The given case study focuses on the Canadian organization Hydro One that distributes electricity, and it can be considered as one of the largest companies in the North American continent. The main goal of risk management is to improve the financial results of the enterprise and create such conditions so that it does not receive large losses than permissible. The risk management process consists of researching and analyzing the probability of occurrence of accidental harm, developing a system for recognizing risk, possibly minimizing or eliminating it most effectively. A critical analysis of the approaches to determining the content of risk management processes allowed Hydro One to formulate its own list of risk management stages.
Hydro One’s risk management strategy consists of three main components, which are targeted at involving employees, planning, and assessing. In the first stage, the company engages all employees in order to allow them to comprehend the strategic framework of the organization. This allows Hydro One to collectively inform all workers on the key goals and outline potential risks (Mikes 4).
In the second stage, the outlined risks are selected, and the company conducts intensive planning for the given year, where the management allocates a certain amount of resources for the projected period. In the last stage, Hydro One conducts the assessment procedure, which aims to analyze and overview the company’s risk report through summative interviews (Mikes 8). The main risks revolve around dangerous weather conditions the company’s location of operation as well as the ramification of climate change and legislation regarding the carbon footprint.
The main strength of Hydro One’s enterprise risk management (ERM) is the fact that risk management personnel includes both employees and the Board of Directors. This allows the company to eliminate the communication barrier and bureaucracy due to its large organizational structure. However, the primary weakness of Hydro One’s ERM is that it lacks quickness of reaction and flexibility in its risk management due to the number of parties involved. Hydro One, in principle, is only interested in those risks and their aggregates that can significantly affect its ability to achieve systemically important goals, inflicting irreparable losses on it or interrupting its processes.
Diagnosing the problems of the enterprise in general and the risk spectrum in particular, in modern business conditions, is becoming an increasingly important part of managing it (Hopkin 157). In this case, risk diagnostics refers to identifying opportunities to sustain losses, and identifying them means determining the significance of each of the identified risks for a given enterprise for the foreseeable future or the planned period. In other words, assessment is the formulation of the spectrum of enterprise risks, and identification is the assessment and construction of its risk portfolio.
The main recommendation to CEO Laura Formula focuses on increasing the strategic adjustability to sudden changes in the risk portfolio. The flow of information and assessment should be free of barriers due to the number of participants. In the most general sense, the entrepreneurial risk in Hydro One is due to the possibility of deviating the result from the planned one due to changes in many factors affecting the enterprise from the inside and outside.
The more accurate the calculations, the higher the degree of coincidence of estimates and forecasts with actual data (Claros et al. 4). A positive deviation means a chance to get additional, compared with the initial calculations, profit (Ivanov 78). Consequently, more specifically, Hydro One’s enterprise risk management can be characterized as the probability that the entrepreneur will suffer losses in the form of additional expenses in excess of those envisaged by the forecast.
Claros, Boris, et al. “Enhancing Safety Risk Management with Quantitative Measures.” Transportation Research Record, vol. 2603, no. 1, 2017, pp. 1-12.
Hopkin, Paul. Fundamentals of Risk Management: Understanding, Evaluating and Implementing Effective Risk Management. Kogan Page, 2018.
Ivanov, Dmitry. Structural Dynamics and Resilience in Supply Chain Risk Management. Springer, 2017.
Mikes, Anette. Enterprise Risk Management at Hydro One. Harvard Business Review, 2012.