Many risks are common to all organisations, regardless of industry sector. But the nature of the business invariably affects the emphasis placed on individual risks. This was highlighted when I talked to five risk professionals about the risks and the issues that are most important for them.
Alain Puyo, EHS Project Manager, Alcan Primary Metal Group, Smelting Process Engineering
Alcan is the world's second largest producer of primary aluminum, a technology leader in this sector and a predominant global producer of value-added engineered products and composites. It supplies key market sectors, such as aerospace, automotive, and beverages. As a leading full-service provider in most packaging sectors, Alcan is ranked first worldwide in food flexible, pharmaceutical and cosmetics packaging and second in tobacco packaging. Alcan is also one of the world's leading metal traders.
This focus on value is complemented by the company's commitment to environment, health and safety (EHS) and the continuous improvement of business processes. Together, these three components are the core of the Alcan Integrated Management System (AIMS) that was introduced in 2003.The benefits of AIMS are already apparent in the form of consistent company-wide data that facilitates tracking of performance measurements in all Alcan businesses.
Alcan employs almost 70,000 people and has operating facilities in 55 countries and regions. The company maintains a corporate head office in Montreal, which focuses on corporate strategy and growth initiatives, human resources and strategic capital allocation, corporate governance and compliance functions. It also has its global business group headquarters in Montreal and Paris.
The Primary Metal group includes Alcan's aluminum smelting facilities and power generation installations, smelting technology and equipment sales, engineering services and aluminium trading operations, anode and cathode production facilities and aluminum fluoride plants. The company owns or has an interest in 22 smelters in 11 countries and regions and is a major supplier to independent extruders and foundries around the world.
My role involves dealing with integration of environment, health and safety (EHS) at the very first steps of the design of our working equipment or installations for smelting operations, but also relating to our capital projects, such as plant projects, as well as strategic projects (involving joint ventures, R&D projects, etc). Such projects can involve construction of a new plant, building extensions or process installations, making changes to equipment or to an installation to improve production or process efficiency. We also have major projects which can cost $100m upwards and other kinds of projects, which tend to be greenfield projects involving construction of new plant, and can be as much as $1.5bn.
All projects face changing risks throughout their life-cycle, and the systematic application of risk assessments and the implementation of mitigation plans are a key success factor in planning and executing them. This, combined with adequate sizing of contingency, provides a way to secure project outcomes.
Throughout Alcan we have an EHS management system called EHS FIRST. The EHS FIRST system forms an integral part of Alcan's overall integrated business management system, which targets being the best in every aspect of the company and maximising sustainable value at Alcan.
Our system is aligned with ISO 14001, an international environmental management standard, and OHSAS 18001, an international occupational health and safety management system specification. EHS FIRST is not only a system; it also represents an attitude, a mindset and an acceptance of responsibility and accountability.
As part of best practice, risk analyses have been introduced in project preparation and execution. The method we have introduced is the Zurich Insurance Company's ZHA risk management tool, customised for our needs, for all projects over $1m. We use ZHA at the very start of the project process to identify the specific business risks as well as other kinds of risks, including EHS risks, that we may encounter during the project's preparation, execution and closure, which may have a negative impact on project costs, schedule and operability as well as on the safety and health of our employees and customers.
The ZHA tool also allows us to capitalise information from other engineering projects from different countries.
We have defined four key risk areas to present project risk profiles. For each non-acceptable risk a mitigation plan is developed and assigned to a 'risk owner'. Implementation progress of risk mitigation plans is periodically monitored and risk profiles are updated.
One of the main reasons for introducing this risk analysis process was to reduce surprises during project execution and to contribute a high level of peace of mind for clients during project start-ups. Following up risks until the end of the project is a difficult part of the job for the project managers.
We also have supply chain risk management with the involvement of our procurement department. The procurement department negotiates with potential suppliers and we ask it to ensure that the suppliers we work with follow our minimum requirements in terms of EHS issues. For example, they should have good safety rating and environmental records. And this of course applies to the contractors involved in the construction period of the project.
