Mitigation of operational risks and how they are related to energy and utilities

Submitted by Aline Gonçalves on Mon, 04/15/2019 - 15:06

Did you know that proper management of operational risks directly influences the survival of any organization? According to Robert S. Kaplan and Anette Mikes, in an article published in the Harvard Business Review, investing in the improvement of internal process helps mitigate unexpected losses and anticipate future scenarios.


The risk can be understood as a factor that directly influences the occurrence of a loss. In order to categorize risks it is necessary to know the domains where the loss applies, such as: financial, operational and technological, strategic, and market, among others.

Risk management is a crucial task for companies to be able to guarantee the fulfilment of their strategic goals. With that in mind it can be seen that organizations are increasingly seeking improvements in all areas of risk, using specialized tools that provide a global analysis of business activities important for supporting decision makers.

Resolution 4.557/17 of the Brazilian National Monetary Council defines operational risk as “The possibility of losses resulting from external events or failure, deficiency, or inadequacy of internal processes, people, or systems.” It makes it clear that operational risk management should consider the existence of policies and procedures that regulate the activities of an organization in order to guarantee their control and efficiency, but also be in legal compliance.

Considering that operational risk management is fundamental for the survival of any company, the principal challenge is to continuously improve internal processes, anticipating future scenarios so that loss mitigation is effective.

How can operational risk be managed?

First it is essential that there be synergy with your company's senior management and that there be a commitment to defining and ensuring the fulfilment of strategic objectives by implementing audits, action plans, and monitoring of activities.

It is also important to use an analysis tool based on the continuous improvement methodology as well as the PDCA cycle, which is a management and systematic decision-making methodology starting from process control and problem-solving.

Operational risk management can be mapped using the PDCA cycle theory as can be seen in Figure 1. Starting from this map it will be possible to: 1) analyze and identify the nature of the risks; 2) define action plans and implement them; 3) check the results found and 4) promote continuous improvement of management.

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See also: The PDCA cycle in energy and utilities management


Operational Risk Management in Energy and Utilities

In the specific case of energy and utilities, operational risk can be classified starting from the losses caused by the non-existence of or non-compliance with procedures, inadequate practices with clients, suppliers, products, and businesses, damage to physical assets, business incidents, and system failures.

See also: How to handle risks in energy and utilities management

The first step in identifying your company's exposure to operational risk in the energy and utilities area is to use an evaluation methodology that offers a diagnosis and subsequent development of an action plan to reduce the impact of risks.

In 2011 the International Organization for Standardization, ISO, developed ISO 50001, a specific standard for energy and utilities management based on the continuous improvement methodology applied in other standards, such as ISO 9001 and 14001. By the end of 2016, about 20,000 companies around the world took the first step in certification and are improving their energy efficiency by reviewing their internal processes.

ISO 50001 offers guidelines for companies to establish a solid framework for energy management, aiming to improve energy performance and guarantee sustainability in energy consumption and efficiency. In parallel it helps reduce operational risk using well-defined systems and procedures.

How can an energy and utilities management system help reduce operational risk?

An energy and utilities management system can also help with decision making for monitoring operational risks. Real-time monitoring of electricity variables facilitates the identification of physical damage and helps in the analysis of possible operational risks connected to the electrical aspect of equipment. Combined with long-term planning, monitoring also makes possible more proactive energy contracting, reducing the short-term risk of market exposure. The evaluation of future scenarios is important for predicting opportunities for energy sales so that internal processes run with more agility. The management system's automatic costing is responsible for helping with the payment of invoices, reducing the risk of late-payment penalties.

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Energy Management Analyst, Viridis

Energy Management Analyst at Viridis, working in Energy Management and Strategic Planning at Bayer. Trained in Electrical Engineering with emphasis on Control and Automation at the Federal University of Uberlândia. Participated in R&D projects for intelligent energy measurement at Enel and CEMIG, conducted innovation, artificial intelligence, robotics, and gamification projects for corporate environments. 

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