production capabilities - limited damage to reputation - minor cost, quality and time impact - short term staff morale problems - regulatory breach with minimal consequences but cannot be easily rectified Minimal impact on business strategy - accounting/administrative problems with no material legal, decisionmaking or profit and loss impact - minimal reputational sensitivity - routine Human Resource issues - Rrgulatory breach with minimal consequences and easily rectified

Quantitative or Financial Impact • •

•

Direct loss or opportunity cost of RM2m -RM5m Marginal drop in investment return below budget

Direct loss or opportunity cost < RM2m

Takaful Nasional Sdn Berhad Risk Management Manual

Table 3.3: Qualitative Measure of Impact Example of qualitative measure of Consequence or Potential Impact (Business Unit):

Level 5

Catastrophic

Organisationwide Failure to meet key strategic objective; organisational viability threatened; major financial overrun; major reputational damage

Performance Loss of key competitive advantage / opportunity Significant loss of reputation and production capability Major milestone missed by > 12 months

4

Major

Major impact on strategy; major reputational sensitivity

Indicative description Financial Employees Direct loss or opportunity cost > RM20m

Large number of key employees or directors leave

Solvency threatened Sustained negative investment return

Failure to achieve some performance targets

Direct loss or opportunity cost of RM10mRM20m

Major milestone missed by 6 – 12 months

Negative investment return in a period

Some key employees leave; high staff turnover; poor reputation as an employer

Legal and Regulatory Large scale class action; material breach of legislation with very significant financial or reputational consequences

Regulatory breach with material consequences but which cannot be readily rectified

Projects Complete failure to deliver one or more key aspects of a project (e.g. quality, timing, cost)

Material failure of a key project outcome (e.g. quality, timing, cost) with significant operational implications

Takaful Nasional Sdn Berhad Risk Management Manual

Level 3

2

1

Moderate

Minor

Insignificant

Organisationwide Moderate impact on strategy; moderate reputational sensitivity

Minor impact on strategy Minor reputational sensitivity

Minimal impact on strategy Minimal reputational sensitivity

Performance Some reduction in performance Major milestone missed by 3 – 6 months

Minor reduction in performance Major milestone or deadline missed by 1 – 3 months

Negligible performance reduction Milestone missed by < 1 month

Indicative description Financial Employees Direct loss or opportunity cost of RM5mRM10m Zero investment return in a period Direct loss or opportunity cost of RM2m – RM5m Lower investment return in a period Direct loss or opportunity cost < RM2m Static investment return in a period

Widespread staff morale problems; key employee leaves

Legal and Regulatory Regulatory breach with material consequences but which can be readily rectified

Projects Key output not delivered as planned but within tolerance limits and operations not materially affected

Some short term staff morale problems

Regulatory breach with minimal consequences but which cannot be readily rectified

One or more minor deliverables not delivered but overall project outcomes achieved within tolerable limits

Routine HR issues

Regulatory breach with minimal consequences and readily rectified

Negligible or no impact on cost, timing or quality of deliverable