Enterprise Risk Management at Hydro One Case Study

Enterprise Risk Management at Hydro One Case Study

Strategic Objective
* Be the best transmission and distribution business in North America;
* Implement Enterprise Risk Management by a risk-based investment planning
system
* 90% customer satisfaction
Risk
* Loss of competitiveness and volatility of financial markets;
* Employee safety issues
* Uncertainty in government
* Equipment failure
* Environment issues
Strength
The risk assessment process fully involves every aspect of the business.
Meanwhile, instead of using a probability test to identify the potential outcomes
and associated probabilities, Hydro One chose to focus on worst credible
outcome within a given time frame and its associated probability of occurrence. It
helped the group to assess the magnitude of a given risk, its probabilities and the
strength of existing controls. This simple, qualitative approach has proven to be a
practical and efficient way to focus on major risks while avoiding excessive detail
and complex calculations. Besides, the risks are identified in a 2 to 3 year time
frame. This forward looking way gets mangers to think over a 2 to 3 year horizon.
Once risks and controls are assessed, a manager will be assigned to be the risk
owner to develop specific plans to mitigate the risk, that is, a rank-ordered list of
residual risks is assembled. Also, risk management staff do not attend internal
audit meetings and the information from a risk management meeting is not

available to internal audit staff without written authorization from a VP. This
ensures the complete separation between risk management and internal audit.
The ERM process stressed the importance of six month monitoring and review of
risks because risk did not stay static. By review corporate risk profile on a regular
basis, the company could effectively monitor the current risks to see if some risk
exposure is increased or some might be reduced through new or enhanced
preventive controls.
The last phase of the ERM process involves in risk based investment appraisal
and planning which gave high visibility and scrutiny to capital planning, therefore,
reassured top management that the company was making the right investment
decisions.
Weaknesses
One problem this ERM exist is that only management is involved in the process.
The organization does not have a channel for operational employees to report
potential risk. They are the front line people who are more likely to be exposed to
the potential risks. Identifying and capturing risk should flow down, across and up
the organization. ERM should also make sure that related information is
communicated in a form and time frame that enables everyone in the company to
carry out their responsibilities, not just for management.
Second problem is that cost might be too high in terms of managerial time. Fraser
has to do a 30-40 executive interviews for each Corporate Risk Profile. Is this the
most efficient and effective way? Could it be taking too much of the managerial
time thus potentially increased the cost?
Last but not the least, if an investment happens to fall in the red zone, when it
comes to decision making, it is more likely that managers would worry more
about the risk/downside of the project rather than the opportunity it might bring.