COURSE

CORPORATE FINANCE

LECTURER

PROFESSOR KWANGWOO PARK

CASE ANALYSIS
ENTERPRISE RISK MANAGEMENT AT HYDRO ONE(A)
(Product Number: 206018-PDF-ENG)

TEAM MEMBERS

ABRAHAM A. MENSAH 20134725

STEPHEN MAGARA

20134777

STEVEN BAMEKA

20134778

WINNIE KABATESI

20134788

DECEMBER 1, 2014

Q.1. (1) What is Hydro Ones strategy and what risks does the company face?

Hydro Ones vision was to be the best transmission and distribution business in North America.

To implement enterprise risk management by a risk-based investment planning system

A balanced score card that featured a strong emphasis on customer services.

To be the best safety record in the world, top quartile transmission and distribution reliability,
90% customer satisfaction across all segments, top quartile employee productivity and
operating efficiency and A credit rating

Risks Hydro One faced were:

Inadequate electricity supply (not being able to meet the demand)

Political risk - Uncertainty in government regulations due to upcoming or pending elections in O

ctober 2007

Reputational Risk from the departure of the previous CEOs and negative publicity by the media

Equipment failure and interruptions (Aging assets)

Informational risk due to bad publicity that led to the cancellation of the IPO

Information Technology risks due to implementation of SAP

Human resource risks - Departure of 140 staff and hiring freeze (losing the heart and the soul of
Hydro one)

Environmental risks (Hot weather conditions in spring and summer)

Safety of employees arising from increased used of tools and equipment.

Capacity of transmission due to premature equipment failure or too high demand.

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Q.2. (2) Consider the three stages of Hydro Ones ERN process: Workshops; Risk-based Asset Planning;
the Regular Update of the Corporate Risk Profile. What are the strengths and weaknesses of this ERM
process?
Risk workshop and the Delphi Method
Strengths:
Full involvement of every aspect of the business, all the managers were polled on what they thi
nk are potential risk or threat to the business or the project
Identified and assessed risks were charted in two dimensional rank.
There was also complete separation of between risk management and internal audit so that
people could speak candidly at the risk management workshop.
Weakness:
The risk owner (CEO) had primary responsibility for deciding whether to accept and live with the
risk or take specific steps to deal with it within the formal risk mitigating process.
Reviewing the Corporate Risk Profile
Strength:
Reviewing the corporate risk profile regularly twice a year, allowed management to see which
risk mitigating steps they had taken is working, about new potential risk they could be facing as
the risk are not static.
Weakness:
ERM process should also incorporate input from workers maybe use of suggestion box
Risk-based Investment Appraisal and Planning
Strength:
ERM processes gave high visibility and scrutiny to capital expenditure planning. ERM process

ensures that projects addressing the highest risks have the highest priority.
Weakness:

Only the highest risks have highest priority in terms of finding mitigation option
ERM process is that only the management is involved in the process.

Q.3. (1) Should private-sector companies embrace ERM in a way similar to Hydro One s approach?
What are the contingencies of this process?
Yes, as chief risk officer John Fraser advocated: if a company does not have risk management, it would
be like driving a car without brakes.

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It will facilitate full enterprise brainstorming help them identify potential risks that their organization
may encounter. ERM process will give them opportunity to find solution to mitigate the risk. It will also
help save them money as in most cases preventing potential risk from occurring will be lot cheaper, and
improve services it provides or its customer satisfaction (by being able to foresee and effectively
mitigate risks they may encounter. As there are lots of benefits, I think they should embrace it.

Q.4 (1) What recommendations would you make to CEO Laura Formusa about ERM process?
We recommend the CEO Laura Formusa should take note of the following:

Workers who perform the day-to-day activities are more aware of the potential risks faced by
organization in daily operations than management.

Great ideas can come from anywhere anyone so we should not discount workers. They may
have identified fresh new risk that all of the management have overlooked.

Try to get the risk people involved earlier to help establish options faster to find solutions.

Even the lowest ranked risk can cause mayhem to the organization and therefore be attended to
in time.

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