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About the study

Ernst & Young's 2010 Key Business Risks Report is designed to provide executives with the most effective access to the information they need in a time-pressure environment. We have compiled a list of the main

risks for oil and gas companies, while paying special attention to key issues and the most significant trends in the development of the industry. With the help of Oxford Analytica, we have updated a chart that we have created and is already familiar to industry participants, designed to visually represent the top 10 industry risks based on their significance as of 2010.

In addition, detailed information on risks is provided in the sections dedicated to the following industry segments:

Transportation and storage - harvesting, preparation, transportation and storage
Processing and marketing
Oilfield services, including service companies and the supply chain.

This information can be used as part of a range of risk management activities aimed at helping the company address the following issues:

Identification of risks arising from the expansion of the company's activities, as well as threats associated with measures to reduce production and costs
Encouraging new ideas and out-of-the-box, innovative thinking
Prioritization of tasks in order to coordinate risk management activities in corporate level
Reduce risk through a hands-on, best practice approach
Improving Efficiency strategic planning thanks to a deep understanding of the current challenges facing the industry.

Introduction

Throughout the past year, the efforts of the global business community have been focused on solving the main issue - how to ensure effective risk management in the face of uncertainty. For oil and gas companies, this problem remains relevant to this day: the industry is still experiencing the consequences of the largest crisis in the global economy over the past 75 years. Despite the restrained optimism caused by the gradual recovery of the global economy, its condition remains vulnerable. Like the aftermath of a major earthquake, financial instability and market unrest will continue to have a direct impact on the recovery of the global economy from the worst crisis since the Great Depression.

The global economy continues to show unsustainable growth. Moreover, the recovery is expected to take a further hit due to slower employment growth, continued contraction in lending, and challenges faced by high-risk currencies. The global economic crisis has slowed down economic growth in developing Asian countries, while the developed powers (primarily the US and European countries) are still in recession. According to many analysts, the process of recovery from the crisis will be difficult and uneven, with a full recovery not expected until 2011, and possibly later.

Companies in the oil and gas industry turned out to be influenced by the current economic situation in the world, against which the risks that we consider as part of the study this year arose. Almost all of the risks we identified are long-term. At the same time, the degree of their relative importance during each year will depend on the current state of the economy and market conditions. In fact, the problems that oil and gas companies had to face throughout the previous year, for the most part, are still relevant. This year, the key position on the diagram is assigned to the risks associated with the uncertainty of energy policy. This is not surprising, since in 2010 the problem of regulatory uncertainty was the most pressing for companies in the oil and gas industry. The accident in the Gulf of Mexico further exacerbated the situation in the industry.

Oil and gas companies should look forward to the revision and expansion of safety regulations, as well as increased readiness to prevent and reduce environmental risks. Industry participants should carefully monitor the risks under consideration and other risks they face.

These risks should be re-analyzed to assess their impact not only on the current portfolio of assets, but also on future investment activities.

Due to the increased relevance of corporate social responsibility, as well as the growing importance of economic factors and regulatory oversight, the need to move to manage these risks is becoming increasingly obvious, both in order to ensure short-term profitability and for the long-term sustainability of oil and gas companies. It is for this reason that this report also presents the most effective ways, from our point of view, to minimize risks by improving the capital management strategy, investing in technology development, optimizing processes related to financial and operating activities, etc.

We hope that the factual information presented in this report and our recommendations on the issues discussed will be useful to you and your business. We hope that the results of our research will accelerate the process of further improvement of your own strategy for identifying and minimizing risks.

Ernst & Young Business Risk Diagram

The Ernst & Young Chart is a simple tool to visualize the top 10 business risks for a company or industry. The central area of the chart places the risks that, according to the interviewed analysts, will be of greatest importance to the leading international companies in the oil and gas industry next year.

Assessing the significance and prioritization of risks

Experts from the oil and gas industry took part in the study, whose task was to identify the main business risks in 2010. We asked the study participants to focus on the risks faced by leading international oil and gas companies. We asked each expert to explain why the respective risk was considered important, how it has changed from last year, and how it affects the company's value drivers. Based on the results of the survey, a list of risks for companies in the oil and gas industry was compiled, which we consider to be exhaustive.

The diagram is divided into four segments: financial risks, compliance risks, strategic and operational risks. Compliance risks relate to policy, legal, regulatory and corporate governance issues. Financial risks arise as a result of the instability of markets and the economy as a whole. Strategic risks are due to the nature of interaction with customers, competitors and investors. And finally, operational risks affect the processes, systems, people and value chain of the company as a whole.

Top 10 risks for oil and gas companies

Cost containment (4)
Price volatility (3)
Lack of human resources (6)
Supply breaches (9)
Mutual duplication of services offered by international oil and oilfield service companies
New operational difficulties, including those associated with working in unexplored conditions (new risk).

According to the general opinion, the degree of relevance of this risk has increased compared to the previous year (the risk has risen from the second to the first position). This year, there remains some uncertainty about energy policy priorities. This is partly due to the unclear results of the December 2009 Climate Change Conference in Copenhagen, as well as the failure of the United States

develop a clear energy policy. The environmental disaster in the Gulf of Mexico has further complicated energy policy decision-making in all regions. Energy Policy Uncertainty

reduces the effectiveness of measures for planning activities, forming an investment strategy and ensuring resilience to changes in supply and demand. This, in turn, increases the likelihood of an imbalance in supply and demand due to a slowdown in investment activity. In general terms, the lack of certainty about upcoming changes in legal and regulatory requirements will negatively affect the further development of the industry and make it difficult to make long-term investments.

Applying a structured approach to informing political leaders and the general public about the need for a coherent and consistent energy policy, as well as to lobbying this issue in political circles and society. This long term goal which will require significant resources to implement.
Understanding and ability to predict the direction of further development of the energy policy of the country in which the company operates. For these purposes, it may be necessary to involve local political consultants, which is relevant even for small enterprises.
Implementation of a number of large-scale initiatives aimed at ensuring compliance with legal requirements and the development of new reporting forms, as well as other activities that facilitate adaptation to anticipated changes in the regulatory framework. It also makes sense to consider moving a certain part of production activities to countries and regions with lower costs associated with ensuring compliance with legal requirements.

2. Access to reserves: political constraints and competition for proven reserves

By analogy with 2009, ensuring access to sufficient hydrocarbon reserves at a reasonable cost is still considered one of the main challenges for industry participants. Many oil and gas fields are located in remote areas (tar sands in Canada, fields in the Arctic and deep water fields). This not only significantly increases the cost of exploration and production, but also leads to an increase in the risks associated with the need for additional capital investments.

Perhaps more importantly, companies will have to face a range of political pressures that could potentially limit or eliminate their access to such deposits. In the USA, for example, introduction into tax legislation and other regulations relevant amendments aimed at subsidizing the production of electric vehicles, renewable energy sources and other alternative fuel sources, may lead to a slowdown in the development of the industry. For developing countries, political instability and nationalization natural resources may cause interruptions in their supply.

At the same time, competition for access to new fields is expected to intensify among international and national oil companies. Unlike international oil companies, national enterprises have a number of significant advantages: support from the government and state investment funds, as well as geographical proximity to the markets of Asian countries with emerging economies. It will also serve as a source of additional significant risks for international oil companies.

