How managing risk supports strategy and asset management ...€¦ · 24. Asset Information System...
Transcript of How managing risk supports strategy and asset management ...€¦ · 24. Asset Information System...
How managing risk supports strategy and
asset management decision making
Willie van Niekerk
Commercial Director
Globeleq, South Africa
WHAT COULD GO WRONG?
It’s a good start but nor really the right question to ask…
Risk Management (RM)
• What RM shouldn’t be:
– Tick box exercise
– Scaremongering
– Fatalistic
– Used as a stumbling block or hurdle
– Subjective
• What RM should be:
– Decision making tool
– Prioritisation framework
– Embedded in organizational thinking
– Part of common language
– Boardroom tool
– Operational tool
“In every single business failure of a large
company in the last few decades,the board was the last to realize that
things were going wrong”Peter Drucker (1992)
When a business fails, it is said that the Non Executive Directors are the
last people to understand why…
When a business fails, it is said that the Non Executive Directors are the last people to
understand why…
but proper Corporate Governance is a key RM response
When a business fails, it is said that the Non Executive Directors are the last people to
understand why…
but proper Corporate Governance is a key RM response
So how does one bridge the gap?
When a business fails, it is said that the Non Executive Directors are the last people to understand why…
Think of a few examples where seemingly good businesses have
taken a significant knock recently?
When a business fails, it is said that the Non Executive Directors are the last people to understand why…
Think of a few examples where seemingly good businesses have taken a significant knock recently?
Steinhoff?
When a business fails, it is said that the Non Executive Directors are the last people to understand why…
Think of a few examples where seemingly good businesses have taken a significant knock recently?
Steinhoff?
KPMG?
When a business fails, it is said that the Non Executive Directors are the last people to understand why…
Think of a few examples where seemingly good businesses have taken a significant knock recently?
SteinhoffKPMG
ESKOM?
Steinhoff – People/Agency Risk
KPMG – Ethics/Reputational Risk
ESKOM – Technology Risk
Could these have been prevented?
Why Risk Management
ESKOM• 95% of SA and 45% of
Africa’s power generation• Eskom did not participate in
REIPPPP and for some time refused to sign PPA’s
• New build coal projects delayed, over budget and much more expensive than Wind & Solar
• Under severe financial pressure & admitted being 30% overstaffed
ENEL• Early acceptance of
Renewables (2004)• +- 50% of Generation non-
carbon• Biggest European Utility by
Market Cap• Plans to close all coal fired
generation by 2030• One of Biggest players in SA
REIPPPP
ENEL is Market leader due to renewables…
ESKOM is suffering due to renewables… failure to predict and
respond to Technological risk realized!
• Recent versions of IRP – lowest cost option results in Eskom generation reducing from 95% to less than 10% unless they adopt Renewables, but Eskom will struggle to catch up to other players and become competitive.
• Source: Global Electricity Utilities in Transition – Institute for Energy Economics and Financial Analysis (IEEFA.org) by Tim Buckley and Simon Nicholas
IRP Debate
Eskom ~70%
by 2050
Eskom ~7%
by 2050
Asset Management = Risk vs Performance vs Cost
So what is Risk:
Uncertainties that, if the are realized, could have a impact on Business Objectives
Basically future uncertain event which, if it occurs, has an impact on the business objective – both positive and negative.
