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Feb 02, 2024
Risk within the workplace has the potential to cause any number of unexpected outcomes. Unresolved risks can lead to unfavourable occurrences, from injuries and permanent workspace damage to legal liabilities. Operations can be disrupted by a variety of unanticipated factors, ranging from external forces like natural disasters and political risks to internal factors like faulty management and flawed financial systems. Risk management has perhaps never been more important than it is now. The risks that modern organisations face have grown more complex and are further fuelled by the rapid pace of globalization. New risks are constantly emerging, often related to and generated by the now-pervasive use of digital technology.
It is a leadership imperative to mitigate the potency of uncertainty by managing the realities of risk. Employing an Enterprise Risk Management (ERM) process can assist leaders in doing that. It is a positive change that an increasing number of PSUs have recognized the value of ERM and are taking actions to make ERM an important part of their operational model. Maximizing the opportunity for success requires that threats and opportunities be actively managed together. In identifying, analyzing, and mitigating risk, ERM is a powerful resource for strategic planning and effective decision-making. To that end, leaders in PSUs should view risks as “uncertainties that matter”.
It is a leadership imperative to mitigate the potency of uncertainty by managing the realities of risk.
Each public entity is obliged to systematically overview, at least once a year, the ERM system. Under corporate governance, risk management has garnered immense importance in recent times. A recent external risk that initially manifested itself as a supply chain issue at many companies was the COVID-19 pandemic. It quickly evolved into an existential threat, affecting the health and safety of employees, the means of doing business, the ability to interact with customers, and corporate reputations. The spotlight that shined on risk management during the COVID-19 pandemic has driven many companies to not only re-examine their risk practices, but also to explore new techniques, technologies, and processes for managing risk.
More organisations are connecting their risk management initiatives and environmental, social, and governance (ESG) programs too. That is making sustainability risk management and efforts to address other kinds of ESG risks a higher priority for companies looking to make their operations more sustainable and ensure that they are acting in responsible and ethical ways. Moreover, in many companies, the Board of Directors is taking a fresh look at their risk management programs and is reassessing their risk exposure, examining risk processes, and reconsidering who should be involved in risk management.
Exploration and Production (E&P) perspective
As exploration and production companies increase their use of portfolio management techniques to realize maximum value from assets and projects, measuring and managing risk become essential. The statistical methods central to risk assessment are sophisticated and complex. Anyone involved in E&P decision-making must understand the basic concepts.
Companies that are currently taking a reactive approach to risk management, i.e., guarding against past risks and changing practices after a new risk, are considering the competitive advantages of a more pro-active approach. There is heightened interest in supporting business sustainability, resilience, and agility. Companies are also exploring how AI technologies and sophisticated platforms can improve risk management.
Effectively managing risks that could have a negative or positive impact on capital, earnings, and operations brings many benefits. Some benefits of effective risk management that have been seen in PSUs are as follows: Increased awareness of risk across the organisation, more confidence in organisational objectives and goals because risk is factored into strategy, better and more efficient compliance with the regulatory framework, improved operational efficiency through more consistent application of risk processes and controls, and improved workplace safety and security for employees and customers. These days, risk management programs at PSUs are gaining success as they create and protect value for the organisation, bring transparency, and make the company dynamic and adaptable to changes.
Over the last decade, public sector agencies have expanded their risk management practices. It is thus important for the heads of PSUs to consider the nature of risks in public sector governance, including factors that impact the degree of risk tolerance and risk appetites vis-à-vis decision parameters like policies, programs, and projects.
She is an Independent Director at Oil India Limited. She has over 17 years of experience in Litigation in the areas of Civil Law, Company Law, Constitutional Law, Service Laws, Alternative Dispute Resolution / Pre-Litigation Mechanism & Criminal Law.
Owned by: Institute of Directors, India
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