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47 November 2016 www.InfralinePlus.com Expert Speak Majority of the oil & gas enterprises implement ERM (Enterprise Risk Management) as a compliance requirement. It means they will develop risk registers and governance framework but lacks a robust day to day monitoring and integrated reporting and alerts framework. The ultimate objective of any ERM framework is to mitigate risk before it happens, avoid black swans and identify some of the uncontrollable risks, monitor them on day to day basis and implement ERM as a decision support system. The root cause analysis reports of some the recent disasters in oil industry also point towards this by stating that risk control failure is one of the primary reasons. Risk Management has to be integrated in day to day business activities of a company. Its ultimate objective is to maximize shareholder’s value. Based on some secondary research it can be said that - Over 80% use industry trends and peer analysis to identify risks - Over 80% values importance of internal audit reports - Over 70% think key risk indices and performance indicators are same - Over 80% believes there is a lack of integration is the key issue - Nearly 40% have some unstructured risk taxonomy in place - Over 90% did not have any enter- prise risk monitoring dashboards Board and CEO give utmost importance to the following factors: - Measure performance against the key risk indicators - Periodic mea- surement for appropri- ateness - Deviation from a risk per- formance plan - Periodical review of risk governance policy, controls, and mitigations - Evaluate changes in internal or external environment - Monitor risk progress report an variance following the policies - Periodic review of risk control framework robustness - Use structured scientific and ana- lytical tools As a result, following step-based approach needs to be considered in order to facilitate transition from an elementary risk control framework to a more robust one. 1. Build the Risk Taxonomy 2. Develop inter-relationships between various risk drivers across different risk domains like strategic, opera- tional, financial and legal 3. Develop key risk indices and control measures 4. Transform it into a decision support system using analytical engines Risk Taxonomy is an important stepping stone in the entire risk framework. It is not possible to build a high rise building on a weak foundation and same is true for a risk management program. A risk taxonomy outlines are risk categories, their drivers, key performance areas and risk indices across entire organization. Post taxonomy creation, it is important identify inter-relationships across risk sub-categories and drivers. There is no point in having a thousand risk indices when all of them are related to each other. All risk drivers which are related to each other should be part of same risk indices. At a board level it is not advisable to have more than ten risk indices at the maximum. Even tree methodologies were used to develop relationships between Oil & gas companies need to develop a risk analytics engine Neeraj Gupta, Director, iEnergy Innovations Pvt. Ltd., feels that oil and gas is a high-risk industry and hence requires timely risk mitigation to avert crisis. As a solution, he recommends that oil and gas companies should adopt a step-by-step approach to build a decision support enabled risk framework. Neeraj Gupta, Director, iEnergy Innovations Pvt. Ltd. Oil & gas com- panies should adopt a step-by-step approach to build a decision support enabled risk framework
