Managing risk
Effective risk management ensures Longhurst Group can operate successfully in all circumstances. Recognising and mitigating risks allows us to achieve our objectives and overcome any threats to success, posed by internal and external environments.
Risk management framework
Managing risk is integral to good management practice throughout the organisation, and is incorporated into our strategic and operational planning processes and performance management.
Risk management is the responsibility of the Board, while different committees, such as our Audit and Risk and People and Remuneration Committees undertake a more detailed review of risks that may impact the Group’s strategy, operations, financial or legislative compliance.
The strategic risk register is reviewed each quarter by the Group Board and the Audit and Risk Committee. The Keystone and Libra Boards, along with the Development and Asset Investment Committee and Finance and Treasury Committee, review the risks within their area of responsibility. The annual programme of internal audits undertaken by KPMG is influenced by the Group’s operational and strategic risk registers and reported quarterly to the Audit and Risk Committee.
The Group undertakes various multi-variant scenario tests, analysing the impact and effect on financial covenants and viability with mitigations developed to ensure we can recover from the impact of each scenario.
We use the ‘three lines of assurance’ on controls within the risk system, which form the basis of the controls assurance reporting mechanism to boards and committees. Our online risk management database provides real time access to risk reports and key areas of assurance. Our risk system enables relevant and focused board reporting in relation to strategic and operational risks.
Risk appetite
As a not-for-profit business, we must act in ways that minimise the risk of serious financial or other failures. The Board’s decisions are informed by our regulator’s requirement that social housing assets shouldn’t be placed at undue risk.
The Group is also required by the Government to operate in a competitive environment, use substantial amounts of private finance to deliver new homes and comply with many complex areas of law.
We recognise that we’re not able to operate in a ‘risk free’ environment and that our framework of internal controls can only provide reasonable, not absolute, assurance.
We’re aware that control weaknesses and compliance issues can still arise. The framework of key controls that we operate are designed to minimise and manage the impact of these risks should they materialise.
The Group Board and Executive Leadership Team regularly review and amend our risk appetite with reference to our Improving Lives 2025 strategy and key areas of the business.
Principal risks and uncertainties
Given the current macro-economic environment, the Group is monitoring and mitigating the high levels of inflation, which are resulting in the building trades experiencing higher than average CPI. We have significant exposure through our repairs service and new development programme.
Another significant external factor is the requirement to invest in properties to ensure that an EPC rating of at least C is achieved across our housing stock by 2030.
Heightened scrutiny is also currently being placed on damp and mould issues in the sector, which for some properties may require investment in the fabric of the building.
Financial performance is coming under pressure following the recent rent cap, which was below current inflation levels.
Against the backdrop of the issues mentioned above, business plans are being robustly flexed against many extreme multi-variant scenarios to ensure financial viability and lenders’ covenants can be maintained.
The wider uncertainty in the economic environment is also leading the Group to take a cautious approach on expected volumes and values for market sale, to ensure that our development programme can react to market conditions with the appropriate tenure mix.
The seven principal risks detailed in this section currently represent the greatest potential impact to our business and the achievement of our business plan objectives.
Strategic risk register
In addition to the seven principal risks highlighted above, the Group’s strategic risk register contains a further 13 risks.
The total 20 strategic risks are listed below and plotted on the heat map, with the residual rating displayed following the mitigation measures we've taken.
A
Failure of the Group to protect and enhance its reputation with all stakeholders
Impact: 4/6
Probability: 4/6
B
Failure to deliver quality and caring services in line with regulator’s customer standards
Impact: 4/6
Probability: 4/6
C
Sustained failure to improve services to customers or manage complaints, leading to adverse regulatory decisions
Impact: 5/6
Probability: 3/6
D
Failure to deliver development programme and sales in line with BP and Homes England targets
Impact: 5/6
Probability: 3/6
E
Not providing safe and high-quality homes for our customers
Impact: 5/6
Probability: 4/6
F
Failing to prevent cyberattacks/other threats to ICT systems, leading to service interruption or significant diversion of resources
Impact: 4/6
Probability: 3/6
G
Failure to deliver financial performance in line with business plan or investor expectations
Impact: 4/6
Probability: 3/6
H
Current high levels of inflation impacting on our financial performance and our customers’ financial resilience
Impact: 4/6
Probability: 3/6
I
Ineffective Board governance and leadership leading to poor decision-making and strategic direction
Impact: 4/6
Probability: 3/6
J
Not managing/preparing for exposures from supply chain failures leading to service failures and/or financial exposures
Impact: 4/6
Probability: 3/6
K
Care and support services don’t meet CQC standards and safeguarding best practice
Impact: 4/6
Probability: 3/6
L
Government policy changes which adversely impact on our business plan goals and reputation
Impact: 4/6
Probability: 3/6
M
Failure to deliver improved repairs service and customer satisfaction through new contractors
Impact: 4/6
Probability: 3/6
N
Failure to comply with legislation and regulatory requirements
Impact: 4/6
Probability: 3/6
O
Not having accurate, timely, relevant and assured data to enable good decision making
Impact: 4/6
Probability: 3/6
P
Business plans/strategies don’t facilitate compliance with legislation on milestones: EPC C by 2030 and net zero by 2050
Impact: 4/6
Probability: 3/6
Q
Not retaining or recruiting key staff and failure of succession planning
Impact: 4/6
Probability: 3/6
R
Not having effective financial management (including loan covenant breaches) and not achieving affordable funding
Impact: 5/6
Probability: 2/6
S
A serious health and safety incident (gas and electrical safety, fire, legionella or asbestos)
Impact: 4/6
Probability: 2/6
T
Potential of fraud to adversely impact on Group activities
Impact: 3/6
Probability: 2/6