Possible measures to manage this risk:

Dedicating time and resources to a comprehensive risk analysis of the operating environment in which the company operates. There are no identical operating conditions. In order to better adapt to the political situation of a particular country and use existing opportunities as efficiently as possible, a company can find a local partner.
Expanding access to the resource base by increasing the number of joint ventures and reassessing the profitability of current operations. In addition, the risk of losing access to major natural resource deposits in the event of price increases or political instability can be minimized by strengthening cooperation with NOCs through alliances and partnerships.
Consideration of alternative possibilities. While oil will remain an important commodity for some time, companies need to put the situation into perspective. Gas is likely to become a more important energy component as it is cheaper compared to renewables. The main problem with gas today - the location of fields and the complexity of transportation - will be solved as technologies improve and new infrastructure is created.

Failure to take action to reduce adverse environmental impacts, given that oil is considered a major source of pollution, is fraught with serious reputational risks.

3 . Cost containment

Risks associated with the need to contain growth in costs moved up one notch, moving from fourth position last year to third this year. Ensuring effective cost control allows you to optimize cash flows. Against the backdrop of the current situation in the global economy, a number of companies are guided by such a strategy, striving to maintain the level of profitability.

However, regardless of the strategy used, the implementation of cost containment measures always involves a certain degree of risk associated with a negative impact on the return on invested capital (ROI). In addition, the implementation of such measures can lead to disruptions in operations, adversely affect the company's revenue, relationships with customers and the quality of fulfillment of obligations under supply contracts. In 2009, as the financial crisis unfolded, many companies focused on sustaining profit levels, but as the economy recovers, the focus should be on how to sustainably cut costs. Going forward, once the economy returns to its previous pace, business leaders should consider managing the risks associated with rising costs as a result of inflation. In the future, operating and production costs for oil and gas companies are sure to increase, especially given the possible entry into force of new requirements in the field of safety and environmental protection.

Possible measures to manage this risk:

An effective measure is to reduce operating costs. This means streamlining processes, making better use of shared services including IT, improving business processes and, wherever possible, reducing costs across the supply chain.
Ensure accountability of managers responsible for implementing cost reduction programs. The company must be able to communicate effectively about the strategy and implementation plan. Businesses are encouraged to align all cost reduction initiatives with and follow an implementation strategy. Those companies that have already implemented cost reduction programs should regularly review the results of the measures taken.
Focus on initiatives to tighten governance processes working capital in order to improve liquidity ratios, the introduction of new technologies to improve the efficiency of operations, the outsourcing of activities that are not sources of income (for example, accounting, payroll and payroll).

This risk has moved up one notch, moving from fifth position last year to fourth this year. Against the backdrop of current trends in the global economy, many developing countries are experiencing a sharp decline in budget revenues from the implementation of public investment programs, as well as tax revenues. In this regard, oil and gas companies are expected to continue to face higher tax rates and other fiscal measures. It is possible that international oil companies will be forced to revise the terms of cooperation with national oil and gas companies, while in new business models the emphasis will shift towards national interests.

The risk of tightening the financial and tax regimes in the industry is also observed in countries with developed economies. Under the influence of economic and political factors, the governments of these countries are considering the possibility or have already begun the practical implementation of measures aimed at raising tax rates, reducing tax incentives for exploration activities, revising royalty rates, etc.

Possible measures to manage this risk:

Understanding the peculiarities of the national tax regime established by the tax legislation of the country in which the company operates. In emerging markets, there can be significant differences between tax law requirements and practice. Cooperation with a local tax consultant can be effective in terms of solving this problem.
Finding a balance between managing the risks associated with the tightening of tax requirements and the implementation of new investment opportunities, including scenario planning and analysis of tax risks, taking into account various economic conditions.
Optimization of the functioning of the supply chain from the point of view of taxation through the transition to the use of a unified approach, covering the issues of transfer pricing, business restructuring, entering into partnerships to obtain tax credits, and more.
The importance of establishing good business relationships with local regulators and governments is especially evident when the playing field begins to change. In addition, it may be useful to have provisions for international arbitration in the treaty.

Over the course of a number recent years there is an upward trend in oil price fluctuations. The situation remains unchanged, even despite the measures taken by the regulators to limit speculative trading in oil futures.

The risk associated with climate change and environmental issues has moved from seventh position to fifth. Despite the fact that the debate about climate change, in particular global warming on the planet as a result of greenhouse gas emissions, continues to this day, the governments of a number of countries have already taken certain regulatory and legislative measures that directly affect the interests of participants in the oil and gas industry.

The countries of the European Union (EU) have set a set of environmental targets and standards that, among other things, aim to reduce carbon dioxide (CO2) emissions by at least 20% by 2020. In addition, initiatives are being implemented in the EU (eg the European CO2 Emissions Trading Scheme) aimed at encouraging the transition from fossil fuel generation to renewable sources. China has introduced a series of environmental regulations aimed at reducing greenhouse gas emissions and encouraging the use of nuclear and renewable energy. These regulations are primarily focused on reducing carbon dioxide emissions from coal combustion. However, due to the size of the domestic market alone, as well as the growing influence of the country on the world stage, China's position in climate change negotiations will be of great importance both in 2010 and beyond (affecting almost all industries). .

In the United States, the possibility of introducing amendments to the legislation that directly affects the interests of oil and gas companies and involves, in particular, the adoption of measures to improve safety and tighten requirements in the field of environmental compliance (including the application of civil law sanctions and the imposition of fines). Companies will still be forced to monitor such changes in legislation.

In the oil and gas industry, environmental problems have led not only to an increase in the number of relevant legislative initiatives, but also significantly complicated the process of predicting the results of applying new legal regulations in future. Regulatory policy is based on several conflicting objectives: energy security, resource availability, and demand satisfaction. For example, an unexpected downturn in the global economy could slow down legislation or force governments to extend the deadlines needed to comply with legislation.

Oil and gas companies are the object of close attention not only from the state. Today, businesses in the industry are facing increasing pressure from shareholders to disclose information about environmental risks. Due to the oil spill environmental disaster in the Gulf of Mexico, some investors expect full disclosure of the threats posed by offshore drilling and the possible environmental impacts of offshore drilling operations, as well as the measures implemented by oil and gas companies to prevent such accidents. , minimizing their consequences and managing the associated risks.

Going forward, the serious concerns of the global community about the state of the environment will continue to influence the decision-making process of companies in this industry regarding strategic development.

Possible measures to manage this risk:

Integrating climate change and environmental action into the core business model rather than looking at them in isolation. Climate change and environmental issues have become major business risks and their management should become common practice.
Conduct an enterprise-wide risk assessment by segment to ensure that effective risk mitigation and incident response plans are in place.
Proactively change and invest in response to expected tightening of greenhouse gas emissions regulations. Companies seeking to become leaders in low-carbon energy are well positioned to do so today.
Partnering with the national oil company of the country of operation to ensure a better understanding of the requirements of local environmental legislation.
Improving the quality of non-financial reporting, including disclosure of information on greenhouse gas emissions into the atmosphere, as well as on the environmental impact of companies' activities. Oil and gas companies may engage third parties to verify the accuracy of environmental disclosures, including performance and claims regarding the positive effects of the products or services they provide.

6. Price volatility

Last year, analysts ranked price volatility risk as the third most significant strategic threat. In the current year, the relevance of this risk has noticeably decreased. The relationship between the price of oil and the price of natural gas has changed dramatically.

