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Flexing RISK in your AM Program


6 February 2016 – Thom Kemp

When you are getting to grips with asset investment planning, do you think about managing residual risk across the portfolio? Are you thinking ‘efficient frontier’, ‘soft capital’ limits and so on?

So… how well does your organisation manage risk? Do you have an ERM fully connected from the board room to the workshop? Are your risk identification and mitigation techniques qualitative or quantitative?

Do you know the total annual cost of compliance, for example the cost of insurance, of certification, of regulatory requirements? How would you characterise the risk culture?

Most of us are familiar with the standard 5×5 risk matrix as we seek to capture the likelihood of an event occurring and the consequences should it occur.

The red zone on such a matrix represents intolerable risk and demands immediate action; the green zone represents acceptable risk where likelihood and consequence are low.

Let’s assume we have sufficient data to inform the matrix, and all necessary criteria to to make informed judgements based on the organisation’s risk appetite.

In a situation where the economy is underperforming, oil price is volatile and stock markets are jittery, do you have the necessary data to reconsider your risk tolerance?

Can you accept a little more risk – moving from the green zone in to the yellow zone?

Can you quantify the impact of ‘flexing’ tolerance in such a way that allows CAPEX to be deferred until a better, more opportune time?

If not, then you have insufficient data to manage risk across the portfolio!

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