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•Integrated risk
•management for
hospitals
•CEO Conference - breakout
•Fabian Blank, McKinsey
Christian Bongiovanni; McKinsey
•March
2011
•CONFIDENTIAL AND PROPRIETARY
•Any use of this material without specific permission of McKinsey & Company is strictly
prohibited
•McKinsey & Company | 1
•Why risk management
for
•hospitals?
•McKinsey & Company | 1
•Expertise is not enough! For example, risk was always seen as
•a core capability of the financial sector ...
•EXAMPLE:
•FINANCIAL SECTOR
Risk management at the center of the business model ▪
Credit/default risks and investment risks for banks
▪ Event risks and investment risks for insurers
Risk as core element of financial theory, e.g., portfolio
theory (1952), option pricing model (1973), hedging (1993)
The largest financial institutions worldwide invest more than
USD 100 billion a year in risk management
•SOURCE: K. Buehler, A. Freeman und R. Hulme (HBR), Deloitte; Team McKinsey & Company | 2
•McKinsey & Company | 1
EXAMPLE:
FINANCIAL SECTOR
... but the crisis revealed that these supposed experts
were completely wrong
•Number of insolvent4% of all banks
•banks1
•Value lost by the 15
largest banks 2007-2009
•USD 1,224 billion
71% of total value
•Number of job cuts by the
top18 banks
•~15% of all jobs
•Drop in US and EU GDP4% of total GDP
•2007-2009
•SOURCE: FDIC; Bloomberg; FT.com; Global Insight Data; Team
•1 Since September 2008 (banks covered by the Federal Deposit Insurance Corporation, FDIC)
•McKinsey & Company | 3
Risk culture attitudes in hospitals are far from ideal
Agree
Neutral
Disagree
Survey results, pilots vs. surgeons, percent of respondents, n = 7,725
•Overconfidence in own ability
"Even when I'm tired,
I can work effectively
in critical situations"
•26
•Pilot
s
•1
0
•64
•70
•Surgeon
s
•12 •18
•2
•Resistance to criticism
"Less experienced colleagues
should not question decisions
made by more experienced
team members"
•SOURCE: Sexton et al., BMJ
•Pilots1
•Surgeon
s
•97
•24
•21
•55
•McKinsey & Company | 4
•Key elements of
integrated
•hospital risk
•McKinsey & Company | 6
•Hospitals and the public often focus solely on clinical risk Today's focus
•management
•Primary organizational
•Type Example risks responsibilities
Patient safety e.g.
 Hygiene and sterilization
 Incidience reporting (CIRS)
 Standardization of
treatment pathways
,
Medical risk
management
Commercial and other risks e.g..
 Market and financing risks
 Legal risks
Staff units or clinical owner e.g.
 Quality management
 Hygiene
 Medical/clinical safety
,
,
Enterprise risk
management
Integrated
risk
management
 Integrated perspective on
all risks
 Systematic prioritization
and coordination of
mitigation activities
Board supported by staff units or
administrative departments, e.g.
