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Tomorrow's Tools Today

Are you waiting to see if the sky is going to fall in after the string of US financial company failures?

It seems like it will never stop – Bear Stearns, Fanny Mae, Freddie Mac, Merrill, Lehman and AIG either gone to the wall or received a bail-out. 

Then follow all that with the debt issues in Greece and similar issues in Ireland, Iceland, Spain, etc.

It is understandable that you may be holding back on project investments or major operational expenditure.

But now is not the time to hold back on risk management.  In fact it is the time to ramp up enterprise risk management, especially when you consider climate change and carbon trading risk, but more about that later.

Enterprise Risk Management

The ERM approach is to identify all operational risks and project risks before decisions are made: decisions that affect the environment, the well-being of employees and customers, and the reputation of the company.  This requires risks to be monitored dynamically as conditions change - rather than once only or annually.  That is more important today than ever before.

There are continuing changes to laws and regulations for workplaces, around corporate governance, environment and legal liability, and organisations must stay on top of these.  A risk management department can help identify risks, but it is not capable of assessing the many and varied operational risks.

Not only that, but don’t expect your risk management group to know how to control or treat your risks.  Most RM departments are not staffed to assess the various risks such as:

  • Stock Exchange and Regulatory Compliance
  • Exploration and Mining Permits
  • Employee Health and Safety
  • Critical Infrastructure Management
  • Contract and Legal Issues
  • Subcontract and Vendor Management
  • System and Technical Failure
  • Natural Hazards and Environmental Risks

Working with many companies in the mining, energy, transport and contracting industries, Incom has built up a risk dictionary containing hundreds of risk events categorized by risk type, and the assets or areas that may be at risk.  This dictionary includes climate change risks and opportunities.

Incom reports a recent upsurge in the purchase of risk management software systems by the booming mining and energy sector.

Incom CEO David Watson said “There is convergence of huge growth and profitability in these sectors, with major increases in the value-at-risk due to risks involving critical third party rail and port infrastructure, natural hazards, stock exchange compliance, reputation, workplace safety and the environment.”

Recent mining disasters in the USA and China remind us to be ever vigilant in the protection of human life, and the need for proactive measures to reduce the likelihood of incidents.

Accepting the critical importance of occupational health and safety, risk management is wider in scope than worker safety.  Traditionally, operational risks have tended to be mitigated via insurance, but insurance cannot reduce the likelihood of a risk event.  Insurance can only mitigate the consequence of an event.

Insurance premiums are increasing and the number of risks that are difficult to insure is also increasing.  For instance, companies are now failing because their reputation has failed rather than a failure in their operating efficiency.

This is forcing organisations to rethink their risk management policy, and to review all risks and better manage them by changing the culture of the organization, by using modern risk management software, and by adopting an Enterprise Risk Management (ERM) model.  With an ERM model you get a common view of risks – a common vocabulary for risks.

C3 - Climate, China and Carbon

Apart from the normal operational risks there are the strategic risks, and an increasing number of non traditional strategic risks.

Layered on top of traditional business risks are the dramatic effects of climate change, level of demand for resources from China, and carbon trading issues.

There are the direct and indirect impacts of climate change on miners and contractors caused by extreme natural hazards and tightening environmental regulation.  Recent heavy flooding of mines in Australia caused major miners to declare ‘force majeure’ as they tried to meet their delivery obligations.  Without access to the mine, contractors are affected likewise and this must be covered in contract terms and conditions.

International demand for resources has resulted in wildly fluctuating foreign exchange rates, increasing transport fuel costs, shortage of skilled workers, failure of resources diplomacy at national levels, export embargoes and mining contractor capacity.  These are all risks that need to be evaluated, costed, and planned for.

Carbon change consultants say the heavy carbon emitters and power users, including mining companies, will be required to measure and report their carbon footprint.  Furthermore, to meet their obligations carbon emitters may trade permits, use sequestration, or emit less carbon by process improvement.  The risks and costs of different options will vary widely requiring each company to improve their cost-benefit analysis skills, and in fact adopt a cost-risk-benefit approach.

Cost-Risk-Benefit

To date the methodologies for risk management are separate to and different from the methodologies for cost-benefit analysis.

The Incom RM solution employing the cost-risk-benefit approach enables a company to conduct:

  • Risk Assessment
  • Risk Mitigation with Cost-Benefit
  • Competing Solution Analysis
  • Competing Project Analysis

It is now considered good practice for every manager to have access to the risk management system.  This is no longer seen as a back room system for a few risk management specialists.  Today’s risk management system must be proactive to help managers make decisions, not to audit the results of their decisions.

The identification of the causes of incidents, the resources used in recovery from incidents, and the costs involved, are all integral to your business.  An incident management system is a valuable tool that provides you with information and feeds back into the employment of resources in managing risks.

The Incom RM system includes a powerful injury incident management system, and extends to cover any type of incident, property or facility loss, vehicle accidents, environmental accidents, information security breaches, and complaints.

Incom’s risk management solution provides a powerful system for optimal business risk management.