Cambridge Risk Report - Stress Testing Companies in the Energy Value Chain
The Institute of Risk Management is delighted to be continuing our working partnership with the Cambridge Centre for Risk Studies; we have jointly produced a paper on stress testing for the energy sector which has been launched at the IRM’s flagship Risk Leaders Conference in London.
Professor Daniel Ralph and Dr Paul Burgess from Judge Business School, Cambridge University presented their case study and also the sister publication (Risk Management in the Consumer Sector) also launched today as part of the Cambridge Case Study series.
Firms throughout the energy value chain need innovative tools, like the scenario analysis techniques outlined in this report, in order to understand and manage risk and opportunity in a volatile world. As the paper says, the extreme risks that the sector faces may not be predictable
in the conventional way, but they are foreseeable. The thinking in this guidance will help organisations sharpen up their foresight and improve their resilience in respect of future events.
The report outlines three plausible scenarios that should be considered by any organisation operating in the energy sector: a Middle East conflict, a Gulf of Mexico hurricane and the emergence of legal liability relating to climate change. Whether these scenarios themselves unfold as described is only part of the story: the process of marshalling the right people in an organisation to have a meaningful discussion around the scenarios and considering their implications and alternatives will be of great value in itself.
Socrates Coudounaris, BEng (Hons) MSc FCII CFIRM, Chair of the IRM explains:
“IRM has an active special interest group of practitioners working in the energy sector. We will encourage the members of that group now to take the Cambridge work and ‘road test’ it, working as a community to further develop new thinking in this area.
I would like to thank all the organisations and individuals who contributed to this work and also the Cambridge team for their focused and thorough approach, bringing some new thinking on concepts and techniques into the risk management space”.
Professor Daniel Ralph. Co founder of the Cambridge Centre for Risk Studies at the University of Cambridge Judge Business School said:
“It’s great that we have been able to present our publication here today in front of so many esteemed risk professionals.
The energy value chain is a vital component of the global economy, an industry whose outputs underpin the growth and productivity of all other sectors of the global economy.
The energy value chain spans the gamut from fossil fuel production to high intensity energy consumers.
In this case study, we present the application of scenario stress tests to energy value chain
companies as a systematic approach for highlighting potential futures and assessing risks which may impact an organisation, sectors, or economies and for managing emerging risks”.
With thanks to the Cambridge Centre for Risk Studies Research Team:
Dr Michelle Tuveson, Chairman & Executive Director
Professor Daniel Ralph, Academic Director
Dr Andrew Coburn, Chief Scientist
Simon Ruffle, Director of Research and Innovation
Jennifer Copic, Project Manager and Liability Research Lead
Dr Andy Skelton, Lead Modeller
Ken Deng, Lead Financial Risk Research
Oliver Carpenter, Lead Environmental Risk Research
Dr Jennifer Daffron, Lead Technology Risk Research
Tamara Evan, Lead Geopolitical Risk Research
James Bourdeau, Geopolitical Risk Research
Phil Cameron, Cyber Risk Research
Timothy Douglas, Risk Modeller
Timothy Summers, Senior Data Scientist
William Turner, Data Scientist
Dr Paul Burgess, Senior Advisor for Risk Management
Jayne Tooke, Communications Assistant