Alternative ERM approaches transform utilities

Authored by Russ Hissom

An organization-wide commitment of staffing, time and other resources is theoretically the best approach to implementing and sustaining a utility enterprise resource management (ERM) program. However, utility resources vary, often in correlation to entity size. That doesn’t mean only utilities that can go “all-in” should pursue ERM programs. To the contrary! Alternative approaches to ERM are available. Here are three examples of Baker Tilly clients who right-sized ERM programs for their individual situations.

Case study 1: “ERM Lite” transforms utility

Client need

A mid-size electric utility’s board of directors desired a comprehensive view of the entity’s significant risks and how management was addressing them.

Baker Tilly solution

Baker Tilly worked with utility management and board members to develop a narrow ERM program. It addressed higher level industry risks without stepping into the weeds of day-to-day operations. While not as robust as a full ERM program implementation, it’s allowed the utility to dip a toe in the water before deciding whether it was ready to go all-in.

The approach took these broad steps:

  • Baker Tilly provided an overview of ERM to the board of directors and senior leadership
  • Based on our specialized team’s utility industry knowledge, we presented a high level risk map of current industry risks
  • Working with the board and management, a tailored list of risks specific to this utility were developed, including a risk map of risk likelihood and impact
  • Current utility risk mitigation strategies were identified and evaluated
  • A mitigation and risk identification framework was developed for use

Results

Baker Tilly provided a formal report and discussion to the board summarizing the results of our work. Just as importantly, we facilitated discussions among the leadership team to help them understand the risks from various perspectives. The utility allocated resources to bolster mitigation plans in high risk areas.

Case study 2: Entity undertakes enterprise risk assessment

Client need

An organization wanted to undertake an enterprise risk assessment process to better understand and prioritize the risks it faced, and ultimately to assess gaps and develop risk reduction plans.

Baker Tilly solution

In collaboration with the organization, Baker Tilly undertook an interview-based enterprise risk assessment process, interviewing more than 50 staff members, including key operational heads, board members, external auditors and other stakeholders. While this is process was more extensive than “ERM Lite,” it cannot be considered a full ERM program implementation because it lacked the tools and methods for ongoing real-time risk evaluation.

Results

The entity gained a complete, accurate picture of its risk environment and identified risk areas for focus in terms of gap analysis and risk reduction. Engaging members of leadership in the conversation also helped to enhance relationships between leadership and process owners and promoted ongoing dialogue and consideration of risk.

Case study 3: Stale ERM program reclaims its mojo

Client need

While ERM theory sounds peachy and early implementation results are usually beneficial and ardently received, maintaining an ERM program’s vitality can be challenging. After implementing ERM, a utility did not devote a dedicated champion and its program languished.

Baker Tilly solution

Baker Tilly worked with the utility to understand and assess the current ERM process (including information compiled, interviews conducted, risk hypotheses, risk profiles and risk tolerances). Our utility specialists identified gaps in the ERM process, provided frameworks and tools for the organization to present and use the information, and supported the analysis with experience gleaned from helping other clients. Using the COSO ERM framework as the platform for the analysis, Baker Tilly professionals clearly defined the essential risk categories and components to provide a common risk language.  

Results

The utility aligned its ERM risk components with their strategic plan and made its program more comprehensive. With its program back on track, the entity now understands constant care and feeding of resources is required for long-term program success.

Ongoing challenges

Enterprise risk management is an ever-evolving. Once implemented an ERM will ebb and flow along with the currents in your utility. Having the ability to change your utility’s approach to ERM implementation and sustainability is valuable. These case studies demonstrate that different utilities using unique approaches yielded a similar result.

For more information on this topic, or to learn how Baker Tilly energy and utility specialists can help, contact our team.