When the project is completed, the end-user or client can start operations knowing exactly the residual risk he has to cope with, and knowing that it has been kept to the minimum possible. This risk analysis system within our capital project process is also a contribution of our continuous improvement system where we challenge all parties involved in capital project preparation to improve EHS design criteria for our installations
Dr Renatus Capek, Director Legal & Human Resources, Atomic Austria
Atomic Austria is part of Amer Sports, the world's leading sports equipment company, with internationally-recognised brands including Wilson, Atomic, Suunto, Precor, Mavic and Salomon with its family of brands. All Amer Sports companies develop and manufacture technically advanced products that improve the performance of active sports participants.
Atomic Austria manufactures products for skiing, snowboarding and mountaineering. It has around 600 employees and is a market leader in several European countries including Austria and Germany. Its facility in Austria is the biggest ski equipment factory in the world.
Our goal is to have the right products in the marketplace at the right time and at the right price and the whole management team works together to achieve this. We don't stockpile our products; everything we produce has an order behind it. This policy of production on demand means that one of our greatest risks is an interruption to business. We have to do everything we can to prepare so that this risk is cut down to the minimum.
My main function is involved with human resources, but I have taken on this risk management role, working closely with our maintenance department, production managers and warehouse managers.
The likeliest causes of business interruption are fire and problems with our suppliers. We have suppliers in various countries, for example China and Italy, and we are conscious that our supply chain could be affected by issues like a strike or a pandemic such as avian flu.
We have a small motivated team. Working closely with our insurer, we have introduced programmes to ensure that we take a proactive approach to minimise the possibilities of interruption. It is a continuing process, where we inspect our site every year and evaluate what we can improve upon. We are also working closely with the local fire brigade, which provides advice on minimising our fire risks.
For example, we have built up a completely new safety solution with entrance controls through alarm systems which protect us against both fire and the possibility of theft. We train our people continually, and we have built up relationships with specialists that we can call upon should something happen.
In sourcing raw materials through our supply chain, we are conscious of the need not to focus on one supplier - we make sure that we have alternatives - and we also ensure that we have sufficient stock to allow us to continue producing for a reasonable period of time should an interruption occur. If a pandemic should arise, this might be a problem, as our managers need to travel to suppliers to ensure quality control. But this kind of problem would affect most companies.
It is all about performance, improving processes and keeping the costs down. In order to invest in risk management our productivity has to increase. It must always cover the investment so, like many companies, we have cost constraints on how much we can spend on risk management.
Erik Weisser-Svendsen, Risk Manager Skadeforsikringer/Controller, Moelven Industrier
Moelven is owned by Finnish and Norwegian forestry owners' organisations and is a leading supplier of wood-based building products and associated services in Norway, Sweden and Denmark. The group's 45 operating business units, located throughout Norway, Sweden and Denmark, are organised into three divisions - timber, wood and building systems, all of which are oriented towards the professional building (builders/contractors) distribution and industrial distribution sectors in Scandinavia and Europe.
The sawmills in the timber division supply sawn timber to companies in Scandinavia and the rest of Europe, which in turn use the wood in their own production processes. The production plants in the wood division supply the distribution segment in Scandinavia with a wide range of building and interior products. And the companies in the building systems division supply complete and flexible system solutions for interior walls, modular building and load-bearing laminated timber structures for the professional building segment, primarily in Norway and Sweden.
The group employs around 3,200 people and has an annual turnover of around EUR750m.
Since I became Moelven's risk manager some two years ago, much of my work has been focused on fire prevention and business continuity planning. We operate sawmills and planing mills so there is 'hot work', and fire is the key hazard that we have to guard against. We focus on the 'soft' strategies like good housekeeping, safe storage and of course employee training. We also use 'hard' prevention measures like having fire sprinkler installations - these are essential - and also fire detection. For example, we have installed the Firefly system at our sites. This detects sparks and so can prevent a fire at a very early stage.
Continuity planning is very important for us. Throughout the last two years, we have worked closely with our insurer on continuity planning for all of our 45 sites and have visited them to check that plans are appropriate. Our continuity programme falls into three parts - an emergency response plan, a catastrophe plan and a recovery plan. Within the latter, we make provision for switching production quite quickly to other sites or mills in the group.
