Risk management is one of the issues taking on increasing strategic importance at energy and resources companies, according to a Deloitte survey of energy and resources companies entitled, “Risk Intelligence in the Energy & Resources Industry”. Although the implementation of risk management has become a common practice within organizations, according to the survey, many still find it difficult to monitor and report on their risks in an integrated manner, and many companies have not yet made risk awareness part of their overall corporate culture.
“From a global perspective, energy and resources companies are becoming more and more attuned to risk,” said John England, Deloitte Touche Tohmatsu Global Leader for Enterprise Risk Services, Energy & Resources. “The survey shows that while companies are more aware of the significance of risk to their business, there are still a number of steps that need to be taken to develop appropriate risk management systems.”
Even companies with risk management programs in place are being subjected to regulatory pressure to increase those capabilities. Many energy firms are focusing on improving Enterprise Risk Management (ERM ) capabilities to meet existing requirements and in anticipation that risk management expectations will continue to increase.
“Given the current trend toward increased regulation broadly, and the slate of pending legislative and regulatory actions focused on risk management, it is a safe bet that risk management compliance requirements will continue to grow more rigorous globally,” said England.
The report highlights a number of other trends:
Risk management has become a general practice at energy and resources companies
The survey indicates that 96 percent of the companies surveyed already conduct risk management activities.
“In the energy and resources sector, risk management is no longer limited to progressive companies,” noted Laurent Vandendooren, Partner, Deloitte Belgium and one of the authors of the report. “It has become an essential part of maintaining credibility within the industry.”
An additional trend is that increasing numbers of companies in the energy and resources sector manage risk across the board, rather than managing isolated activities. Companies have put systems in place providing proper management for complex risks that often cross the boundaries between individual departments.
Shift from protecting capital equipment to creating value: Improving competitive capabilities
The Deloitte study also shows that companies which have developed sufficient maturity in the area of risk management are now shifting their attention towards value creation. As a company’s maturity in risk management increases, risks relating to strategy and how to implement it (risks associated with the development of new products, penetrating new markets and completing acquisitions) grow in importance. According to the report, good management of these risks is likely to be driven by the profit potential, but they can also have negative consequences if they are not controlled properly.
Monitoring and reporting risk remains a difficult area
More and more energy and resources companies are seeing the value of introducing risk reporting alongside traditional financial reporting. Yet, according to the report, many of these companies do not yet have any form of integrated risk reporting available. Information is often fragmented and there is no overall vision of what risk reporting should consist of, making it difficult for companies to measure and report on their risk.
Risk management as part of the corporate culture
Training and education play an important role in creating a genuine risk culture. Yet, according to the report, only 30 percent of companies appear to have a training plan for risk management.
“Risk management is an integral part of the corporate culture,” said Vandendooren. “Training provides the first step in building risk awareness, and companies should incorporate risk management courses as part of their overall training plans.”
Technology implementation
Technology can be used to facilitate the risk management process, a large number of the companies surveyed indicate there is no single solution currently available that provides the functionalities required for making total ERM management possible.
Read the full report.
Methodology: The survey is based on questions and interviews conducted with 50 CEOs, risk managers and senior management Europe, the Middle East and Africa.
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