Effective Risk Management Strategy: The Need of the Hour
The increasing complexity of business processes and risks associated with them always go hand in hand with every transaction and methodology in an organization. The defining factor for a successful company is efficient monitoring and management of these risks. In order to tackle the challenges posed by the economic and geopolitical fluctuations in the energy sector, organizations need to execute and control their risk strategy by adopting a sound risk methodology, with the necessary flexibility that would help them grow in future.
Energy companies accordingly choose varying approaches to ERM depending upon their scale of operations, existing energy reserves, and the pre-set revenue margins. One of the primary necessities for the implementation of an effective ERM program is defining the basic building blocks of a business such as its technology infrastructure, economics, the business context, the functional applications, as well as the organizational capabilities. Identifying these critical components of a business environment and their interplay offers the required flexibility to develop and execute a strategic risk plan.
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For an effective plan, after considering essential elements such as a dynamic network to leverage energy assets, the scope of asset control, and the physical commodity presence, the next step is to identify the various financial, operational, market, and environmental risk components in each operations unit in the energy value chain. For determining the risk appetite, another critical element in the overall risk management program is a comprehensive risk assessment. The final step is to finalize the policies, systems, valuation methods, performance measurement criteria, and capital allocation, for risk management. A productive ERM approach driven by technology and a farsighted strategy, with a focus on the changing market conditions enables an organization to enhance their operational efficiencies effortlessly, and survive the changing dynamics of investments, competition, regulations, and compliance.
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By Stephanie Snyder Tomlinson, U.S. Cyber Sales Leader and Kevin P. Kalinich, Cyber Global Practice Leader, Aon Risk Solutions [NYSE:AON]