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Sound ERM Practices Will Allow a Company to Take More Risks
Interview with Rob Quail, Senior Enterprise Risk Manager at Hydro One
Rob Quail is the Senior Manager of Enterprise Risk Management at Hydro One. He will be a speaker as well as the chairman at the marcus evans Enterprise Risk Management Canada Conference taking place in Toronto on August 30-31.
Rob has been involved with ERM at Hydro One since 1999. From 1999 to 2003 Rob ran the Risk Management group of Hydro One, and during this time he conducted over 150 risk assessments and workshops covering every organizational unit and major initiative in the company. The group was highly successful in embedding risk management into the core management processes and attitudes in the company, and late in 2003 he recommended that the Risk Management Group be dissolved as a full-time work group; Rob went on to other assignments within Hydro One. Early in 2011, Rob was asked to return to doing ERM full-time at Hydro One, with the specific objective of rejuvenating the company’s ERM practices.
Quail sat down with Maeve McGovern from marcus evans as he explains that ERM’s role within an organization is to understand and deal with uncertainty. All responses represent the view of the Mr. Quail and not necessarily those of Hydro One.
What role should ERM play in an organization and who ultimately has responsibility for it?
Rob Quail: ERM is about the process of dealing with uncertainty. The role of ERM is to equip an organization so they can benefit from uncertainty and mitigate loss in order to be prepared for what can happen unexpectedly to a business. Ultimately ERM must be owned and executed by the line decision makers in a business and not by a functional group. It is not all that distinct from the other core management functions related to operating a company.
It’s also not all that different from governance or strategy; it’s part and parcel of those things. Understanding key risks to the achievement of an organization’
How will employing sound ERM practices improve a company’s financial profile?
RQ: There are two ways that this can happen. The first is the reduction in volatility and uncertainty. As we understand and put limits on uncertainty that should yield more predictable financial performance. The other most important and perhaps overlooked benefit of sound ERM practices is that it allows a company to take more risk. It’s very much like the role of brakes in a race car – a car with good brakes can drive faster as it is in better control. Having a good understanding of risk allows an organization to consciously accept risk and allocate resources to high priority areas of risk. It should and will yield better financial results for the enterprise.
What advice can you give for embedding risk management into the core management processes and attitudes of a company?
RQ: In my view a critical step in embedding risk management into the culture of an organization is to establish clear defined risk tolerances. The whole process of taking objectives as a company and translating those into tolerances is of great value on two fronts; it allows decision makers throughout a company to know that the judgements they are making about tolerability of risks are consistent with overall corporate instruction and it stress tests your corporate objectives.
Most complex, large organizations go through some kind of formal planning process to land on strategy. When you translate that strategy into risk tolerances and then apply those tolerances to mitigate risk, you are in effect operationalizing the strategy. When you make decisions about theories of investment, where to apply control or how to apply resources based on risk tolerances, you are effectively strengthening the implementation and awareness of corporate strategy. That’s the key component of embedding risk management into the management culture of a company. As far as management processes, at Hydro One we’ve done that in two key ways. The first is that all our business planning exercises include express descriptions of areas of risk exposure and of how resources are being applied to mitigate or exploit those risks. It’s embedded in our business planning process. The other core business planning process is having all our capital and maintenance expenses justified based on their value in mitigating risk exposure.
How can ERM practices be adapted and sustained as a positive value for an organization?
RQ: The key is continuous evolution and innovation. I am struck with how little the world view of ERM has evolved in the past number of years. There really has not been a lot of innovation in our discipline globally. People are talking now more about Black Swans and also trying to find ways to define risk appetite and risk tolerances. Beyond that there really hasn’t been much advancement in this field. Within an organization it is crucial for ERM practitioners to continually bring forward new ideas and approaches to help line managers solve problems and understand their risk exposures. If as a discipline we stay as static as we have been in recent years, there’s a real concern that the interest corporate global leadership has shown in ERM will wane; it will fade as the latest forgotten management “fad.” We really need to keep innovating.
According to Standard & Poor’s, the international ratings agency, ERM is now more important but is still no panacea. Would you agree and if so what more can be done?
RQ: Of course it’s important, and as our world gets increasingly integrated and complex, obviously the understanding of enterprise risk exposure and its integration into decision making becomes more and more important. And the conscious acceptance of risk is an important part of earning a return for any enterprise. But I can’t imagine that anyone would agree that ERM is an answer to all problems. We will always be limited in our ability to foresee and model risk. ERM is just concerned with the modelling, acceptance, or mitigation of business risk exposure as we understand it today. In my view, the next great frontier of ERM is to improve that understanding by marrying the most useful aspects of the more qualitative view of ERM such as we have been applying at Hydro One, with some of the quantitative methodologies that have long been used to model financial market and credit risk.
The marcus evans Enterprise Risk Management Canada Conference will take place in Toronto on August 30-31.
For further details on the upcoming conference, please contact:
Telephone: 312 540 3000 ext 6625
About marcus evans
marcus evans conferences annually produce over 2,000 high quality events designed to provide key strategic business information, best practice and networking opportunities for senior industry decision-makers. Our global reach is utilized to attract over 30,000 speakers annually, ensuring niche focused subject matter presented directly by practitioners and a diversity of information to assist our clients in adopting best practice in all business disciplines.
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Marcus evans conferences annually produce over 2,000 high quality events designed to provide key strategic business information, best practice and networking opportunities for senior industry decision-makers.