Risk Management in the 21 st Century Ameren Business Risk Management

Transcription

1 Management in the 21 st Century Ameren Business Management Charles A. Bremer V.P. Ameren Service Center/Information Technology Ameren Services Co. November, 2007

2 Ameren s History 2

3 Ameren Today Electric Customers Gas Customers Service Area Generation Electric System Miles Gas System Miles Total Assets Total Revenues Employees Million 120,000 24,500 Sq. Miles 8,279 MW 52,000 2,455 $6.9 Billion $ 2.2 Billion 6, Million 1,000,000 64,000 Sq. Miles 16,200 MW 81,708 20,580 $18.2 Billion $ 6.8 Billion 9,100 3

4 A structured BRM process can prepare organizations to effectively manage risk Ameren recognizes the need for a disciplined approach to better understand and focus risk management activities. This leads to the development of Business Management that is driven by: Company Growth Changing Business Model Technological Requirements Competitive Pressures Reporting Requirements (financial, Board of Directors, rating agencies) Ameren is developing a Business Management (BRM) process, common language, methods, and tools to embed risk management into business activities throughout the organization Ameren Ameren defines defines risk risk as as anything anything that that can can impede impede an an organization s organization s ability ability to to achieve achieve its its objectives objectives including including missed missed opportunities opportunities within within Ameren s Ameren s core core business business operations operations 4

5 Value Creation of Business Management Value Levers Alignment of Appetite and Strategy Descriptions Management considers the entity s risk tolerance in evaluating strategic alternatives, setting related objectives, and developing mechanisms to manage related risks Enhanced Response Decisions BRM provides the rigor to identify and select among alternative risk responses-risk avoidance, reduction, sharing, and acceptance Reduction of Operational Surprises and Losses Gain enhanced capability to identify potential events and establish responses, reducing surprises and associated costs or losses Management of Cross- Enterprise s Every enterprise faces a myriad of risks affecting different parts of the organization, and BRM facilitates effective response to the interrelated impacts and integrated responses to multiple risks Seizing Opportunities By considering a full range of potential events, management is positioned to identify and proactively realize opportunities Improved Deployment of Capital Obtaining robust risk information allows management to effectively assess overall capital needs and enhance capital allocation 5

6 Leadership creates an environment where open and honest discussion about business risks is embraced at all levels Guiding Principles for Business Management Support is strong at the top. Dialogue about risks is open and uses a common language that is understood throughout the organization. Everyone is risk focused and knowledgeable. Process owners take responsibility for managing risks. management is an ongoing activity. BRM is integrated into existing business processes. Business Management becomes an an ongoing activity in in how the the business operates. BRM is incorporated into strategic planning, budgeting and performance management. 6

7 BRM Sponsors Oversight Committee BRM Champions BRM Coordinators BRM Responsibilities Provide the Tone at the Top Establish Tolerance Provide communications to the Audit Committee regarding BRM results and process changes Act as lead stewards of the BRM Vision Ensure BRM expectations and results are effectively communicated within the organization Monitor and evaluate results of the BRM process Provide adequate resources and time to ensure the success of the BRM process Ensure BRM concepts integrated into existing budgeting, strategic planning, performance management and risk management practices Act as lead stewards of the BRM Mission Implement the BRM process across departments, functions and business segments Identify resources required to implement an effective process Develop effective reporting, risk identification, risk assessment, and risk quantification techniques Create a high level process map identifying BRM steps that coordinators should follow Ensure all stakeholders receive effective communication and training regarding BRM process Act as change agents, ensuring that the BRM process becomes part of the Ameren culture Implement the BRM process within their own business lines Provide process feedback to BRM Champions and Oversight Committee Provide timely reporting, risk identification, risk assessment, and risk analysis to BRM stakeholders Facilitate and coordinate BRM session logistics 7

8 A robust BRM process identifies, assesses, and manages risks to continuously improve performance The foundation of Business Management at Ameren is the identification, assessment, and management of risk Identifying capturing all the risks impacting objectives, including unexpected or unlikely risks and capturing all opportunities to improve results within Ameren s core business Assessing quantifying and analyzing the likelihood, severity and effect on business activities for each risk Managing reviewing risks, and addressing with the appropriate action steps Identification Assessment Management Identification Assessment and Quantification Roll-up Executive Review Follow-up 8

9 Business Management Process Deliverables Map Plots the significance, likelihood and estimated amount for identified risks Heat Map Highlights the prevalent and/or key risks identified by a business segment. Supporting detail will provide documentation of risk categorization and mitigation measures Action Plans Executive Council assigns responsibility to mitigate critical risks. Other risks managed at appropriate level within business segment Map Example 10 Consolidated Ameren Business Assessment External s Legend Type 9 Financial 8 Operational Significance of Strategic People Impact Impact <$1MM $1MM < Impact < $3MM 2 $3MM < Impact < $10MM 1 $10MM < Impact Likelihood of 9 10 Not quantifiable 9

