FOCUS 20 Operating with risks in mind
Thinking about risk should be incorporated from the fi rst step of the planning process to the very end, including such things as the lifecycle of the oilfi eld, labour relations, entry into new markets and so on. Too often, companies do not suffi ciently analyse the practical implications of risks – leaving them described, for instance as geopolitical risk or cyber without fully examining the true exposure and readiness to prevent or respond in a manner that minimises adverse consequences and optimises opportunities. Seldom do companies fully assess the range of possibilities, measure the impact in fi nancial terms of those scenarios, build-in accountability for monitoring for specifi c events with defi ned indicators, and ensure the effectiveness of mitigation plans for such exposures is assessed and reported. Armed with this kind of data, the company can determine if it is taking enough risk, as well as too much. Is a same-sized competitor valued more highly in the stock market because it is making better risk-informed decisions? The difference may be due to its careful, deliberate approach to investing in the midst of uncertainty.
Skills needed
Control functions and risk management must be properly aligned. Lack of skills, as well as a lack of knowledge or experience of how to bring about this form of integration, is a key obstacle to the convergence or integration of risk and control functions in oil and gas companies. Compliance, corporate governance, assurance, risk fi nancing and so on need to converge, but the managers in these silos often are not willing to relinquish budget and perceived infl uence and power in the organisation. A single executive is needed who understands the broader issues of governance,
risk management and compliance. KPMG recently helped a utility company to combine six risk-related departments into one division enabling the company to standardize risk-related functions and achieve good synergies – driving cost-savings and enhancing the effectiveness of the overall risk programme.
Conclusion
If risk management is regarded by leaders of the business as a pro forma exercise solely for the consumption of Board members, it will remain forever divorced from operational reality. The CEO must take the lead in helping the Board make risk-aware decisions at an enterprise level, while ensuring that managers lower down the hierarchy understand how their choices affect the risk profi le of the company. Oil and gas companies often do a good job managing risks to health and safety and the environment, but these challenges tend to overshadow other risks that may be equally dangerous to the health of the company. Only by developing a more strategic approach and integrating the process of risk management into everyday business thinking can executives build a risk-aware culture.
To fi nd out more about building a risk aware culture join KPMG’s Global Energy Institute Webex on Tuesday 22nd April. Click here to Register now.
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative, a Swiss entity. All rights reserved.
Michael Wilson Partner, KPMG in the UK T: +44 20 73115176 E:
michael.a.wilson@kpmg.co.uk
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