Natural catastrophes are also a consideration for us. We have some risk from storms, especially on the west coast of Norway. However, in Norway the government has a financial pool for insurance of storms and other natural catastrophes. Premiums are paid into the pool by reinsurers, so in essence every company is paying for it in their initial direct premiums and it is mandatory. Sweden doesn't have a similar system so we have to insure there in the normal marketplace against natural catastrophes.
Amanda McKendrick, Insurance Manager, McNicholas
McNicholas specialises in a number of complimentary sectors, which combine to provide a multi-disciplined approach to its clients' needs. These sectors include construction, maintenance and demolition services for utility infrastructure, highway environments, street lighting, external civil projects and transportation networks.
The company achieved individual business ISO 14001 environmental management accreditation last year and has now moved to whole business accreditation. It is committed to reducing injuries and unplanned events, whether they are environmental incidents or quality issues.
I see the biggest challenge for our company as keeping our clients happy so that we continue to be successful. If we don't carry out our contracted work properly, efficiently and on time we could lose business.
At our last management conference in 2005, I was part of a working group looking specifically at how we could improve our risk management. There was input from all the divisions. As a result, we have introduced a process of risk appraisal for every new and existing contract and tender. This takes place right from the start and we have designed an in-depth analysis tool. This grades risks using a traffic light system and has enabled us to be more selective in what we tender for.
That tool is then used throughout the contract, so if anything changes from green to amber or red we can nip the problem in the bud.
We have been using this kind of analysis for about six months and it has improved our success rate. In the past we might have taken on work without looking at all the risk implications, and then six months or a year later we would realise that this was not the contract we thought it was!
Our other main risk is injury to our personnel. Most of our work is done in the open and involves intrinsically dangerous industry sectors like electricity, gas and transportation. So the potential is always there for injury to our employees. Our health and safety department carries out considerable training, both induction and-site specific, and risk assessment to maintain safety awareness and best practice techniques.
Adrian Clements, Senior Insurance Risk Manager, Arcelor Insurance Consultants, Arcelor-Mittal Group
After Arcelor's merger with Mittal last year, the group is by far the biggest steel producer in the world, three times larger than its nearest rival. But although we are the biggest, we still only have 12% of the world steel market.
The steel market as a whole has not consolidated, and currently it is in a state of flux. Some companies are fighting to remain independent. Others are fighting to survive and are looking for partners. In my opinion, this pressure means that deals are being done quickly and possibly without proper risk management involvement. Some companies are undertaking 'streamlined' M&As, as they don't have the time to conduct a fully-fledged due diligence analysis at all.
Arcelor Insurance Consultants wears three hats. We are the insurance department for Arcelor worldwide, the reinsurance captive for the group, and we are also the in-house broker. In addition, we place insurance for a small number of third party companies in Luxembourg.
What do I personally see as the key challenges? One is the consolidation trend that I mentioned. People are reacting instinctively, because of the previous prolonged procrastination period. Therefore they are looking at the pure size synergies they might gain from a merger rather than stepping back and seeing if it makes sense. There are opportunities, but there may also be negative factors and surprises.
Steel is a basic industry for many countries, and there are quite a few countries which protect their steel industry. Many governments don't want to give away one of their life lines. This has repercussions as far as our decision making is concerned and governmental risk is taking on a more significant role in our risk management decision making process than before.
Even though Arcelor-Mittal is now by far the largest steel producer, it still has only 12% of the market. Upstream you have the big mining companies, three of which control almost 70% of their market. Downstream you have the automotive industry, where ten organisations collectively represent an enormous market share. We are squeezed in between these two powerful industrial sectors. It is difficult to increase prices, and I believe we cannot act as proactively as we would like to. My personal view of the steel industry is that we compare ourselves to other steel companies instead of comparing ourselves to other number ones. There is a significant difference. You have a different set of benchmarks if you do that; you are looking at a different peer group.