Throughout 2010, the price of "black gold" remained relatively stable, which was due to economical use, as well as a reduction in demand from the weakened economies of developed countries. The price of natural gas, however, is today at a fairly low level compared to previous periods due to a glut in the natural gas market. In the gas industry, there are still serious differences in the pricing system in different regions. In addition, the differences also relate to the volume of state subsidies allocated to the industry (in a number of countries). The formation of a single world market for natural gas is possible only if a higher level of flexibility in the choice of suppliers is ensured, the expansion and diversification of transport routes, as well as a further transition to price formation based on the principles of competition for gas produced in different regions.

The global economic recovery remains fragile. A slowdown in recovery could have a negative impact on demand. In addition, a sharp change in prices may occur under the influence of such factors as the transformation of the political situation or amendments to the current legislation, as well as as a result of geopolitical events. For various oil and gas companies, the problem of price volatility has a different degree of relevance. The most vulnerable in the face of declining oil and gas prices are those enterprises that take part in the implementation of capital-intensive projects. Falling prices not only reduce revenue, but also reduce the company's ability to carry out off-balance sheet financing. On the other hand, rising crude oil prices will continue to weigh heavily on refiners' bottom line.

Possible measures to manage this risk:

A thorough reassessment of the investment strategy, including a review of the ratio of investments in exploration and production of oil and gas. This repricing involves scenario planning for investments and asset sales based on low to moderate oil prices, even if current oil prices are high. In addition, before investing funds, it is necessary to ensure that there is sufficient liquidity as a hedge against any potential price fluctuations.
Econometric modeling, which allows you to better understand the trends in the development of the oil and gas market. With the exception of international oil companies, this technique is often overlooked by the industry, while being potentially effective in terms of predicting price fluctuations.
Applying sound management practices, including cost reduction, supply chain performance assessments, and reassessment of the investment plan and revenue forecast.
To ensure higher profitability and reduce costs, companies may consider applying a hedging strategy, and tax planning to optimize cash flows.

7. Lack of human resources

The problem of shortage of highly qualified personnel remains relevant regardless of the economic situation. As the economy recovers, the industry will experience an increasing need for highly qualified specialists, the lack of which can lead to project delays or cancellations, reduced productivity levels and increased operating costs. The problem under consideration is very relevant for many NOCs against the background of their expansion of production activities and entry into new markets.

In developed countries, many of the leading engineers, senior managers and other professionals are approaching retirement age. However, there is no absolute certainty that there will be a sufficient number of specialists among the younger generation who can take their places. According to statistics published by universities in Europe and the United States, today there is a tendency to reduce the number of applicants entering engineering and geological and physical specialties. At the same time, educational institutions in developing countries are producing a record number of such specialists. However, it must be taken into account that they will need many years of practical training in the course of their professional activities in order to meet the level of their training to meet the needs of the industry in the 21st century.

Possible measures to manage this risk:

To avoid duplication of functions and loss of performance, companies must define, coordinate, and centrally manage HR processes. This will allow professionals personnel service focus on HR issues.
Creation of an attractive image of the industry for young professionals. For example, highlighting the industry's technological advances to inform the public that the industry is evolving, modernizing and progressing technologically.
Effective use of the experience of the older generation of employees. A creative approach to the issues of organizing pensions, aimed at retaining intellectual capital. Arrangements for delayed or gradual retirement and/or employing retirees as part-time consultants should be considered.
Professional development of employees both at the local and regional levels, combined with investment in the formation of a corporate culture and training of personnel in foreign languages. This will help to avoid language barriers and misunderstandings in the process of overcoming cultural differences between expatriate executives and local employees.

8. Supply irregularities

Supply disruption risk, which ranked ninth in the 2009 rating, remains relevant for oil and gas industry participants due to geopolitical events. The aggravation of the situation in the industry may be due to the consequences of the protracted conflict in the Middle East; sabotage of pipelines, refineries and port infrastructure; a new round of tension between Russia and the republics of the former USSR; the growth of political tension in Nigeria, as well as the general dynamics of development and the unpredictability of the political situation in Latin America. A negative consequence of these risks may be an increase in price volatility, which makes it difficult both for strategic planning and further investment activities. More significant problems may arise in the event of an unexpected expansion of the boundaries of government intervention in the industry, changes in the conditions for joint activities, cancellation of contracts, and public unrest.

Possible measures to manage this risk:

Investing in more stable markets, even if that means lower returns, and using long-term hedging methods such as reallocating capital to more sustainable projects.
Implementing a flexible capital structure with a shorter turnover cycle that maximizes profits during periods of peak demand so that future downturns are pain-free. Emphasis on assets that maximize production between swings in the supply curve.
Revision of the terms of contracts in order to ensure the reliability of supplies. Companies should carefully analyze the current level of efficiency and potential of the current supply chain in order to identify inefficient links and other weaknesses.

9. Mutual duplication of services offered by international oil and oilfield service companies

In 2010, this risk lost some of its relevance, moving from eighth to ninth position. In some segments of the industry, this risk is seen rather as an integral element of the development of the industry. Today, the role of national oil companies is increasing in connection with the use of protectionist measures by a number of countries in order to stimulate the independent development of resources. This shift in emphasis forces international oil and oilfield service companies to compete with each other in the struggle for cooperation with NOCs. Oilfield service companies are increasingly being recruited to perform functions that have traditionally been the domain of international oil companies.

At the same time, the sphere of competence of international oil companies seeking partnership with NOCs coincides with the competence of oil service companies. For international oil and oilfield services companies, such trends are not only fraught with risks. As their new functions develop in the international energy market, along with risks, new opportunities will arise.

Possible measures to manage this risk:

International oil companies should capitalize on the strategic advantage over oilfield services companies in program management that comes from greater experience.
Oilfield service companies need to develop long-term strategies, taking into account the higher exposure to price fluctuations compared to international and national oil companies.

The technical challenges associated with changing operating conditions both above and below ground have distinguished the oil and gas industry since its inception. In connection with the gradual transfer of exploration work to deep-sea areas, including the Arctic region, this problem will remain relevant.

10.

Last year, we classified this risk as an emerging one, but this year it has entered the top ten. First of all, this is due to the gradual shift in the attention of industry participants towards the development of deposits located in adverse natural conditions (such as deep-water deposits, as well as deposits on the Arctic shelf). In many cases, the implementation of such projects requires the use of completely new technical solutions and strategies for operating activities, as well as the organization of special training and support for personnel directly employed at oil and gas facilities. In terms of costs, as well as the degree of danger to humans, the development of such new mineral deposits far outstrips the cost (as well as the scale of possible negative consequences) of developing deposits in the past, thereby expanding the list of risks faced by oil and gas companies. In addition, there is no certainty that in the future prices will be kept at a level that justifies such a significant investment.

In addition, to minimize the risk of losing competitive advantage, oil and gas companies should continue to introduce new technologies. This implies further implementation of strategically significant activities in the field of R&D, regular allocation of funds for the modernization of production facilities, as well as the development of cooperation with suppliers. technological solutions.

