Tag: risk management process

risk management

Risk Management Strategies to Address Price Volatility in the US Oil and Gas Industry

Risk Management Strategies in the US Oil and Gas Industry (1)

The oil and gas industry is arguably the industry with the highest risk factor given its complex nature. Companies have to deal with the fluctuating oil prices and its recent plunge due to the US government’s trade war has been a major blow for companies. However, risks in the oil and gas sector are not just confined to price volatility but cover political risks and security risks as well. Starting from the geological survey down to the lifting and production level, this capital intensive industry is faced with uncertainties at different levels. Given the aforementioned reasons, coupled with several other complexities, companies in the US oil and gas industry must implement risk management strategies to ensure financial sustainability and protect investors within the sector. The article identifies key strategies that can be adopted to mitigate the risk of price volatility and improve the risk management process.

Despite numerous risks in the oil and gas industry, investors can still make substantial profits by developing effective risk management strategies. Request a free proposal to gain key insights.  

Key Risk Management Strategies for Mitigating the Risk of Price Volatility

Risk management strategies #1: Create forward contracts

A forward contract is a customized contract that specifies prices for both parties to buy or sell an asset on a future date. It can be effectively used for hedging or speculation. In relation to the US oil and gas industry, a forward contract is a basically a private agreement signed between a buyer and a seller, obligating the buyer and the seller to purchase and sell oil at a set price which is equal to the forward price set at the start of the contract. In this, each party bears the risk of default on future commitments. 

Wondering how risk management practices such as creating forward contracts can mitigate the risk of price volatility?

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Risk management strategies #2: Develop future contracts

A forward contract that incorporates the rules of exchange is termed as a future contract. It is traded in exchanges, where a clearing house represents the buyer and seller. The key purpose of the primary house is to mitigate the risk of default and ensure the quality and quantity of the products delivered. The New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE) Futures are a few of the major future exchanges. Future contracts are given much priority in the US oil and gas industry as clearing house takes the risk away from the parties, thereby improving the risk management process.

Incapability to develop future contracts can increase the exposure to volatile oil and gas prices. Stay a step ahead by requesting free platform access from our procurement experts. 

Risk management strategies #3: Introduce the concept of swap

The concept of swap can be easily applied in the oil and gas industry as a hedging instrument for risk mitigation. It is the exchange of financial assets between concerned parties at a predetermined rate, as per the terms laid out in the contract. It is usually arranged through financial institutions or through banks. Similar to forward and future contracts, oil swaps are one of the key risk management strategies companies adopt to mitigate the risk of price volatility. It transfers the risk of price volatility from oil producer to the lender. Swaps guarantee a firm price for a calculated volume of crude oil for oil producers. In case of a plunge in crude oil price below the fixed price, the financial intermediary is obligated to pay the fixed price that was agreed upon in the contract.

To gain detailed insights into the risk management strategies and the ways to develop a risk management framework, request for more information from our analysts.

cyber security

How can Better Risk Management Help Counter Possible Threats in the Supply Chain Process?

Today, businesses operate in an increasingly complex environment with high risks of supply chain disruptions. These disruptions can disturb the normal flow of goods and materials in a supply chain and can have major negative consequences for business operations. Although there can be varied reasons for these supply disruptions such as strikes and labor disputes, inventory problems, and incorrect forecasts, they can hamper the productivity of the company. The more frequently these disruptions occur, the more negative the impact on the financial performance of the company. This necessitates companies to mitigate supply chain risks and have an effective risk management process in place. But before we get into the risk management process, let’s understand more about risk management:

What is risk management? 

Risk management is a process that involves the identification of opportunities and threats that might occur in the business. It is a critical and continuous process that requires companies to conduct risk analysis at regular intervals. Risk management helps businesses to follow risk management steps that can effectively counter the possible threats occurring in business processes.

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IR39

Decoding the Vendor Risk Management Process – An Ultimate Guide for Procurement Companies

Vendors play an extremely important role in determining the success of your business. No matter whether you consider it important to manage relationships with your suppliers or not, you cannot deny their significance when it comes to boosting the profitability of your organization. Many progressive organizations have realized this fact and have started developing strategies for better life cycle management. At present, however, the concept of vendor risk management has shifted from a department-level process to an enterprise-wide one. Many organizations are even centralizing their vendor risk management process and effectively managing the risks posed by vendors and contractors. This makes it even more critical for other companies to leverage vendor risk management solutions to effectively manage risks.

What is vendor risk management?

Vendor risk management is a process that allows businesses to identify and mitigate potential business disruptions and legal liabilities. It also helps monitor and manage risk exposure from third-party suppliers (TPSs), who provide IT products and services or have access to sensitive enterprise information. Since strategic, financial, operational, and compliance or legal risks may be amplified with the introduction of third parties into to the business operations, companies need to have a proper risk management framework in place to protect customers’ data. At times, vendor risk management is also known as third party risk management.

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Answers to the questions

Five Steps to Get Risk Assessment on Track

risk assessmentWhat is risk assessment? 

Risk assessment refers to a systematic process that involves a series of steps for evaluating the potential risks that could affect a business’s operations. A well-defined risk assessment process helps in identifying hazards that could have a negative impact on an organization’s ability to conduct business. Furthermore, it also provides measures, processes, and controls to reduce the impact of these risks to business operations.          Contact US

Key steps in risk assessment

Undertaking a risk assessment process can allow an organization to obtain a holistic view of the risks it faces, consequently allowing the management to identify these risks and capitalize on opportunities. Furthermore, risk assessment allows management to assess the company’s risks and controls and devote resources where needed. Here are the key steps in the risk assessment process:

Identify the risk

Risks affect a company’s ability to successfully compete within the industry, survive in the market, and maintain its financial strength and goodwill and also the overall quality of its products, services, and people. The first step enterprises must do is identify all the potential risks that could affect the smooth functioning of their business.

Create a risk library

A risk library acts as a framework for the risk assessment process. It is a repository that summarizes those risks to which the company is exposed. This facilitates discussions of risks and their definitions, and it promotes both consistency and a culture of risk awareness. A risk library can be broken down into four categories- insurance risk, market risk, operational risk, and strategic risk.

Assess risk potential and impactrequest proposal

Assessing the likelihood of risk and the consequent financial impact and can help the management in determining whether the company is operating within its stated risk appetite and should accept, reject or reduce risk. The evaluation of each risk can be on either be quantitative or qualitative depending on the availability of information or the confidence in the approach.

Formulate and implement risk mitigation strategies

It is a good practice for companies to identify the risk owners in their organization. Risk owners are the most appropriate people to monitor and manage the risks. They are also responsible for assessing risks and identifying associated controls. In order to effectively mitigate risk, organizations must work with risk owners and identify current controls that are in place to mitigate and/or reduce risk.

Review and update the strategies

The market conditions can be highly dynamic, which makes it important for businesses to undertake risk assessment at fixed intervals, review their strategies with respect to the present conditions, and make the necessary changes in strategies. This step is also aimed at keeping track of the adherence to the strategies that were formulated earlier.


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Developing a Sound Risk Management Process in Five Simple Steps

What is risk management? 

Risk management framework involves steps that help organizations identify potential risks, analyze them, and take corrective actions to eliminate or reduce the magnitude of the risk. For most of the digitized companies, IT security threats, data-related risks, and the risk management strategies to alleviate them have become the top priority.

Risk management process consists of steps that are implemented to minimize the adverse effects of accidental business losses on an organization. There are five key steps involved in an ideal risk management process. Read on to find out the steps involved in an ideal risk management framework.

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