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By Caroline McDonald

How does someone who started out as an art teacher end up as enterprise risk manager of a major public utilities commission?

Like many in the field, "my entry into risk management was unexpected," she said. "A summer job in the human resources department of a Fortune 500 company turned into an invitation to join their risk management department, at which time I asked, 'You've got a mis-management department?' And a career was born."

As a member of the Risk and Insurance Management Society Inc. for more than 30 years, risk management is something Luthi takes very seriously. She has served on the board for 11 years and, this year, she is president of RIMS.

"That's a lot of friendships, a lot of good exchange of information," she said. "Working with RIMS has been good preparation to take on greater responsibilities."

Responsibility is also something Luthi knows quite a bit about in her current job. The SFPUC provides water, power and sewer services to the San Francisco Bay area -- around 2.5 million people, including the Silicon Valley, she said. "So there are many other businesses that depend on the services we provide."

Currently the SFPUC is involved in several billion-dollar projects. One project is a new sewer system improvement program, at a construction cost of between $4 billion and $7 billion, which will take about 30 years to complete.

Another one, at about $4 billion, is a water system improvement program that was started in 2002 and will be completed in 2015.

"There are 167 miles of gravity-driven water systems," she said. "Up at Yosemite, Hetch Hetchy is the dam holding the water, and 167 miles of pipeline brings it down by gravity to the Bay Area. So all of that is being totally improved and brought seismically up to date."

The water must travel safely across three earthquake faults and through 60 miles of tunnel, 11 reservoirs, five pump stations and three wastewater treatment plants. "It has taken incredible engineering," she says.

The water improvement program was structured so that all risks were transferred to the contractors, who provide their own insurance, Luthi said.

Prior to joining the Public Utilities Commission, Luthi was director of risk management at the University of California, Davis, where she focused on promoting enterprise risk management in higher education.

It was that expertise in enterprise risk management that brought her to the commission, partly because of a recommendation by Susan Wade, manager of strategic sustainability at the SFPUC, who noted the organization's need for an enterprise risk management specialist.

The SFPUC's enterprise risk management program is currently concerned with the provision of emergency management services in a disaster as well as developing a robust emergency preparedness effort, Luthi said.

To achieve those goals, she has worked with the director of emergency planning to assess and identify key strategies that are in place to address risks, so that communications and an adequate response are in place in the event of a disaster.

Mary Ellen Carroll, SFPUC emergency planning director, said working with Luthi to identify and respond to key risks has proven to be a great help and a relief.

"The responsibility of the water system's security, municipal power and sewer services, as well as emergency and disaster response, can weigh heavily," she said. "I was talking to somebody about this recently who said, 'You can't be paranoid about these things,' but with the nature of this work, you have to be. It's a delicate balance."

Going through the enterprise risk management program with Luthi has confirmed certain assumptions and has also pointed out that other assumptions "may not have been as strong as we thought they were," she said.

Their next step, Carroll said, will be to present their findings to upper management. "Emergency response and security is not everyone's cup of tea," she said. "You are putting effort, planning and resources toward an event that you hope with all your heart will never occur."

She explained that people who deal with crisis every day can have difficulty focusing on theoretical, high-impact, low-probability events. "So quantifying the risk and being able to identify triggers and the consequences analytically is important, because you have the data to support your recommendations."

Part of the process is putting a value on the highest level risks in the area to enable a better response. "For example, we identified emergency communications as an area that needs work," she said, explaining that, when funding unexpectedly became available for homeland security issues, it was clear where that funding should be used.

"Because we've already gone through a very detailed analytic process about where our most critical needs are, the process has helped us set our priorities," Carroll said.

Throughout the process, she added, Luthi has been supportive -- even providing technical support -- and has been a champion to management, "shining a light on the work we've done, showing that this is something that will help us make decisions and allocate resources appropriately as an organization."

Carroll added, "The bottom line is, she introduced us to the process."

Dorothy Gjerdrum, executive director, Public Entity and Scholastic Division, Arthur J. Gallagher Risk Management Services, has worked closely with Luthi in implementing enterprise risk management at SFPUC.

Gjerdrum started the enterprise risk management project for the business services division and is now handing it over to Luthi to carry forward. "We continue to advise her related to the use of the software, because I'm actually a consultant for the city and county of San Francisco," she said.

Part of the enjoyment of the project, she added, has been in working with Luthi. "I find her delightful," Gjerdrum said. "She and I have something very peculiar and specific in common -- we both studied art before we became risk managers. What I appreciate is that she has a very creative approach and she doesn't get stuck in a box."

Luthi, she noted, is "not just thinking about analytics, she's thinking about people and relationships and how to develop what she's doing over the long term. It's nice to work with someone who has that kind of vision and that kind of flexibility and approach."

Gjerdrum added, "There are multiple enterprises at the city of San Francisco and each one operates with a slightly different leadership and culture. I appreciate that she gets in there, she understands what it is and she figures out how to make it work within that environment."

While Luthi has had a number of achievements in the past year and a half, she pointed to colleagues who have been role models through the years and the networking she has been able to accomplish through RIMS.

Scott B. Clark, immediate past-president and risk and benefits officer at the School Board of Miami-Dade County, Fla., is one of her biggest supporters at RIMS.

"We've worked together for more than 10 years on the [RIMS] board, going back to the re-governance for the structure of the society, and we both became members of the new board of directors," Clark said.

One of the things they worked on together was the issue of contingent commissions for brokers. "We were very involved in working with the other board members when Ellen Vinck was president [2005-2006]," he said. "The board worked together very strategically and closely. Ellen actually testified in Washington about the issue."

RIMS board members, he said, were all interviewed by many organizations and the media "about what we believed to be reasonable compensation to brokers."

Luthi, he observed, is "very articulate and she has a clear vision of what it is she wants to accomplish when she has a mission to undertake. One of the things I have always been impressed with is that she understands what she wants to do, she can articulate it very well and she is so organized, making sure that when she goes after something, it's done and it's done professionally."

What does Luthi see ahead for risk managers? As president of RIMS, one of her goals has been to inspire and encourage members to take leadership roles within their own organizations. That includes the need to collaborate with other areas such as audit, security, quality and strategic planning.

During a recent recap of the 2012 annual RIMS conference, the most-attended conference sessions were: "10 Easy Steps to Implement ERM," "Using Risk Quantification to Tie Risk Decisions to Strategic Goals" and "Exploring Risk Appetite and Tolerance." In fact, 300 people attended that latter session.

"That says something about where risk practitioners are moving, to becoming strategic advisers to our organizations. While insurance will always be an important tool in our arsenal, we are moving towards being in that strategic point and advising and consulting at that level."

CAROLINE MCDONALD has covered risk management for 15 years. She can be reached at riskletters@lrp.com.

October 11, 2012

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