54 John Lewis Partnership plc Annual Report and Accounts 2016 Managing our Partnership risks (continued)


Our formal risk assessment process for stress-testing key business plan decisions reinforces our intuitive use of risk management in every day decision-making.


Risk management process


The Board’s risk assessment is underpinned through our governance structure by the Partnership’s robust risk management framework. We have a structured approach to identify, manage, monitor and communicate risks consistently, and take advantage of opportunities across Divisions.


Our risk management process has been used to stress-test key decision points and influence our deployment of resources. We do this before we commit, so we can make any changes to our plans and deliver them with confidence. Risks are assessed by Divisions and Directorates quarterly, considering the potential impact of the risk and the likelihood of its occurrence – see Heat Map.


We make our evaluation of impact and likelihood before taking into consideration any controls in place, to give a ‘gross’ profile, we also consider the effectiveness of current mitigating controls in place, to give a ‘net’ profile. If this net profile is deemed to be placing us at too much risk for the return expected and is outside of our risk appetite, a response will be needed to bring the risk back within an acceptable level of risk taking in an appropriate time period.


Details of our risk profiles, current mitigating controls, risk tolerances and further actions are captured in Risk Registers in each Division and at a Partnership level.


The Partnership Risk Profile is reviewed and challenged by the Partnership Board with the support of the Chairman’s Committee and Audit and Risk Committee. The outcome of this review is fed back to the Divisions to ensure that the top down and bottom up processes are complementary.


What do we mean by impact?


This assesses what the potential Partner, customer, financial and regulatory impact could be if the risk materialises, the target risk profile and the timeline to achieve it.


Heat map 4 6 5 7 2 3 1


The top seven Partnership risks 1


Competition


2 Pension obligations Information security


3


4 Efficiency 5


Operating model strain


6 Change delivery 7


Economic environment


1. Remote <5%


2. Unlikely 5-25%


3. Possible 25-50%


Likelihood


Net risk profile, after current mitigating controls Target risk profile, if further actions are successful


4. Likely 50-80%


5. Very likely >80%


To help visualise our ‘net’ profiles for analysis and decision making, risks are plotted on a heat map. In general, net risks evaluated in:


Red zone


The ‘red zone’ is where the current level of risk is too high. Desired ‘target profiles’ are set and further actions identified to reduce the risk where possible.


Amber zone


The ‘amber zone’ is where risk is either less severe, or we feel we are managing it more effectively. Mitigating actions are formally monitored against targets to ensure they do not deteriorate against appetite.


Green zone


The ‘green zone’ includes risks that are unlikely to affect our Partnership Aims. Risk owners are responsible for monitoring them and raising the alarm if they show significant deterioration.


Impact 1. Minor 2. Moderate 3. Major 4. Significant 5. Critical


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