Transport for LondonRisk management
Skip to navigationTfL's objectives in relation to the managementof risk are to:
- Improve awareness and understanding of riskand the need for effective risk management
- Integrate and embed risk management into the organisation's culture
- Manage risk in accordance with best practice
- Anticipate and respond to changing social, environmental and legislative requirements
Risk management across the Group continues to mature in line with strategic plans.
Key elements in the current process are:
- A risk management policy approved by the TfL Board
- A combined top-down and bottom-up risk identification approach
- Identification, evaluation and categorisation of all significant business risks
- The use of risk maps and registers at the strategic, directorate and operational levels
- Ownership of strategic risks by the Commissioner, with regular status reporting
- An assurance regime that includes the active involvement of the TfL Audit Committee
- Integration of risk management into business planning and the formal management reporting and review processes
- The use of risk management software across the group to ensure consistency of content and quality of data and to enable efficient and comprehensive reporting
The current top five strategic risks facing TfL are:
- Project delivery
- Quality and quantity of people
- Effective contract management
- Use and availability of funding
- Resilience to major external events
These risks, along with all other strategic risks, have detailed risk descriptions and analyses of sub-risk elements. All strategic risks have been fully evaluated, with documented mitigation strategies and action plans in place.
Significant work is currently in hand to improve risk management further in line with best practice. The 2006/07 Risk Management Plan includes, for example, training and awareness initiatives and a piece of work to agree the corporate level of risks that the organisation is prepared to bear.
This will be incorporated into the evaluation and reporting arrangements going forward.
Treasury risk management
The Board approves prudent treasury policies that accord both with the principles of the CIPFA Prudential Code and investment guidance issued by the Secretary of State under Section 15 (1) (a) of the Local Government Act 2003.
Senior management directly controls day-to-day treasury operations. The Finance Committee is the primary forum for discussing and approving all day-to-day treasury strategy and policy matters and for submitting proposals to the Board.
Treasury operates on a centralised, non-speculative risk basis. Its purpose is to identify and mitigate residual treasury-related financial risks inherent tothe Group's business operations.
TfL has considered the implications of its overall asset and liability management, with analysis continuing on its overall exposure to inflation and interest rates as they affect its commercial markets (passenger levels, fare revenues and costs) and in its financial activities (financial costs and investment returns on cash balances).
The results of this analysis have not led to significant changes in the recommended treasury management strategy (long-term fixed-rate debt and short-term cash investments under one year), but have focused on the opportunities to increase yield without risking underlying security.
The primary treasury-related financial risks faced by the Group are interest rates, liquidity and counterparty credit. These are the focus of treasury policies, as set out below:
Interest rates
The TfL Board has approved parameters of a minimum of 50 per cent fixed-rate on existing and forecast debt. The proportion of fixed-rate debt borrowings at the year end was 100 per cent.
Funding and liquidity
To ensure continuity of affordable funding and flexibility, debt maturities are spread over a range of dates, thereby ensuring that the Group debt service is not exposed to excessive repayment risk in any one year. The maturity profile of debt outstanding at 31 March 2006 is set out in Note 19 to the accounts. Due to the long-term nature of future commitments, significant cash balances are held to mitigate the risk of future access to funds.
Counterparty credit
The Group's exposure to credit-related losses, in the event of non-performance by counterparties to financial instruments, is mitigated by limiting exposure to any one party and imposing a minimum credit limit quality of Moody's A1.
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