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Enterprise Risk Management

  • Jeroen Bolt, Senior Manager |

5 minuten leestijd

There are plenty of lessons behind the success story of every organisation, especially during these trying times. Football clubs – operated as proper companies these days – might teach us a thing or two about Enterprise Risk Management (ERM).

Enter Liverpool Football Club (LFC), that currently sit comfortably at the top of the Premier League table, 25 points ahead of rival Manchester City and well on track to become the league champion. They appear to have performed extremely well as an organisation on multiple elements of the Enterprise Risk Management Framework – which will be briefly discussed in the section below. It seemed impossible that they would not lift the trophy in May 2020 – not until the unprecedented outbreak of COVID-19 reached the UK and suspended the Premier League season until June 17 with nine matches left to play. What are the key takeaways from LFC’s risk management journey?

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Calculated risk-taking is essential to the organisation's long-term agenda

Upon every big decision that an organisation takes, there should be a clear link to corporate strategy and risk appetite. Following the acquisition by Fenway Sports Group (FSG) in 2010, the new owner stipulated a clear vision: return the club to greatness. The club approached things carefully and did not rush into the transfer market and overspend despite the pressure from supporters.
LFC is a different organisation nowadays. There has been a significant increase in risk appetite, given the successful Champions League campaign of the previous season. The club remained cautious, but no longer hesitant to attract and invest substantial amounts of capital to acquire key players if deemed necessary.

Their decade journey provided us with a concrete lesson of turning risks into opportunities. The club made one of their most important decisions in 2018 by selling Philippe Coutinho, arguably their most important player, for EUR 160 million to FC Barcelona. The general consensus was that the team would immediately regress due to his importance. LFC however used the proceeds of the sale to reinvest in players that covered a vulnerable part of the team defence. It turned out that the new reinforcements played a major role in turning Liverpool into one of the world's finest football teams.

The club set their vision and risk tolerance, took calculated risks, and turned them into advantages. The latter cannot be achieved without sound risk strategy and governance.

Sound risk governance contributed to LFC's recent rise

Governance within the ERM Framework describes whether the board is appropriately organised, structured and focused on vital areas, and in alignment with the defined risk appetite and tolerances.
LFC was struggling as a club when Fenway Sports Group (FSG) made the acquisition in 2010. Their ambitious goal was announced, but it was evident that in many departments they lacked capacity and were behind their rivals in the European and English top-flight competition.

They took a modest first step by writing off debt and stabilising financial and operational performance. The principles and guidance of LFC's new approach were defined. People, process and technology were deployed to make better informed decisions in squad reinforcement and commercial activities. On the field, the club went as far as hiring a designated throw-in coach, an approach considered rare in football, to improve their attack capabilities. It was obvious that detailed operational aspects really mattered for LFC to achieve their objectives.

Risk culture

Culture shapes the foundation of every organisation – including LFC's. The winning mentality was predominantly seen in the 1980's golden era and reignited on the day FSG and Jürgen Klopp joined the club. When joining the club, the manager clearly indicated his aim to win trophies within four years.
With his apparent team management skills, it is easy to observe his application of soft controls like commitment, clarity, and achievability. The experienced squad member, James Milner, also played his role in professional role-modelling. He displayed commitment, professionalism, and set an example for younger players on a daily basis.

The club surely knows a thing or two about controls that have a real impact on culture and behaviour.

Data and technology

Data analytics is pivotal in Enterprise Risk Management. The club recognised the importance of data science and took a concrete step with the diversification of staff knowledge by recruiting data experts, analysts, and even an astrophysicist. In order to assess and monitor the potential targets, the club utilised a database of 100,000 players globally. The newly-established analytics team was assigned with the task of identifying the needs of the team focusing on how to cover the vulnerable areas. The club identified potential players who were undervalued, the ones that could fit LFC's style of play.
Several analytics techniques were used to evaluate the players and the adopted technology – originally built for missile tracking – to track every action of every player in every game. The Goal Probability Added (GPA) metric was developed to assess the effect of each player's action towards the subsequent goal-scoring probability. Using these techniques the club was able to assess each player quantitatively and make better informed decisions.

Impact of COVID-19 on the paved road to success

t appeared that LFC had taken all the right measures and comfortably cruised towards the long awaited Premier League trophy, until the outbreak of COVID-19 temporarily suspended the 2019/2020 season until mid-June. Fans are frustrated as this event is truly unprecedented and beyond the club's control. From a commercial perspective, football clubs across the continent are forced to become creative about how they can drive revenue with empty stadiums.

Within Risk Management, organisations strive to have a holistic view of the most significant risks impairing the achievement of their most important objectives. We have learned that unprecedented events such as COVID-19 may significantly hold organisations back from reaching their goals, irrespective of doing extremely well in areas of ERM.

In these trying times, resilience is needed on and off the pitch. In addition to the assessment of risk impact and likelihood, organisations need to understand risk interconnectedness and velocity to minimise the downside effect and build more pertinent mitigating actions. For football clubs, as they wait for the season to resume, there is an urgent need to gain a deeper understanding of the effect of COVID-19 on squad fitness and psychology, supporter base, brand reputation and commercial activities in order to secure long-term success.

About the authors

Archimedes Kristamuljana is a manager at the Risk and Regulatory unit of KPMG Advisory, Amstelveen Office. 

Thijs Theunissen is a manager at the Risk and Regulatory unit of KPMG Advisory, Eindhoven Office.

Evangelos Gkontas is a consultant at the Risk and Regulatory unit of KPMG Advisory, Amstelveen Office.