Possible measures to manage this risk:

Further active financing of technological developments, including those aimed at improving the technologies used in the production of hard-to-recover oil and gas in unconventional fields. Leading positions in the development of new technologies for use in exploration, production and transportation of hydrocarbons are occupied by international oil companies. At the same time, further technological progress, which made it possible to assess the potential of extracting hard-to-recover natural gas reserves, was made possible largely thanks to the efforts of independent oil and gas companies. To remain competitive and provide a favorable environment for further development, oil and gas companies must continue to invest in technology improvements.
Creation of joint ventures with a clear governance structure that help minimize risks and create new opportunities for cooperation between IOCs, subcontractors, NOCs and local governments. As part of joint activities, companies should regularly assess current and potential political risks and threats associated with counterparties in order to ensure timely action is taken to minimize and effectively manage such risks.
Acquisition of strategically significant assets located in different geographical regions or in adverse natural conditions. Acquisitions such as these can help expand operations, staffing with professionals, and enabling the necessary R&D work.
Organization of effective management of investment projects. Coordination of activities in the field of project management and investment programs, taking into account the capital structure, as well as approved capital construction projects, will identify and minimize the risks associated with the implementation of a particular investment program. It will also improve the effectiveness of project cost controls and the accuracy of meeting deadlines.

Directly outside the chart area

We asked industry experts to identify risks (in addition to the top 10) that lie just outside the chart and that could become relevant over the next few years.

Energy Policy Uncertainty (2)
Access to reserves: political constraints and competition for proven reserves (1)
Cost containment (4)
Deteriorating financial conditions for companies (5)
climate change and ecological problems (7)
Price volatility (3)
Lack of human resources (6)
Supply breaches (9)
Mutual duplication of services offered by integrated oil and oilfield service companies (8)
New operational challenges, including those related to working in unexplored environments (new risk)
Outdated oil and gas infrastructure
Competition from new technologies, including alternative fuels
Access to new markets with high growth rates

11.

Despite the fact that this year this risk was not included in the top ten, it still remains relevant for participants in the oil and gas industry. An outdated oil and gas infrastructure can not only jeopardize a company's operations, but also negatively affect its perception by society, as well as business relations with partners. For example, the deterioration of offshore oil and gas infrastructure facilities leads to the need for continuous monitoring and control of their condition, maintenance and repair work. At the same time, older refineries face greater challenges in complying with environmental regulations. Despite the understanding by industry participants of the urgent need to modernize outdated infrastructure and the volume of capital investments required for this, the risks that oil and gas companies will have to face if no action is taken in this direction are also obvious. Financial assistance and support from the state is possible only for new projects, but the main burden of their implementation will be borne by individual companies.

12. Competition from new technologies, including alternative fuels

Advances in the energy industry, including the development of micro-energy and the construction of greenhouse-neutral houses, will help redefine the relationship between consumers and producers, as well as transform the energy market as a whole. It is expected that it is in this market that the demand for gas will grow most dynamically. In addition, continuous improvements in fuel cell and biofuel technologies are making them increasingly competitive with conventional fuels in terms of everyday use.

13. Access to new markets with high growth rates

The Organization for Economic Cooperation and Development (OECD), which unites 32 states, was created to discuss issues of socio-economic development and make decisions on them. Energy consumption is expected to skyrocket in non-OECD countries. At the same time, in the states that are members of this international organization, a decrease in demand for oil is expected. The growth of oil and gas companies will be constrained precisely by the limited access to these new markets for the provision of services for the processing and marketing of oil and gas. The above is confirmed by the conditions under which the transfer of oil refining capacities outside the OECD countries is carried out. As for international oil companies, their further growth will be associated with activities in the oil and gas exploration and production segment.

Main risks by industry segments

Unlike previous years, in preparing the 2010 report, we analyzed the top 10 risks inherent in the industry as a whole in order to identify the most pressing threats in the field of oil and gas exploration and production, their transportation and storage, processing and marketing. In addition, our analysis also touched upon the field of oilfield services. As part of the value creation process in the energy industry, the considered segments are interconnected with each other, but their business models differ significantly. Thus, despite the significance of each of the risks for the industry as a whole, the degree of its relevance for specific segments is different. In addition, risks are unevenly distributed across industry segments due to differences in priorities. For example, rising crude oil prices are putting upstream companies in an advantageous position, while refiners are losing bottom line.

Below we would like to reiterate our own classification of industry segments:

Exploration and production - conducting exploration and production by international (IOC), independent and national oil companies (NOC)
Transportation and storage - field gathering, preparation, transportation and storage of oil and gas
Refining and marketing of oil and gas
Oilfield services (OSS), including service companies and supply chain.

Risks in oil and gas exploration and production

The activities of companies engaged in the exploration and production of hydrocarbons are carried out in dynamically developing regions of the world. Doing business in an environment of uncertainty negatively affects the ability of these companies to manage risks and make long-term investments. The following provides information on the key risks for companies whose main activity is the exploration and production of hydrocarbons (HC) raw materials. The risks are listed in order of their importance.

Energy Policy Uncertainty

The lack of certainty about upcoming changes in legal and regulatory requirements makes it difficult to implement the long-term investment strategy that is so necessary to ensure the sustainable development of companies involved in the exploration and production of oil and gas. Uncertainty about energy policy priorities remains this year. This is partly due to the vagueness of the results of the climate change conference held in Copenhagen in December 2009. On the other hand, the situation of uncertainty in the area under consideration is due to the inability of the United States to develop a clear energy policy.

In the US, the administration of President Barack Obama is proposing a series of amendments to tax laws and other regulations that could lead to a slowdown in the oil and gas industry. Today, many countries are demonstrating their intention to revise the current safety standards for offshore drilling. This is due, among other things, to the recent disaster in the Gulf of Mexico, which resulted in a large-scale oil spill. In addition, the growing concern of the world community in connection with the use of hydraulic fracturing in the development of shale gas deposits may lead to the introduction of additional regulatory requirements.

An increase in legislative initiatives, a reduction in the frequency of reviews, and an increase in potential liabilities should certainly be taken into account when forecasting performance at the global level. The introduction of additional regulations is likely to increase costs. To ensure a stable level of profit and the ability to recover the costs of exploration activities that have not yielded results, companies should continue to look for opportunities to reduce operating costs, while acting in accordance with the requirements of environmental legislation and safety regulations.

Access to reserves: political constraints and competition for proven reserves

The risks associated with ensuring access to mineral resources are due to both geographical and geopolitical factors. The search for new deposits is forcing companies to shift exploration to increasingly remote areas, thereby raising not only costs but also risks.

For developing countries, political instability and the nationalization of natural resources can lead to supply disruptions. The instability of the geopolitical situation has led to the emergence of a number of risks associated with ensuring access to reserves. In the case of international oil companies, the profitability of their activities in developing countries will depend on the availability of opportunities to ensure stable access to hydrocarbon reserves. Unfortunately, even when international oil companies gain access to reserves, they do not always have the opportunity to start developing them. This problem is especially acute in regions that are characterized by the nationalization of natural resources and a sharp change in the political regime. Strong competition from NOCs puts international oil companies in even greater uncertainty about the sustainability of access to resources and, to a lesser extent, reducing the profitability of the project.

Companies involved in the exploration and production of hydrocarbons should also ensure a balanced ratio of oil and natural gas reserves. Compared to oil, natural gas is considered a relatively environmentally friendly fossil fuel. It is estimated that Russia, the Middle East, North America, Africa and other regions of the planet have enough natural gas reserves to meet global demand for the next century, and possibly longer. In addition, today natural gas is seen as a kind of bridge that facilitates the transition to a low-carbon economy. Gas companies have great potential for further development, since natural gas can become the main fuel for a number of industries, including electricity, heating and transport. The growing importance of natural gas will force many oil and gas companies to rethink their investment policy priorities. Even those companies whose activities today are exclusively related to oil have already begun (or, with a high degree of probability, will begin) to show an active interest in natural gas production.