10 Business Management Process Heat Map Example s: Red Critical Yellow Important Green Low Exposure External s Financial s Operational s People s Strategic s Competitor Budget & forecasting Business interruption Information relevance Communications Knowledge capital Alignment Product development Economic Credit Capacity Inventory management Employee Engagement Leadership Business intelligence Product/service pricing Legal/ Regulatory Financial & regulatory reporting Customer satisfaction Partnering/ Supplier mgmt Employee Knowledge/skill Legal compliance Intellectual Property Resource allocation Market requirements Fraud Distribution channel Performance Health & safety Process / Policy compliance Planning Unbalanced measurements Political Investment evaluation & monitoring Information access Performance Measurement Technological Innovation Liquidity Information infrastructure Quality 10

11 Business Management Sample s Market/Customer Liquidity/Credit Labor Business Interruption Supply Chain Reliability Security Financial & Regulatory Reporting Communications (Internal/External) Employee Skills/Engagement Health & Safety Merger/Acquisition Regulatory Compliance Environmental Issues 11

12 Business Management Key s Information Technology Disaster Recovery/Business Continuity Loss of facility Loss of Communications Capabilities Cybersecurity Technology Obsolescence Aging Workforce/Knowledge Transfer Availability of Workforce 12

13 Business Management Lessons Learned BRM is a Process, not a Project; incorporate it into how you do your business Leverage existing business analysis tools and practices When in doubt, include a risk for analysis Look at risks holistically across the organization; involving all stakeholders Don t exclude a risk just because you believe it is currently mitigated in whole or in part 13

14 Business Management Questions? 14

15 Ameren is ranked 5 th largest purchaser of coal 14 th in megawatt hour sales 21 st among Fortune 500 Utilities 382 th on the overall Fortune 500 list 15

16 Ameren Generation is... Regulated Unregulated 16

17 Ameren Business Segments Corporation Regulated Missouri Regulated Illinois Unregulated Gen. Shared Services Illinois Services Fuels & Services Nuclear Generation Energy Del. IP Resources Generating EEI 17

18 Managing risks ineffectively has long-term ramifications with recovery spanning numerous years Fortune 100 companies have experienced severe penalties for ineffective risk management resulting in: Significant and sudden loss in shareholder value Financial performance impairment Reputation damage 18

19 Regulations are pushing companies to broader, more formal risk management approaches Sarbanes-Oxley Act of 2002 Created to protect investors Section 404 of the Act (Management Assessment of Internal Controls) requires management to: Develop effective internal controls Provide documented evidence that controls are effective Report annually on the effectiveness of their controls COSO Enterprise Management Integrated Framework This framework provides key principles, concepts, common language, and clear direction for risk management. To develop an adequate internal control structure, many companies look to the Committee of Sponsoring Organizations (COSO) for guidance. 19

20 BRM Roles and Responsibilities Audit Committee Executive Leadership Team (BPM Sponsors) Oversight Committee Champions Coordinators 20

21 Identification Occurs across all Ameren business segments Identification 1 2 Identification Assessment and Quantification Assessment Management Roll-up Executive Review Follow-up s will be identified at the department, function and business segment levels Existing risk assessment processes will be leveraged Business Types (common language) will be used in the Identification Phase identification and assessment will be supplemented when necessary using several methodologies including interviews, data analysis, surveys, or third party sources DELIVERABLES Document identifying risks, categorized by strategy, objective or initiative Common reporting, templates and language around risk 21

22 Assessment involves thorough quantification, assessment and evaluation of risks Identification 1 2 Identification Quantification and Assessment Assessment Management Roll-up Executive Review Follow-up quantification is a product of the expected frequency and expected severity of risks and the evaluation of the possibility that unusual and unexpected events will occur s can be quantified using various metrics such as monetary values, lost workdays, customer satisfaction data, outage data, etc. The relevance of the identified risks to the organization will be determined, resulting in the prioritization of risks DELIVERABLES Maps, Heat Maps and documents describing the nature of each risk, the potential effects on the ability of the organization to meet its goals and existence of any mitigating controls or processes 22

23 Management of significant risks includes rolling up risks by business segments for Executive Council review Identification 1 2 Identification Assessment and Quantification Assessment Management Roll-up Executive Review Follow-up Roll-up involves summarizing significant risks from each business segment for Executive Council Review DELIVERABLES Maps, Heat Maps and associated documents 23