 Internal auditing
 Legal department
•McKinsey & Company | 6
•
•Hospitals are exposed to a multitude of risks – far beyond "just"
•medical safety risks
•Operational
risks
•Regulatory
risks
•Market risks
•Medical/clinical
risks
•Financin
g
risks
•Reputational
risks
•Risks due to
adverse
events
•McKinsey &
& Company
Company || 87
•McKinsey
•Risks should be prioritized by likely severity and probability
•Mega risks Potential "black swans"
•2nd-priority risks Other
•High
probability
•2 types of
“mega risks”
• ▪ Risks with
high expected
•downside
•(probability•weighted severity)
•▪ "Black swans"
•– low probability,
but extremely
•high impact
•(e.g., major hygiene
scandal with several
deaths)
•This will
most likely
happen
•This
might
happen
•Low
probability
•Very
unlikely to
happen
•No
significant
impact on the
organization
•Significant impact on
the organization's
ability to fulfill
•mission
•Disaster – severe
impact on the
organization's ability to
fulfill mission
•Low severity High severity
•McKinsey & Company | 8
•Our framework identifies four possible problems with risk culture
Problem
Ambiguity
towards risk
Dimension
Ineffective communication
Description
 Warning signs are not shared
Unclear risk tolerance
 No clear directives about acceptable/unacceptable risks
Lack of insight
 Key risks and their causes not understood/not recognized
 Staff believe that they or the hospital are immune to risks
Overconfidence
 Actions (especially by top management) are not questioned
Denial of risk
No challenge
Fear of bad news
 People feel inhibited about passing on bad news or learning
from mistakes
 Reluctant to react or indifferent to consequences
Detachment
from risk
Indifference
 Organization perceives changes, but reacts too late
Slow response
Disregard
of risk
Gaming
 Staff/departments run risks that benefit them but hurt the
organization
Beat the system
 Staff see risk reduction measures as unnecessary and try
to get around them
•SOURCE: McKinsey Risk Culture Framework McKinsey & Company | 9
•McKinsey & Company | 8
•How to approach
the
•challenge ?
•McKinsey & Company | 1 0
•Risk management addresses 3 essential elements – regardless of
•whether the setting is clinical, business operations, or integrated
•Transparency
•Organization and
processes
•
•SOURCE: McKinsey Risk Management Practice; Team McKinsey & Company | 1 1
•Cultur
e
•SANITIZED
•With the help of a staff survey, a hospital can identify
HOSPITAL EXAMPLE
•specific weaknesses in the risk culture
•< 70% 70–79% ~ 80%
•Sample results, percent
•Average
•Ambiguity
towards
risk
•Special•Admin/ Nursing
•Boar
ist physi•hospital managed
•member
cians director ment functions Other
•Support
-ing
•Poor
communication
•Unclear tolerance
•Lack of insight
•Overconfidence
•Denia
l of risk
•No challenge
•Fear of bad news
•Detachment
from risk
•Disregard
for risk
•Indifference
•Slow reaction
•Gaming
•Beat the system
•SOURCE: McKinsey Survey on Risk Culture
•McKinsey & Company | 1 2
•Focus on a few clearly defined changes in mindset
•EXAMPLE
•Risk culture change journey – Example: "No challenge"
•What we see and
•may tryto change
•Results
Fewer wound infections
•Results
Wound infection from
head physician's necktie, although
noticed by nurse
•Practices
Always wears ties, nurse jokes
about it with colleague, but
doesn't address physician
•Behaviors
Unhygienic tie is not
challenged
•What we don't see
and mostly don't try
to change
•Current mindsets
•“It’s not for me
to
•criticize
senior staff"
•Practices
Head physician no longer wears
ties during patient rounds
•Behaviors
Nursepoints out lack of
hygiene tohead physician
•
•
•Target mindsets
"When I'm sure of the
facts, I speak up
without fear"
•McKinsey & Company | 1 6
•Implementing a comprehensive risk management system is a
•challenging task
•Statements by clients and McKinsey partners following risk management projects
•" "
•"One of the main challenges is to
integrate risk management so that it is
not felt to be a bureaucratic burden"
•"
•"Most companies are very good at
identifying and managing quantifiable
risks. For non-quantifiable risks such
as strategic risks, they perform much
worse: Most fail to give these risks
adequate attention."
"
"It is extremely tough to change not "We underestimated how diverse
•only the processes, but also the entire
•people's views on risk management
risk culture - and that's precisely the
can be and how much this impairs the
biggest challenge."
implementation of a risk management
system."
•
•SOURCE: Interviews McKinsey & Company | 1 5
•McKinsey & Company | 1 6
•1
•How do you identify your current risk
•profile and judge improvement ?
•2
•What do you do as a CEO to build a strong
•risk culture ?
•3
•What has made the biggest difference in
•equipping the Board to manage risk
•effectively ?
•McKinsey & Company | 1 6