A methodological framework for organizational risk management in energy companies

Abstract

Energy production has always been associated with a number of operational (technological) risks as well as risks resulting from external events. A large number of tools has emerged recently that utilize complex software solutions to minimize such risks, which shows in a significant reduction of failures at energy facilities in the past few years and a growth in the key performance indicators of energy busi- nesses. The most difficult ones to assess and prevent are organizational risks. The probability of such risks increases alongside the progress of structural transformations in the global energy sector. Such risks, despite their internal nature, are capable of triggering serious deformations within the governance system of an energy company and, given the specific features of the energy sector, lead to a sharp performance drop across the industry. The article presents a methodological framework for operational risk management in energy companies that is based upon the idea of identifying the priority results of companies’ performance. The proposed methodology is essentially about forming the risk space of an energy company and using it as a basis for quantitative assessment of the probability of risk events. This will in turn make it possible to identify critical organizational risks, assess anticipated damage and think of preventive management impact to offset the risk events.