Utility Risk Management Definitions, Objectives & Processes January 1999.
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Transcript of Utility Risk Management Definitions, Objectives & Processes January 1999.
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Utility Risk Management
Definitions, Objectives & Processes
January 1999
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This presentation is confidential to the intended recipient and may not be divulged to any other parties without the explicit written permission of Utility Consultants.
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This presentation is for promotional purposes only. Utility Consultants accepts no liability for any action or inaction arising from its’ use.
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This presentation is copyright, and may not be reproduced in whole or in part without explicit written authority from Utility Consultants Ltd.
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Key themes
• Quick overview & definitions.
• Categories of business risks.
• Utility network risk issues.
• Risk management processes.
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Quick overview & definitions
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What is risk ??
• Risk is a condition in which there is a possibility of a deviation from a desired outcome that is expected or hoped for.
• Risk may not always be bad - some risks can be beneficial, although common usage implies that risk is “bad” and will result in loss rather than gain.
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What is risk management ??
• Systematic process of identifying and quantifying risks that may occur in a given situation, deciding what risks are significant, and then “managing” those risks.
• Doesn’t necessarily involve eliminating all risks.
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How can we manage risk ??
• Risk can be managed by one or more of the following methods….• Avoidance - refuse to be exposed to the
risk, generally by rejecting a certain course of action.
• Reduction - reducing the risks likely to arise from a certain course of action.
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How can we manage risk ??
• Retention - do nothing, and simply accept the risks.
• Transfer - pass the risk to someone more willing or able to bear it (eg. an insurer).
• Sharing - part transfer, part retention.
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Categories of business risk
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Corporate control environment
• Strategic planning.
• Information management.
• Organisational vulnerability.
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Informationtechnology
• Processing & operations.
• Security.
• Development environment.
• Managerial control.
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Purchases &payments
• Ordering & commitment.
• Accepting charges.
• Controlling payment.
• Overall control & management.
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Revenues &receivables
• Management & control.
• Ordering & dispatch.
• Billing.
• Credit control.
• Cash management.
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Payroll &personnel
• Employment strategies.
• Recording & calculating pay.
• Payment processes.
• Personnel performance.
• Correct remuneration policies & levels.
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Finance &cashflow
• Cash flows.
• Asset & liability management.
• Foreign exchange exposure.
• Off balance sheet exposure.
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Asset management
• Protection.
• Utilisation.
• Valuation.
• Disclosure.
• Legal compliance.
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Taxation
• Critical areas.
• Accounting system requirements.
• Compliance.
• Planning.
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Utility network risk issues
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Design
• Use of competent people.
• Use of correct standards & codes.
• Legal compliance of completed asset.
• Secured rights to any intellectual property involved (including reverse engineering & software / applications).
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Design
• Correct recognition of community standards and values.
• Robustness of specifications and drawings.
• Sufficient auditing of methodologies and review of completed work.
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Construction
• Robustness of contract conditions.• Structure & integrity of tendering processes.• Legal & environmental compliance during
site works.• Foreign exchange risks associated with
overseas purchasers.
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Construction
• Manufacture of equipment at OEM’s works.
• Transportation of equipment - customs, taxes, insurance.
• Compliance with required standards.
• Importance of accecptance testing.
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Construction
• Commissioning processes.
• Return of correct as-built information.
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Operations
• Operational performance and reliability.• Industry guidelines and accepted practice.• Environmental compliance.• Public safety.• Information disclosure.
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Operations
• Physical risks to the assets• Fire, flood, earthquake.• Interference by people.• System conditions eg. increased fault levels.
• Safety of employees.
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Maintenance
• Personnel safety.
• Correct procedures & tools.
• Environmental compliance during work.
• Adequate information feedback to asset owners.
• Safe recommissioning & return to service.
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Demolition & removal
• Safe planning & execution of work.
• Correct disposal of materials.
• Disclosure of any potential liabilities eg. site contamination.
• Suitable rehabilitation of site.
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Risk management processes
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Key steps
• Define objectives.
• Identify risks.
• Evaluate risks.
• Prioritise risks.
• Consider alternative methods.
• Implement the chosen alternative.
• Evaluate & review.
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Define objectives
• Define what the risk management program will achieve.
• Define business areas to be covered by the program.
• Define the levels of risk that will be acceptable in each defined area (“risk profile”).
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Identify risks
• Must comprehensively include all possible risks.
• Use documents, records, personnel surveys, interviews etc.
• Physically inspect assets and their surroundings.
• Ensure that documented processes match actual processes.
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Evaluate risks
• Define whether evaluation will be heuristic or scientific.
• Heuristic evaluation involves qualitative, subjective, rule-of-thumb type techniques.
• Scientific evaluation involves quantitative, scientific techniques such as statistical modelling.
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Prioritise risks
• Consider both consequences of failure and priority of failure.
• Define broad categories for when the risk will be addressed and what level of resources will be committed to addressing the risk.
• Compile into a single schedule of prioritised risks.
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Consider alternatives
• Decide which risk management tool best fits each defined risk in relation to the risk profile eg. risk profile might define zero tolerance for oil spills - the best tool would be reduction, because avoidance (ie. don’t use oil) is impractical and retention (ie. do nothing) has significant legal implications.
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Implement
• Develop action plan for implementing the chosen tool.
• Allocate resources as required.
• Implement the risk management tool - this could be anything from constructing an oil-bund to increasing insurance cover.
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Evaluate &review
• Evaluate risk profile in relation to changing internal and external business environments, and amend as required.
• Evaluate effectiveness of each chosen risk management tool, and amend as required.
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References
• Waring & Glendon “Managing Risk”, 1998.
• KPMG “Corporate Risk - No Surprises”.
• Vaughan “Risk Management”, 1997.
• Bannister & Bawcutt “Practical Risk Management”, 1981.
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