Price Volatility

Throughout 2010, the price of oil remained relatively stable, driven by moderate consumption as well as reduced demand from recessionary developed countries. However, it should be noted that the global economic recovery is still fragile. Any slowdown in the pace of recovery could lead to lower global oil prices. As a result of falling prices, there is not only a reduction in revenue - the company's ability to finance is limited. As for natural gas, its prices remain at extremely low levels, despite a slight increase noted in recent times. The decline in the price of natural gas calls into question the profitability of the development of many fields.

Climate change and environmental issues

In the oil and gas industry, environmental concerns have not only led to an increase in new legislation, but have also made it much more difficult to predict how they will be applied in the future. State regulation is based on several contradictory tasks: ensuring energy security, availability of resources, and meeting demand. The value of a particular task can change at any time. An unexpected downturn in the global economy, for example, could cause a suspension of legislative activity or force governments to extend the deadlines needed to comply with regulations.

Today, conflicting opinions are actively expressed in the United States regarding the negative impact of the oil and gas complex on the environment, including as a result of the use of hydraulic fracturing technology in order to significantly increase the well production rate. The situation is similar in other countries, where issues of environmental safety and health protection are gradually becoming more and more relevant. In the future, when making decisions regarding the strategic development of companies in the oil and gas industry, they will continue to be forced to take into account the serious concerns of the world community about the state of the environment and ensuring safety.

Deteriorating financial conditions for companies

Further tightening of tax requirements for exploration and production in 2010 and beyond seems almost inevitable. The reduction in budget revenues due to the crisis forced the governments of many countries to actively search for ways to replenish the state treasury. Exploration and production companies are an ideal source of such revenue, and therefore, at the moment, many of them are forced to reconsider their tax positions and develop new strategies to optimize the supply chain from a tax perspective.

New operational difficulties, including those related to working in unexplored conditions

Exploration and production in extreme environments (such as the Arctic) often forces companies to develop new technologies or finance their development. The need for additional capital investments, as well as the difficulties associated with the construction, operation and maintenance of oil and gas infrastructure facilities in such difficult environmental conditions, lead to increased risks. A fall in commodity prices below a certain level may make further exploitation of the deposit unprofitable. As demand grows with limited mineral reserves, the only way to increase the resource base and, accordingly, future profits is to explore and develop deposits located in hard-to-reach areas with harsh natural conditions.

Energy Policy Uncertainty: The Consequences of the Gulf of Mexico Oil Spill and Their Impact on Offshore Field Development

The consequences of a large-scale environmental disaster in the Gulf of Mexico have affected companies involved in the exploration and production of hydrocarbons on the continental shelf, not only in this region, but also far beyond its borders. Discussions on oil spill response and liability issues will obviously continue.

Oil and gas fields on the continental shelf are an integral part of the global fuel and energy system. From the point of view of the long term, ignoring such significant reserves or imposing a ban on their development seems unlikely. In addition to existing offshore fields, huge oil and gas reserves are concentrated in the deep waters of the World Ocean, on the boundaries of the territorial waters of Brazil, Africa, Southeast Asia and Oceania, as well as in the regions of the Arctic and Antarctic. However, there is no certainty that in the near future industry participants will be able to continue their activities in a number of existing and new areas. The resumption of activity will be possible only if the confidence of the world community in such projects is fully restored. The true causes of the Deepwater Horizon accident need to be identified and carefully analyzed. Appropriate security measures must be taken to minimize the likelihood of such a disaster occurring again.

Industry participants should prove to regulators and stakeholders that all relevant conclusions regarding the organization of measures to eliminate the consequences of the accident have been taken and in the future such measures will be taken quickly and efficiently, taking into account the minimization of negative impact on the environment. The following questions need to be considered:

1. Assessing the risks associated with the production of offshore oil and gas fields in the current period

All operating companies must conduct a comprehensive assessment of the technical condition of the production facilities used. In an assessment that should cover all critical equipment, special attention should be paid to parameters such as the type of devices used, their actual age, maintenance history, etc.

In addition, the structure of the current technological process should be reviewed to include activities for regular testing and maintenance of critical equipment. As part of such an assessment, consideration should be given to upgrading or upgrading existing equipment to mitigate risks in this area, even if such measures are not explicitly provided for by applicable law or regulations. And, finally, it is necessary to revise the terms of contractual relations between partners and subcontractors to ensure that they comply with all requirements that ensure the safety of operational activities.

2. Assessing the risks associated with future offshore oil and gas production

When considering investment issues, organizations intending to participate in joint projects for the development of offshore fields should pay special attention to the following aspects:

When planning science-intensive projects, the implementation of which requires the use of advanced technological solutions, the issue of eliminating the consequences of possible large-scale disasters should be resolved, including the formation of an operational action plan and the provision of appropriate technical equipment.
Closer attention should be paid to whether the partner or subcontractor has relevant experience and knowledge in the implementation of similar projects.
The financial capacity of the partner or subcontractor should be carefully reviewed to assess its ability to fund clean-up obligations in the worst-case scenario.
When choosing a site for prospecting and exploration, it is necessary to take into account factors such as proximity to major settlements, environmentally sensitive areas and regions with intensive business activity.

3. Elimination of consequences of accidents

It is clear that the oil spill disaster in the Gulf of Mexico has spurred industry participants to think about the most effective ways to prevent similar accidents in the future, how to stop oil leaks from a damaged deepwater well, and how to eliminate consequences. Today it is also obvious that the transition to the active development of deep-water deposits has led to the fact that the available technical means and technologies for preventing and eliminating the consequences of accidents no longer meet modern requirements.

Industry participants should certainly share this experience, and welcome the establishment of nonprofit partnerships like the Marine Well Containment Co., a joint venture between ExxonMobil, Royal Dutch Shell, ConocoPhillips and Chevron. Among the priority measures to prevent

catastrophes similar to the one that occurred in the Gulf of Mexico, one can single out the improvement of the design of the plug, the development of special deep-sea reservoirs and a highly flexible riser, which ensures the delivery of oil products from the damaged well to the surface. Equally important is the presence of ships for the collection and storage of oil products, teams of specialists whose tasks would include regular maintenance and inspection, as well as ensuring the constant readiness of equipment designed to eliminate the consequences of such accidents. The activities currently being undertaken by industry players to enhance cooperation and mutual support should be complemented by involving regulators and stakeholders in the process. This will further convince the latter that the risks associated with exploration and production in deep water are under control.

Risks in the field of transportation and storage of oil and gas ("midstream")

The activity of companies in this industry segment is concentrated around the field gathering, preparation, transportation and storage of crude oil, petroleum products and natural gas. In general, companies involved in the transportation and storage of petroleum products are less exposed to the risks of volatility in energy prices compared to their partners involved in the exploration, production, processing and marketing of hydrocarbons. Below is information on the key risks for companies whose main activity is concentrated in the field of exploration and production of hydrocarbons. The risks are listed in order of their importance.