How do we deal with these challenges? I think any company needs to have the ability to explain to the board the effect on the bottom line of their decisions. This means having a chief risk officer at board level or close to it, whose role is not to be pessimistic, but rather to identify and manage the opportunities coming from the workforce or other sources. A colleague of mine made an interesting observation recently: it seems as though industry is full of crisis managers. They react very well to crisis. They have emergency plans for emergencies. However, the proactive side of true risk management and business continuity we don't do. Why? There may be a lot of reasons.
For example, few companies place emphasis on risk management. Maybe there are too many definitions of risk management. We have to try to change this and do true enterprise risk management and business continuity. It is starting to happen, but it's taking a long time and there's some way to go.
Industry has a lot of compliance issues. We are confronted every day with new legislation and compliance issues. The very nature of industry and the equipment used mean that there are many rules and regulations - perhaps too many. You are playing catch up, rather than leading and innovating. You cannot 'manage' the fact that a government has introduced new environmental regulations; you can only react and comply, and therefore compliance is a large and time-consuming part of our work. It takes a lot of the energy away from the enterprise risk strategy. So in terms of how we deal with these issues ... in some cases we can't because we don't have the time.
As far as risk management in our supply chain is concerned, there is not a great deal we can do in the case of raw materials suppliers, because of the dominance of the mining groups. We buy certain raw materials on the spot market and if the price of coke, for example, skyrockets as it did last year there's not a great deal one can do.
As far as our insurance supply chain is concerned, there are specific companies who want to underwrite steel business. It has had a bad record in the past in terms of loss frequency and loss magnitude. We handle this on the risk transfer side by changing the image of steel and showing we are doing risk management. Arcelor has made great strides in this area. We are dealing with some of the key issues, identifying the KPIs and actively reducing losses so that we are able to get the coverage we need from the best insurers and reinsurers.
My role has definitely changed. When I first started in risk management about 22 years ago, everyone was talking about fire protection. Then the focus changed to loss prevention. Now it is enterprise risk management. Identifying and supporting positive risks to create more competitive advantages and to take positive value creating decisions. Twenty years ago it was all fire and sprinklers.
And we don't talk to the same people. We used to deal with the maintenance departments; now we talk to the CFOs. We are getting more respect and more people are aware of what risk managers do, as opposed to simply buying insurance. Insurance now is a consequence of risk management instead of the other way round. If you manage your risks well, your insurance needs are reduced to the minimum, and that is the current trend.
The biggest change for me is that I'm not talking about putting fires out any more but looking at many other areas: IT, salmonella, pandemic risks, product recall - these types of things.
I have developed a strategy called 'C10'. Risk management is all about the 10 'Cs'. If you do risk management you reduce your total Cost of risk and costs in general. You increase your Cash flow because you don't have breakdowns - your plant keeps working increasing reliability and timeliness. So you have better Control and you also have a significant Competitive advantage because you are producing continuously while your competitors may have problems and outages. Product quality is better, people are more motivated and you get a better risk transfer price. You have Clarity, you know the risks that you have and can decide whether or not to transfer them, and you have good Corporate governance. This also helps to obtain insurance Coverage and you can buy what you need. Claims costs are less, not just the insured claims but all the other costs that can result, say, from a sudden and unexpected maintenance problem. Our claims costs have reduced significantly in the last three years. This means there is more insurance Capacity - insurers can see that claims have reduced and you have control. You also have Continuity. For example, you are able to prove to the automotive industry that you can match the quality of product produced at one plant from any of your sites worldwide. When you build a new plant, you use the same standards everywhere in the world.
The continuity of your whole company is being reinforced by risk management in all its functions. Predictive maintenance, hedging the dollar, keeping your employees happy - that is all risk management at the end of the day.
Insurance covers only about 10% of the cost of a loss, because of all the things that are not insured. If you can integrate risk management into every level of your organisation, it doesn't only reduce premiums and claims,it reduces these other losses, which may be ten times greater. By reducing claims you free up money, which contributes to your cash flow.
The money we are investing on loss prevention isn't money the company is spending. It is the money that we are saving on insurance and claims, which we reinvest into risk management. Maybe in the first year you will have to free up some cash, but after that it becomes almost self-financing.