Starting situation – risk as the unknown enemy
When assessing the expansion strategy of an international energy company, there were certain questions in connection with the risk/return profile of the planned investments: Can the company still afford to invest if the risk is high? What is the ideal risk/return profile for increasing the company’s value? Within the company, instead of a detailed awareness of the relevant risk types and of the most important instruments for risk management, there was a widespread aversion to risk. Although the specific risks to the energy industry were known, they were not used systematically as a basis for decision-making.
Project approach – operationalizing risks and managing them transparently
Strategic risks and price risks – these were the two aspects in particular that needed to be summarized in a risk/return profile for each location. When evaluating in the expansion options, our solution incorporated not only the strategic risks, but also the risk-adjusted value propositions, taking into account the corporate strategy. As well as evaluating the expansion strategy, it was also necessary to permanently anchor a risk management perspective within the organization. This was implemented in the three most important areas of the company: strategy, processes, and organization. As a result, all employees in the company became their own “risk managers” – not least the employees in the operational business units. By comparing the maximum potential loss with the company’s total venture capital, discrepancies were discovered between the actual risks and the desired risk policy, which led to a revision of the strategic planning.
Finding – risk management reduces uncertainty to a level that allows for planning
Risk is an unavoidable aspect of business. Accordingly, it is essential to have an approach that incorporates the various risk factors into corporate decision-making. Just like a lack of knowledge in many other areas, not knowing how to manage risk often leads to distorted perspectives and missed opportunities.
- Strategic risk management established.
- Multiple risk factors taken into account in a value proposition model.
- A risk perspective incorporated into everyday processes and decisions.