Cost containment

The problem of reducing the costs associated with the implementation of projects remains relevant for companies in the midstream segment, especially with regard to the planned expansion of the production infrastructure. Due to the need to develop new natural gas reserves (shale gas fields in the US, China and Eastern Europe) to meet growing demand, companies are forced to expand the infrastructure of the pipeline network, including the construction of new natural gas production and gathering systems. The implementation of projects in the "midstream" segment, as a rule, is associated with a higher level of risks associated with the need to make significant investments in tangible assets. In this regard, the issues of ensuring the effectiveness of project management and reducing costs are of particular relevance for the successful implementation of the planned expansion of production capacities. This is one of the most important tasks for companies, the solution of which will determine the ability of oil and gas enterprises not only to maintain, but also to expand the scale of production activities. In the long term, cost minimization will require continuous improvement in operational processes as well as a more effective resource planning strategy. The effectiveness of the company's policy to reduce operating costs will be of key importance.

No less important is the reduction of costs associated with the increase in infrastructure capacity. Companies in the industry need to constantly monitor the availability of external funding, address security issues in relation to tangible assets. In addition, international and transit risks must be managed, as well as prepared for possible regulatory intervention, which could increase the cost of capital required for the project.

Energy Policy Uncertainty

The uncertainty of the scenario for the development of the energy industry and further actions by the regulatory authorities is the cause of very significant risks for the participants in the segment under consideration. Government regulation policy is based on several conflicting objectives: ensuring energy security and availability of resources, as well as meeting demand. The importance of a particular task can change at any time. Many regulatory requirements lead to increased costs, some of which cannot be compensated in a competitive environment.

Uncertainty in regulatory requirements may lead to delays in making decisions regarding investment activities. Moreover, initiatives by regulators may lead oil and gas companies to withdraw from investments or cause some of their assets to depreciate. Examples of the negative impact of this regulatory uncertainty include the Alaska gas pipeline projects and the proposed expansion of an oil pipeline used to transport Canadian tar sands to US refineries. The need to expand the pipeline infrastructure may become irrelevant if restrictions are imposed on drilling in the deep water zone. Another possible consequence of such a decision could be the depreciation of the existing infrastructure of the pipeline network. The same is true for the use of hydraulic fracturing technology. The imposition of restrictions on its use can significantly reduce the pace of development of new gas fields and lead to a revision of forecasts regarding the economic feasibility of projects for the construction of new potentially necessary infrastructure facilities designed for processing and transporting shale gases.

Climate change and environmentalProblems

In terms of environmental impact, this segment of the industry is also most directly affected by amendments to regulations governing greenhouse gas emissions into the atmosphere. The ongoing debate around the issue of regulating the reporting of greenhouse gas emissions data makes it difficult to predict possible outcomes in the long term. In particular, midstream companies should decide whether to calculate and account for carbon emissions in aggregate for all production units or separately for each of them. In addition, when considering the expansion of transport infrastructure through the construction of new facilities in environmentally sensitive areas, it is necessary to take into account public concerns about possible environmental consequences.

Risks in the field of processing and marketing of oil and gas

The growth of oil refining production in the world is gradually starting to exceed the level of world demand, which will force companies in the oil refining segment to reduce production volumes by eliminating obsolete and inefficient capacities from the technological process. This may entail additional costs associated with obligations to carry out nature restoration work. In addition, issues of ensuring operational security will remain highly relevant. Below is information on the key risks for companies whose main activity is concentrated in the field of refining and marketing of oil and gas. The risks are listed in order of their importance.

Energy Policy Uncertainty

Energy policies that encourage phasing out of oil for economic or environmental reasons will reduce demand and profitability. At the same time, the energy policy, which provides for a reduction in domestic oil production, will significantly affect the activities of exploration, production and oilfield service companies. Moreover, such a policy could lead to increased dependence on oil imports. In any case, the lack of clarity about the essence of energy policy is fraught with the emergence of a number of problems for processing and marketing companies.

Climate change and environmental issues

An effective energy policy, including climate change issues, can, depending on the structure, have a significant impact on the activities of oil refining and marketing companies. In the recent past, several proposals have been submitted to the US Congress to limit the amount of greenhouse gas emissions from industry through quotas. This policy is aimed primarily at companies in the fuel and energy sector. Acceptance of other proposals for the use of alternative fuels potentially means an additional burden for participants in the motor fuel segment.

Today, the EU countries, China and a number of other countries are assessing their own potential for reducing greenhouse gas emissions or are implementing policies that stimulate the reduction of their emissions. In the future, the refining segment will retain its leading position as a stable and reliable source of motor fuel and feedstock for other industries. At the same time, refiners should take into account the market penetration of alternative fuels, which can be sold both together with traditional fuels and in parallel with it. This will diversify energy sources in the future, reducing greenhouse gas emissions.

Successful development in this area, the ability to adapt to changes in the structure of demand and the requirements of environmental legislation will require companies in the oil refining segment to make significant investments.

Price Volatility

Portfolio management and investment strategy will continue to be affected by price volatility, which affects the bottom line of refiners and retailers. The pressure faced by the oil refining industry in connection with the need to maintain the required level of liquidity is due to the fact that the volume of production capacity today exceeds demand. The construction of new refineries, as well as the expansion of existing production throughout the last decade, has led to an increase in production capacity to a mark exceeding the level of world demand. Active portfolio management in the oil and gas refining and marketing segment is traditionally inherent in large, vertically integrated oil companies. A similar practice today should be adopted by independent oil refineries. If the market situation and the goals of strategic development change, accordingly, there are changes in the requirements regarding the structuring of the asset portfolio. The portfolio structure should ensure the achievement of the performance goals set by management and shareholders.

Throughout 2010, all the efforts of independent refiners were aimed at providing liquidity and optimizing cash flows. Achieving profitability targets involves more than just improving margins. It's a matter of survival.

Access to new markets with high growth rates

Provided that the further recovery of the world economy is sustainable, refiners will directly benefit from a gradual, but at the same time, strong growth in oil demand. It will be critical for refiners and in particular for integrated international oil companies to be able to meet growing demand (primarily from Asian countries). However, it should be noted that in 2010 the problems caused by the uncertainty of the vector of further development of the global economy will continue to have a significant impact on risk management processes in the segment under consideration.

Outdated oil and gas infrastructure

The depreciation of oil refineries is the cause of a number of risks in the field of industrial safety, environmental protection and competitiveness. The longer refineries are in operation, the more difficult it is for companies to comply with all environmental regulations. In addition, due to the aging of refining capacities, companies are often unable to process viscous oils, which are becoming more common today due to the depletion of sweet oil fields. Both factors contribute to the growing need to build new oil refining infrastructure facilities or modernize existing ones.

Overcapacity and deteriorating infrastructure may warrant the consolidation of operations or the closure of certain refineries. In some cases, the closure of production facilities will be due to the high costs required to comply with regional regulations. The applicable regulations may differ significantly from state to state, and in federal countries such as the United States, even at the state level.

Some of the risks under consideration can be minimized through strategic investment. However, investments are fraught with risks of a different nature. For example, the investment policy of refiners may be aimed at upgrading the technological base to enable the processing of sour crude, but such a policy justifies itself only in markets that support a certain level of crack spread yield. From the standpoint of a single refiner, investing in the ability to process different grades of oil can ultimately prove to be both an effective and inefficient investment decision.

In 2010, the construction of new oil refineries will continue, especially in developing countries such as China or India. However, it should be noted that a shift in the timing of implementation is expected for a number of construction projects. At the same time, some projects will be canceled due to a decrease in demand for gasoline, tightening of credit conditions and general uncertainty about the further development of the global economy. In the United States and European countries, the situation is somewhat different. The increase in oil refining capacities will occur not due to the construction of new facilities, but due to an increase in the capacity of existing enterprises. In addition, many companies do not have the funds to properly maintain their aging infrastructure. As a result, a paradoxical situation is emerging - the industry is characterized by the presence of a significant production potential against the backdrop of the increasingly urgent problem of aging capacities.

