1. Utility Risk Management Definitions, Objectives & Processes January 1999

2. 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.

3. This presentation is for promotional purposes only. Utility Consultants accepts no liability for any action or inaction arising from its’ use.

4. This presentation is copyright, and may not be reproduced in whole or in part without explicit written authority from Utility Consultants Ltd.

5. Key themes Quick overview & definitions. Categories of business risks. Utility network risk issues. Risk management processes.

6. Quick overview & definitions

7. 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.

8. 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.

9. 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.

10. 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.

11. Categories of business risk

12. Corporate control environment Strategic planning. Information management. Organisational vulnerability.

13. Information technology Processing & operations. Security. Development environment. Managerial control.

14. Purchases & payments Ordering & commitment. Accepting charges. Controlling payment. Overall control & management.

15. Revenues & receivables Management & control. Ordering & dispatch. Billing. Credit control. Cash management.

16. Payroll & personnel Employment strategies. Recording & calculating pay. Payment processes. Personnel performance. Correct remuneration policies & levels.

17. Finance & cashflow Cash flows. Asset & liability management. Foreign exchange exposure. Off balance sheet exposure.

18. Asset management Protection. Utilisation. Valuation. Disclosure. Legal compliance.

19. Taxation Critical areas. Accounting system requirements. Compliance. Planning.

20. Utility network risk issues

21. 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).

22. Design Correct recognition of community standards and values. Robustness of specifications and drawings. Sufficient auditing of methodologies and review of completed work.

23. Construction Robustness of contract conditions. Structure & integrity of tendering processes. Legal & environmental compliance during site works. Foreign exchange risks associated with overseas purchasers.

24. Construction Manufacture of equipment at OEM’s works. Transportation of equipment - customs, taxes, insurance. Compliance with required standards. Importance of accecptance testing.

25. Construction Commissioning processes. Return of correct as-built information.

26. Operations Operational performance and reliability. Industry guidelines and accepted practice. Environmental compliance. Public safety. Information disclosure.

27. Operations Physical risks to the assets Fire, flood, earthquake. Interference by people. System conditions eg. increased fault levels. Safety of employees.

28. Maintenance Personnel safety. Correct procedures & tools. Environmental compliance during work. Adequate information feedback to asset owners. Safe recommissioning & return to service.

29. Demolition & removal Safe planning & execution of work. Correct disposal of materials. Disclosure of any potential liabilities eg. site contamination. Suitable rehabilitation of site.

30. Risk management processes

31. Key steps Define objectives. Identify risks. Evaluate risks. Prioritise risks. Consider alternative methods. Implement the chosen alternative. Evaluate & review.

32. 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”).

33. 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.

34. 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.

35. 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.

36. 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.

37. 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.

38. 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.

39. References Waring & Glendon “Managing Risk”, 1998. KPMG “Corporate Risk - No Surprises”. Vaughan “Risk Management”, 1997. Bannister & Bawcutt “Practical Risk Management”, 1981.

40. For more information... Visit Utility Consultants Web Site Email a specific question