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Creating Value Through Risk

Understanding how value is created and destroyed and the role that risk plays in this process is the key to any successful business operation. But achieving this understanding is easier said than done. In a new, online-exclusive Risk Management article, Jorgen Ellingson, a risk manager with Dubai-based TECOM Investments, offers a useful way to simplify the process through the use of a value and risk management framework.

Managing value and risk is generally an intuitive skill and learned by experience. By applying a discipline to this inherent process you can better manage value creation and avoid destruction from both a quantitative and qualitative perspective. It is a balancing act between risk mitigation and risk exploitation and the winners will be those companies that understand the market and their value proposition better than their competition.

For more, read the rest of his informative article only on RMmagazine.com.

Environmental Risk: Not a Hot Topic For Spain’s Businesses

spanish flagBack in May, the European Union’s environmental liability directive was officially put into place, exposing European risk managers to greater liabilities for environmental damage caused by companies that pollute as part of their normal business operations.

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But not all of the EU’s 27 member states are taking charge of their new responsibility. Spain, for one, has shown a lack of awareness when it comes to environmental risks, legislation and avenues of protection available.

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According to the Business Environmental Liability study, more than half of the 700 businesses studies in Spain did not have environmental liability coverage.

The survey also revealed that of those companies that said they had cover in place against environmental damage, only 10% had a policy that conformed to established regulations (Law 26/20071). Companies cited their multi-risk policy/financial guarantee, public liability and general business insurance policies as providing environmental risk protection. However, these products do not conform to the requirements of Law 26/20071 on Environmental Liability.

It seems apparent that many businesses in Spain do not fully understand the implications of the EU’s environmental liability directive. In fact, a whopping 65% of companies surveyed said they were unaware that the Spanish government has the ability to make it a requirement for these companies to have a fund, collateral or insurance to cover them from possible environmental damage.

Though numerous insurers jumped at the chance to offer environmental liability coverage to the EU market, a lack of demand has been evidenced from the beginning of the directive’s establishment.

Risk managers don’t seem to be “aware of how much of a strict regime is now in place and the cost of responding to that regime if you have a problem,” said Simon White, London-based environmental branch manager for XL Insurance.

Why is Spain a laggard when it comes to this topic? If the country’s businesses don’t get on board soon with the EU’s environmental liability directive, it will affect not only their bottom line, but also their reputation.

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The Risks of Social Media: Avoiding Disaster

In this day and age, most every large organization or company has a Facebook or Twitter page (if they’re not living in the dark ages, that is). But just because a company puts itself out there in the world of modern marketing does not mean mayhem won’t ensue.

Tweets or Facebook posts on a company’s site can help or harm said company — and it’s a fine line between the two. For this issue, a social media policy should be put in place at any company that plays the social media game. If you want to take it a step further, a community manager should be responsible for all social media outlets that pertain to your brand.

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But that’s not all a company has to worry about. As we all know, angry customers often take to the internet to air their grievances, often launching attacks on a company via Twitter or Facebook after a bad experience. Here are a couple of angry tweets aimed at your neighborhood pizza maker, Dominos:

Picture 5Picture 6Picture 7

But Dominos, unlike some companies, responds immediately to customer complaints on Twitter. It is obvious that the pizza chain employs several community managers to take care of such issues or forward the complaints on to the appropriate department. This, everyone, is a great example of the right way to use social media.

Another pioneer in the land of corporate social media is Delta.

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It was announced today that the commercial airline will now allow users to book flights directly on Facebook.

While it’s commendable that the company is looking to social media to boost sales, Delta is not the first airline to use the social web to reach consumers. Southwest, Virgin and event JetBlue have been communicating deals and information to customers via Twitter and Facebook for some time. I’d expect these airlines to start rolling out a similar sales feature to Ticket Window soon.

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Examples of bad business twitter moves include not checking in regularly, mixing business with pleasure (make a separate personal account), mostly self-promotional tweets/posts and not helping others. Having a Twitter or Facebook page that represents your brand means responding quickly and directly and planning for the worst while expecting the best.

What’s the worst case scenario your brand could possibly suffer in a social media PR meltdown? That situation probably won’t occur, but by imagining the worst, you can craft “first line” responses ahead of time, so you won’t be caught off guard. That way you’ll be well prepared if sentiment around your brand suddenly begins to trend negative. This kind of brand take-down, should it occur, happens extremely fast—in a matter of hours.

So, while social media is a great marketing tool for every business, a professional and responsible manager should be in charge of all communication on the various sites and this person should be very well versed on the many risks of social media.

Energy Company Net Income: 2007-2010

Guess which company the blue line represents?

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Says CanOils Database (from which the image comes via press release):

BP stands out with its spectacular $17 billion reported loss in the second quarter, and even if we look at its underlying performance by removing the effects of non-recurring items, growth in adjusted earnings was just 15% – much lower than any of its peers. (see Normalised Net Income graph below). So not much cheer to report here.

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Well, BP did at least stop the oil flow and the cemented well seems to be holding. Plus, the digging on the relief wells is not too far from completion so “bottom kill” — the long expected final solution to the leak — may be a reality soon.

I’m not sure that’s worth cheering, but a nice golf clap in probably in order.

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