Often described as THREATS and OPPORTUNITIES
Case Study: Renewables Plant/Owner
Plant Business Objectives:
• Maximise Generation
• High Availability/Performance Ratio
• Low social & environmental impact
• Sustainability through key staff skills and systems
Owner Business Objectives:
• Return on Investment
• Long Term Value
• Reputation in Africa
• Experience to improve competitiveness
• Leveraging existing assets to reduce costs
Case Study: Renewables Plant
Original Position:
• Project Financed Transaction, thus belt and braces approach from Lenders – could be assumed enough to manage risk
• However Lenders over emphasize Risk to the detriment of Performance and Cost
Balancing Risk/Performance/Cost:
• Move from EPC as O&M to internal platform
• Reduced cost (due to reallocation of risk, efficiencies and lower margin)
• Increased performance – interests aligned
Asset Management = Risk vs Performance vs Cost
So what is Risk:
Uncertainties that, if they are realized, could have a impact on Business Objectives
Elements:
– Business Objectives
– Uncertainties
– Effect
Asset Management = Risk vs Performance vs Cost
So what is Risk:
Uncertainties that, if the are realized, could have a impact on Business Objectives
Elements:
– Business Objectives
– Uncertainties
– Effect/Impact
It is therefore key for a business to start with agreeing all key Business Objectives
Risk Management process
1. Agree objectives
2. Identify risks to objectives
3. Assess risks – Impact & Probability
4. Mitigate/Exploit Risks
5. Review
6. Communicate
7. Document
Risk Management tools
ASSET MANAGEMENTGroup 1 - Strategy & Planning
1. Asset Management Policy2. Asset Management Strategy & Objectives3. Demand Analysis4. Strategic Planning5. Asset Management Planning
Group 3 - Life Cycle Delivery
11. Technical Standards & legislation12. Asset Creation & Acquisition13. Systems Engineering14. Configuration Management15. Maintenance Delivery 16. Reliability Engineering 17. Asset Operations18. Resource Management19. Shutdown & Outage Management 20. Fault & Incident Response21. Asset Decommissioning & Disposal
Group 4 - Asset Information
22. Asset Information Strategy 23. Asset Information Standards 24. Asset Information System25. Data & Information Management
Group 2 - Asset Management Decision making
6. Capital Investment Decision-Making 7. Operations Maintenance Decision- Making 8. Lifecycle Value Realisation9. Resourcing Strategy10. Shutdown & Outage Strategy
Group 5 – Organisation & People
26. Procurement & Supply Chain Management 27. Asset Management Leadership28. Organisational Structure 29. Organisational Culture30. Competence Management
Group 6 – Risk & Review
31. Risk Asset Management 32. Contingency Planning & Resilience Analysis33. Sustainable Development 34. Management of Change35. Asset Performance 36. Asset Performance & Health Monitoring 37. Management Review, Audit & Assurance38. Asset Costing & Valuation39. Stakeholder Engagement
Examples of standards/systems that could support the ISO 55000 standard
ISO 9000: Quality management ISO 14000: Environmental managementISO 26000: Social responsibilityISO 27001: Information security managementISO 31000: Risk management OHSAS 18000: Occupational health and safety
Many other standards and best practice frameworks
• Helps us ask the right questions around what do each of these subjects mean for us
• Codify / Systematize
Risk Management
Sustainable DevelopmentAsset Information Standards
ISO 26000: Social ResponsibilityISO 14000: Environment
ISO 31000 Risk ManagementOHSAS: 18000
ISO 27001: Information Security Management
ISO55000 –TOOL FOR IDENTIFYING RISK ACCURATELY
Best Practice Maturity
KPI Maturity
RISK MANAGEMENT - MITIGATION
RISK MANAGEMENT –COMMUNICATION & BOARDROOM TOOL
Prioritisation Motivate the budget
Inform the Board Focus attention
KEY ELEMENTS FOR SUCCESSFUL MANAGEMENT OF RISK
• Change RM from compliance to strategic focus• Strong Risk Culture integrated into business –
“Embedded RM system” with common language• Support from Board & CEO• Appoint CRO – Chief Risk Officer who reports
directly to the Board• Clearly define risk appetite & objectives for the
business• Data used and analyzed through appropriate IT
System• Independent verification of Business Unit
assumptions
Source: World Economic Forum – Global Risks Report 2017 – weforum.org
Questions?
What’s the Threat?
Thank you!
Where’s the Opportunity?