Risks in the field of oilfield services

The development of oilfield services is still driven by competition between its participants in the development and development of new technologies. At the same time, there is a shift in emphasis in the segment under consideration towards the establishment and development of partnerships with companies engaged in the exploration and production of hydrocarbons. The risks inherent in the field of oilfield services are no less significant than those that participants in other segments have to deal with. Below is information on the key risks for oilfield services companies. The risks are listed in order of their importance.

New operational difficulties, including those related to working in unexplored conditions

The risk of new difficulties arising related to the implementation of operating activities, including in unexplored natural and climatic conditions, is very significant for the participants in the segment under consideration. An increasing number of oilfield services companies are moving their activities to overseas regions with extreme environmental conditions. The specifics of the tax regime, the prevailing business practices and the problems associated with the need to staff at the expense of the local population when operating abroad can have a very direct impact on the level of operational risks that an oilfield services company will face. The problems associated with the implementation of operational activities should also include the high degree of complexity of the project, the remoteness of the geographic location, the need to use new technologies and the possibility of negative environmental consequences. Moreover, today the task of ensuring that the interests of operating companies correspond to the interests of oilfield service enterprises acting as contractors is becoming more and more urgent.

Cost containment

The implementation plan of a project should include measures aimed at reducing costs in all parts of the supply chain. High-quality implementation of the project is the key to making a profit. As the complexity of projects increases, their implementation becomes more risky and difficult - both in terms of meeting deadlines and approved budgets, and in terms of ensuring an adequate level of quality and industrial safety.

Manufacturing and engineering companies typically have more than one choice when deciding on a source of supply. In this regard, an increasing number of oilfield services enterprises are calculating the relative cost of ensuring their compliance with legal requirements in the course of their activities. They often relocate production activities to developing countries where the costs of compliance, production, etc. may be lower. At the same time, when transferring operations to offshore jurisdictions, local legal requirements should be taken into account when concluding contracts with NOCs in regions such as South America and Africa. The global financial crisis helped consolidate the practice of applying such requirements at the legislative level, thereby expanding the list of risks that oilfield services companies have to deal with. In case of violation of this requirement, the government of the country in which the oilfield services company is concentrated can impose a fine on it, force it to revise the terms of contracts, etc., up to and including a requirement to terminate activities in the country.

In addition, an increase in the number of regulations is likely to increase the cost of drilling operations due to an increase in the number of inspections and certifications, as well as due to equipment redundancy. Equipment manufacturers, for example, are expected to benefit from retooling, redundancy and accelerated depreciation processes. However, overall demand for services and equipment could decline if rising costs and deteriorating economic performance force operators to cut costs. Higher costs of operations in such regions may lead to the direction of part of the funds to national or developed international markets.

Mutual duplication of services offered by international oil and oilfield service companies

As a measure to mitigate the risks associated with the need to reduce costs, some oilfield services companies have consolidated operations or made asset sales or strategic acquisitions to strengthen their market positions. Individual oilfield services companies have implemented a number of measures aimed at expanding specialization in areas that have traditionally been perceived as an integral part of the core business of MNCs. This was done in order to expand the range of services offered by oilfield service companies. As a result, today there is a mutual duplication of services offered by international oil and oilfield services companies. To strengthen their own competitive position with IOCs, some NSCs have established joint ventures with non-competing companies, despite the fact that joint activities at the international level are associated with legal, political and economic risks. These risks require effective management both internally (i.e. directly by the companies involved in the joint venture) and outside the joint venture (i.e. in cooperation with NOCs and local authorities). With margins continuing to decline in this segment, many oilfield services companies will be forced to look for new ways to ensure profitability of their activities with the transition to risk management within new operating models.

Deteriorating financial conditions for companies

The tightening of taxation requirements is another problem faced by companies in the oilfield services segment. Oilfield services companies, most of which operate through international partnerships, are increasingly facing an increasing tax burden, as well as increasing costs associated with tax issues in relation to a complex supply chain operating under a variety of tax regimes. Individual NSCs are moving their headquarters to jurisdictions with more favorable tax treatment. We expect this trend to continue in the future as countries review their existing taxation systems amid fluctuations in exchange rates and changing market conditions.

Outdated oil and gas infrastructure

The costs associated with equipment and its maintenance, as well as compliance with safety requirements, will maintain current growth rates. This year, the risk associated with the deterioration of oil and gas infrastructure facilities was not included in the top ten, however, its relevance for the segment under consideration is still high, which is due to the need to ensure regular Maintenance aging oil and gas infrastructure. The security issues of infrastructure and equipment will undoubtedly remain fully relevant.

Climate change and environmental issues

For a significant proportion of oilfield services companies seeking to increase their share of the value chain in their current operations, environmental protection, employee health and safety have become more important. As deep-water offshore oil production systems develop and fields located in extreme natural conditions or remote regions are developed, oilfield services companies will be forced to re-evaluate existing and find new ways to reduce risks and better control the possible environmental consequences of their activities.

Description of the risk map structure

This risk map shows probability or frequency on the vertical axis and impact strength or significance on the horizontal axis. In this case probability of occurrence risk increases from bottom to top as you move along the vertical axis, and exposure to risk increases from left to right along the horizontal axis.

The Arabic numerals on the map represent risks that have been classified into four categories significance and six categories probability, and in such a way that each probability/significance combination is assigned one type of risk.

Such a classification, placing each risk in a specific separate "box", is not mandatory, but simplifies the process of prioritization by showing the position of each risk relative to others (increases the resolution of this method). The thick broken line is the critical limit of risk tolerance.

When critical risks are identified, scenarios (the causal relationship of processes, events, and operating risk factors) leading to risks above this limit are considered intolerable.

When developing a risk mitigation strategy, for example, for identified intolerable risks, before adopting this strategy, it is required to understand how to reduce or transfer such risks, while risks below the boundary are manageable in an operational manner.

Building a risk map

In general, the risk mapping process allows you to:

highlight risks

prioritize risks

evaluate quantitatively (divide into classes) the risks of the organization.

To create a risk map, you can use:

interview

formalized and non-formalized questionnaires

reviews and industry research

company documentation analysis

numerical estimation methods

Key Steps in the Self-Hazard Mapping Process

primary education

definition of the boundaries of the analysis

team building

scenario analysis and ranking

defining a risk tolerance boundary

drawing up an action plan

quantification and modeling technologies

When defining boundaries, a balance must be struck between:

breadth of borders

depth of information

the value of the information that will be obtained from the risk mapping process.

Table of results of scenario analysis and risk ranking

Object of risk	trigger mechanism (or risk factor)	Consequences (descriptions)	Impact (significance or amount of loss)	Loss probability
	…………………..	………………..	…………………..	………………..

	…………………..	………………..	…………………..	………………..

Topic 5 Risk management methods

1. Classification of risk management methods

2. Methods of avoiding risk

3. Risk localization methods

4. Risk dissipation (distribution) methods

5. Risk compensation methods

1. Classification of risk management methods

By themselves, risk management methods are quite diverse. This is due to the ambiguity of the concept of risk and the presence of a large number of criteria for their classification. In the next section of this chapter, we will look at the main methods in more detail, but here we will limit ourselves to a brief overview of them.

