How managing risk supports strategy and

asset management decision making

Willie van Niekerk

Commercial Director

Globeleq, South Africa

WHAT COULD GO WRONG?

It’s a good start but nor really the right question to ask…

Risk Management (RM)

• What RM shouldn’t be:

– Tick box exercise

– Scaremongering

– Fatalistic

– Used as a stumbling block or hurdle

– Subjective

• What RM should be:

– Decision making tool

– Prioritisation framework

– Embedded in organizational thinking

– Part of common language

– Boardroom tool

– Operational tool

“In every single business failure of a large

company in the last few decades,the board was the last to realize that

things were going wrong”Peter Drucker (1992)

When a business fails, it is said that the Non Executive Directors are the

last people to understand why…

When a business fails, it is said that the Non Executive Directors are the last people to

understand why…

but proper Corporate Governance is a key RM response

When a business fails, it is said that the Non Executive Directors are the last people to

understand why…

but proper Corporate Governance is a key RM response

So how does one bridge the gap?

When a business fails, it is said that the Non Executive Directors are the last people to understand why…

Think of a few examples where seemingly good businesses have

taken a significant knock recently?

When a business fails, it is said that the Non Executive Directors are the last people to understand why…

Think of a few examples where seemingly good businesses have taken a significant knock recently?

Steinhoff?

When a business fails, it is said that the Non Executive Directors are the last people to understand why…

Think of a few examples where seemingly good businesses have taken a significant knock recently?

Steinhoff?

KPMG?

When a business fails, it is said that the Non Executive Directors are the last people to understand why…

Think of a few examples where seemingly good businesses have taken a significant knock recently?

SteinhoffKPMG

ESKOM?

Steinhoff – People/Agency Risk

KPMG – Ethics/Reputational Risk

ESKOM – Technology Risk

Could these have been prevented?

Why Risk Management

ESKOM• 95% of SA and 45% of

Africa’s power generation• Eskom did not participate in

REIPPPP and for some time refused to sign PPA’s

• New build coal projects delayed, over budget and much more expensive than Wind & Solar

• Under severe financial pressure & admitted being 30% overstaffed

ENEL• Early acceptance of

Renewables (2004)• +- 50% of Generation non-

carbon• Biggest European Utility by

Market Cap• Plans to close all coal fired

generation by 2030• One of Biggest players in SA

REIPPPP

ENEL is Market leader due to renewables…

ESKOM is suffering due to renewables… failure to predict and

respond to Technological risk realized!

• Recent versions of IRP – lowest cost option results in Eskom generation reducing from 95% to less than 10% unless they adopt Renewables, but Eskom will struggle to catch up to other players and become competitive.

• Source: Global Electricity Utilities in Transition – Institute for Energy Economics and Financial Analysis (IEEFA.org) by Tim Buckley and Simon Nicholas

IRP Debate

Eskom ~70%

by 2050

Eskom ~7%

by 2050

Asset Management = Risk vs Performance vs Cost

So what is Risk:

Uncertainties that, if the are realized, could have a impact on Business Objectives

Basically future uncertain event which, if it occurs, has an impact on the business objective – both positive and negative.

Often described as THREATS and OPPORTUNITIES

Case Study: Renewables Plant/Owner

Plant Business Objectives:

• Maximise Generation

• High Availability/Performance Ratio

• Low social & environmental impact

• Sustainability through key staff skills and systems

Owner Business Objectives:

• Return on Investment

• Long Term Value

• Reputation in Africa

• Experience to improve competitiveness

• Leveraging existing assets to reduce costs

Case Study: Renewables Plant

Original Position:

• Project Financed Transaction, thus belt and braces approach from Lenders – could be assumed enough to manage risk

• However Lenders over emphasize Risk to the detriment of Performance and Cost

Balancing Risk/Performance/Cost:

• Move from EPC as O&M to internal platform

• Reduced cost (due to reallocation of risk, efficiencies and lower margin)

• Increased performance – interests aligned

Asset Management = Risk vs Performance vs Cost

So what is Risk:

Uncertainties that, if they are realized, could have a impact on Business Objectives

Elements:

– Business Objectives

– Uncertainties

– Effect

Asset Management = Risk vs Performance vs Cost

So what is Risk:

Uncertainties that, if the are realized, could have a impact on Business Objectives

Elements:

– Business Objectives

– Uncertainties

– Effect/Impact

It is therefore key for a business to start with agreeing all key Business Objectives

Risk Management process

1. Agree objectives

2. Identify risks to objectives

3. Assess risks – Impact & Probability

4. Mitigate/Exploit Risks

5. Review

6. Communicate

7. Document

Risk Management tools

ASSET MANAGEMENTGroup 1 - Strategy & Planning

1. Asset Management Policy2. Asset Management Strategy & Objectives3. Demand Analysis4. Strategic Planning5. Asset Management Planning

Group 3 - Life Cycle Delivery

11. Technical Standards & legislation12. Asset Creation & Acquisition13. Systems Engineering14. Configuration Management15. Maintenance Delivery 16. Reliability Engineering 17. Asset Operations18. Resource Management19. Shutdown & Outage Management 20. Fault & Incident Response21. Asset Decommissioning & Disposal

Group 4 - Asset Information

22. Asset Information Strategy 23. Asset Information Standards 24. Asset Information System25. Data & Information Management

Group 2 - Asset Management Decision making

6. Capital Investment Decision-Making 7. Operations Maintenance Decision- Making 8. Lifecycle Value Realisation9. Resourcing Strategy10. Shutdown & Outage Strategy

Group 5 – Organisation & People

26. Procurement & Supply Chain Management 27. Asset Management Leadership28. Organisational Structure 29. Organisational Culture30. Competence Management

Group 6 – Risk & Review

31. Risk Asset Management 32. Contingency Planning & Resilience Analysis33. Sustainable Development 34. Management of Change35. Asset Performance 36. Asset Performance & Health Monitoring 37. Management Review, Audit & Assurance38. Asset Costing & Valuation39. Stakeholder Engagement

Examples of standards/systems that could support the ISO 55000 standard

ISO 9000: Quality management ISO 14000: Environmental managementISO 26000: Social responsibilityISO 27001: Information security managementISO 31000: Risk management OHSAS 18000: Occupational health and safety

Many other standards and best practice frameworks

• Helps us ask the right questions around what do each of these subjects mean for us

• Codify / Systematize

Risk Management

Sustainable DevelopmentAsset Information Standards

ISO 26000: Social ResponsibilityISO 14000: Environment

ISO 31000 Risk ManagementOHSAS: 18000

ISO 27001: Information Security Management

ISO55000 –TOOL FOR IDENTIFYING RISK ACCURATELY

Best Practice Maturity

KPI Maturity

RISK MANAGEMENT - MITIGATION

RISK MANAGEMENT –COMMUNICATION & BOARDROOM TOOL

Prioritisation Motivate the budget

Inform the Board Focus attention

KEY ELEMENTS FOR SUCCESSFUL MANAGEMENT OF RISK

• Change RM from compliance to strategic focus• Strong Risk Culture integrated into business –

“Embedded RM system” with common language• Support from Board & CEO• Appoint CRO – Chief Risk Officer who reports

directly to the Board• Clearly define risk appetite & objectives for the

business• Data used and analyzed through appropriate IT

System• Independent verification of Business Unit

assumptions

Source: World Economic Forum – Global Risks Report 2017 – weforum.org

Questions?

What’s the Threat?

Thank you!

Where’s the Opportunity?