24 Executive Council decides how risks will be addressed Identification Assessment Management Identification Assessment and Quantification Roll-up Executive Review Follow-up The Executive Council will review the deliverables of the risk identification and assessment phases s will be analyzed and decisions made on which significant risks to focus on Responsible parties assigned to mitigate significant risks Remaining risks will be mitigated by the Business segment management Executive Council Review will occur by the end of May each year BRM Sponsors will review results of BRM process DELIVERABLES Identification of significant enterprise risks Assignment of individuals responsible for mitigating significant risks 24

25 Follow up includes Reporting to Audit Committee, monitoring results and interfacing with other Business Processes Identification Assessment Management Identification Assessment and Quantification Roll-up Executive Review Follow-up Sponsors periodically will provide reports to the Audit Committee on the results of the BRM process. Oversight Committee and Champions will ensure that BRM mitigation initiatives are implemented. BRM results will be used in the budgeting, strategic planning, and performance management processes. DELIVERABLES Reports for Audit Committee Interfaces with budgeting, strategic planning, and performance management processes Follow up on mitigation 25

26 Business Management Types Market/Customer Budget and Forecasting Financial and Regulatory Reporting Investment evaluation and monitoring Liquidity/Credit Communications Employee engagement Changing or new market or customer requirements that impact the organization or failure to recognize and act on market opportunities Unreliable, unrealistic or non-existent budgeting and/or forecasting information or processes including the annual budgeting process Incomplete, inaccurate or untimely financial or regulatory reporting (including internal or external) Lack of relevant, reliable or complete information supporting CAPX/O&M expenditures required to maintain infrastructure and investment decisions, including ongoing monitoring or failure to recognize prudent and profitable core business opportunities Inability to meet cash flow obligations in a timely and cost-effective manner including unplanned cash flow fluctuations or exposure to counterparty risks. Failure to comply with debt covenants or financings compliance Ineffective communications with any key stakeholders or failure to recognize benefits to be achieved through improved communications Absence or alignment or misalignment between employee and organizational objectives, principles or values or failure to recognize opportunities to improve productivity or morale 26

27 Business Management Types and Definitions Employee knowledge/skill Leadership Labor Business Interruption Generation Capacity and Reliability Customer Satisfaction Health and Safety Lack of knowledge, skill or experience among the existing workforce or the inability to acquire or retain personnel with the needed knowledge skills or experience Failure to provide effective leadership (e.g. direction, focus, motivation, credibility, trustworthiness) to employees or stakeholders s to business performance stemming from contractual parameters or labor shortages or the failure to recognize opportunities to effect contractual improvements Inability to operate due to disruptions, disasters or other causes Failure to appropriately respond to changes in production or service demand or failure to recognize potential benefits from improving capacity, productivity or reliability Failure to meet internal or external customer expectations or failure to recognize opportunities for improving customer satisfaction Failure to provide a safe working environment or failure to provide proper safety for the public 27

28 Business Management Types and Definitions Information access Supply Chain management Merger integration Business intelligence Planning Product development Resource allocation Energy Delivery capacity and reliability Failure to provide proper functioning and required access to information assets Failure to deliver needed materials on time including failures related to changes or disruptions in global markets or failure to recognize opportunities to reduce material costs or improve materials performance Failure to achieve expected synergies or failure to recognize opportunities for greater synergies Absence of sufficient or accurate knowledge of the external business environment including other Ameren divisions or failure to recognize opportunities presented by either external or internal business environments Failure to effectively develop, update or change plans Failure to develop viable or innovative products or services Inability to effectively allocate resources (e.g. time, assets, people) or the absence of sufficient levels of these resources Failure to provide sufficient distribution capacity or distribution reliability to customers 28

29 Business Management Types Construction s Corporate Structure and Governance Weather RTO Legal/Regulatory compliance Fuels Performance Measurement Failure of project planning or project management leading to cost overruns or project failures Failure to align business unit objectives with either process partner or enterprise wide objectives and/or strategies. This may also include an ineffective organization/reporting structure Operational s related to weather including markets, prices, reliability and forecasts for operations purposes Settlement, scheduling, increased costs and other risks or failure to observe opportunities to take advantage of conditions Failure to comply with laws or regulations (environmental, financial, trade, etc.). Failure to recognize opportunities to effect improved regulatory relations or avoid situations with negative affects Failure to obtain adequate delivery or reasonable prices for fuels, failure of suppliers to deliver, failure of fuels to perform as expected, lack of fuel or supplier diversity, failure to meet legal/regulatory requirements related to fuels or failure to take advantage of opportunities in fuels markets Unreliable, unrealistic, irrelevant or non-existent performance metrics or measures 29