Enterprise Risk Management at Rolls Royce|Enterprise Risk Management|Case Study|Case Studies

Enterprise Risk Management at Rolls Royce

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Case Details:

Case Code : ERMT-004
Case Length : 11 Pages
Period : 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : -
Industry : Aero Engines
Countries : UK

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Overview of Risks

The Rolls-Royce board had established a structured approach to risk management. Risks were formally identified and recorded in a corporate risk register, which was reviewed and updated on a regular basis. Mitigation plans were prepared for all significant risks.

The risk committee of the Board assumed accountability for risk management and for reporting the key risks and associated mitigating actions. The Director of Operational Risk reported to the Finance Director. According to an external assessment of the risk management system, carried out during 2001, the Rolls-Royce risk management process more satisfied the Turnbull compliance requirements...

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Product Development Risks

Rolls Royce believed that to respond to future challenges it had to develop a new generation of advanced engines. With R&D costs for a new engine programme estimated to cost approximately $1 billion, the company had made attempts to develop risk and revenue sharing partnerships with other world-class companies...

Marketing Risks

The commercial aero-engine business operated within two distinct market sectors:

  • New engine sales to manufacturers like Airbus Industry and Boeing, as well as airlines;
  • Engine parts sales to airlines who serviced and maintained aircraft. Competitors in this secondary market included specialist maintenance companies...

Financial Risks

Rolls Royce used various financial instruments in order to manage the exposures that arose in its business operations as a result of movements in financial markets. The group did not trade in financial instruments for profit generation. The policy was to focus treasury activities on mitigating risk.

The main financial risks for Rolls Royce were movements in foreign currency exchange rates, interest rates and commodity prices. The Board regularly reviewed the group's exposures. A specialist committee also considered these exposures in detail.

All such exposures were managed by the Group Treasury function, which reported to the Finance Director. The Treasury operated within written policies approved by the Board and within the internal control framework described in the report of the directors...


Exhibit I: Rolls Royce Group Financial Highlights
Exhibit II: Benefits by Applying ERM
Exhibit III: Rolls Royce Segment Information
Exhibit IV: Rolls Royce Civil Aerospace Division Financial Highlights
Exhibit V: Rolls Royce Risk Mitigation Mechanisms
Exhibit VI: Rolls Royce Defence Division Financial Highlights
Exhibit VII: Rolls Royce Marine Division Financial Highlights
Exhibit VIII: Rolls Royce Energy Division Financial Highlights
Exhibit IX: Rolls Royce R&D Expenditure


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