Firstly, risk management approaches can be grouped as methods to minimize the negative impact of adverse events as follows.

Pre-Event Risk Management Methods– measures taken in advance aimed at changing the essential risk parameters (probability of occurrence, extent of damage). This includes risk transformation methods (Risk control, Risk control to stop losses), which are mainly associated with preventing the realization of risk. Usually these methods are associated with the implementation of preventive measures.

Post-Event Risk Management Techniques- carried out after the occurrence of damage and aimed at eliminating the consequences. These methods are aimed at the formation of financial sources used to cover the damage. Basically, these are risk financing methods (Risk financing, Risk financing to pay for losses).

Post-event and pre-event methods are combined in the general direction of methods compensation.

Risk management methods can be divided into four groups:

risk avoidance methods;

risk localization methods;

risk dissipation methods;

risk compensation methods.

Risk avoidance methods involve:

exclusion of risk situations from business;

avoidance of transactions with unreliable partners, clients;

refusing the services of unknown or dubious firms;

refuse innovative or investment projects if they cause even the slightest uncertainty in successful implementation.

If the management decides to use insurance as an “evasion”, then it is necessary to develop a comprehensive protection program, and not single appeals to an insurance company.

If the company does not have enough funds for comprehensive insurance coverage, it is necessary to identify those risks, the implementation of which is associated with the greatest losses, and insure them.

Risk localization method

Applies only when sources of risk can be clearly identified.

The most dangerous parts of the production process are localized, and control is established over them, the level of financial risk is reduced.

A similar method is used by large companies for the implementation of innovative projects, the development of new types of products, etc.

In the simplest cases, to localize the risk, a specialized division is created in the structure of the company, which implements the project.

Risk dissipation (dissipation) methods

They are more flexible management tools. One of them is related to the distribution of risk among strategic partners. Both other enterprises and individuals can act as partners. Joint-stock companies, financial and industrial groups can be created here. Enterprises can join consortiums, associations, concerns.

The association of enterprises into one or into a group is called integration .

There are four main types of risk integration:

(reverse) integration - involves association with suppliers;

(direct) integration - implies an association with intermediaries that form a distribution network for the sale of the company's products;

horizontal integration - involves merging with competitors; usually such associations are created in order to harmonize pricing policy, delineate economic zones, any joint actions;

vertical integration is an association of organizations carrying out different types of activities to achieve common strategic goals.

Another type of risk dissipation methods is diversification .

involves increasing the diversity of activities, markets or supply chains.

Procurement diversification- this is an increase in the number of suppliers, which makes it possible to reduce the dependence of the enterprise on a particular supplier. (violation of the schedule, force majeure, bankruptcy, etc.)

Market diversification(market development) - involves the distribution of finished products of the enterprise between several markets or counterparties. In this case, failure in one market will be offset by success in others.

Species diversification economic activity- implies

expanding the range of products, services, range of technologies used. If problems arise with the sale of one type of product, the organization will be able to compensate for losses with the help of other areas of management or even move to another industry.

Dissipation of risk in the formation of an investment portfolio

involves the implementation of several projects simultaneously, characterized by low capital intensity. It can be called investment diversification.

Risk compensation methods

This group of methods refers to proactive management methods.

(change management).

1.WITHstrategic planning especially effective if

strategy development goes through all areas within the enterprise.

Development of a set of compensatory measures, creation and use of reserves.

A risk map can become not just a list of possible problems for a company to monitor and control, but a tool for implementing a strategy. Management can predict a possible map projection in a few years. Let's give a specific example of a risk map.

The company in question included several subsidiaries, as well as a sub-holding in which I served as financial director. Controlled firms conducted a variety of activities, including production, services under agency contracts. The total revenue of the holding amounted to several billion rubles a year.

In a sub-holding process was fairly formalized. For all subsidiaries, the shareholders have put into effect a general regulation on drawing up a risk map. It spelled out the methodology for its creation, deadlines and responsible persons. Special services for did not have. Primary responsibility for risk mapping in the sub-holding was entrusted to the Department of Finance, in subsidiaries - to the heads of financial services. On the part of the managing organization, this work was performed by one person - the director of the financial department.

Every year, the companies of the group filled out a special table that dealt with all the risks they face, not only . For confidentiality reasons, I cannot indicate specific business risks, so I will give a conditional example in the table.

Drawing up a risk map

table. Information for the preparation of the risk map

№	Name of risk	risk owner	Probability of risk realization (from 0 to 100%)	The degree of exposure to the risk, expressed in monetary terms	Description of the risk	Risk Management Measures
1	The risk of falling sales due to the high level of competition and the limited number of customers in the market	General manager	60	100 million rubles (loss of revenue)	Non-renewal of the contract with one of the customers	Accepted. Status monitoring is carried out through the operations committee
2	Risk covenant violations and declaration of default on the loan	CFO	50	400 million rubles (early repayment of the loan, additional cash)	In view of the irregularity of revenue receipts and gaps in liquidity, a number of banking covenants may be violated. According to the loan agreement, if they are violated, the bank may declare a default	Tougher sanctions for late payment in contracts with customers Regular reminders of upcoming payments Monthly forecast for banking covenants at the end of the quarter Preparation of refusal (Waiver) in advance, coordination with the bank
3	Additional charge of income tax in the event of a tax audit on a controversial issue	Financial director, chief accountant	40	10 million rubles (including penalties and fines, profit reduction)	On this issue, there is controversy arbitrage practice	Accepted. Deferred tax assets can be used in case of additional taxes
4	The emergence of bad debts	Sales department(you need to specify the name of a specific employee)	30	10 million rubles (debt write-off, profit reduction)	There is arrears from two clients, there is a possibility of non-payment of the debt	Regular holding of a bad debts committee, preventing the growth of overdue debts Search for a factoring agency, discussing the possibility of selling part of the debt Assign a responsible person to each item and prescribe a deadline

Suppose one of the "daughters" with a turnover of 1 billion rubles has four main risks. The probability of their occurrence is a subjective factor, the value of which is determined by an expert. In the column "Risk impact" it is indicated on which financial indicator risk has a direct effect. This is important, since the degree of impact on different indicators (revenue, profit, cash balance) cannot be compared with each other.

The risks are then ranked by cost, which, based on the data in the table, is calculated as follows: probability of occurrence × degree of impact. The result obtained is transferred to the risk map (see below for an example of a risk map). The most significant risks with a high probability of occurrence are marked in red in it.

The difference between the zones in the holding was determined by the materiality of the risk (from revenue), which was calculated by experts from the financial service of the management company. For example, risks exceeding 50 million rubles in value could fall into the red zone, less than 3 million rubles into the green zone, and the rest into the yellow zone.

Picture 1

Risk Management Scheme

To control the activities of our subsidiaries, we held operational committees once every two months. Their composition necessarily included the financial and operational directors of the group. Positions from the red zone of the map were necessarily spelled out during each such meeting. In addition, the board of directors also met every two months in the sub-holding for subsidiaries. Before each meeting, a meeting of the operating committee was necessarily organized, where all the issues on the agenda of the upcoming board of directors were worked out in detail. It was necessary for me, as the financial director of the sub-holding, to participate in all these events. Thanks to this, when compiling a consolidated risk map, I understood their essence and knew what was really being done to prevent them. On the one hand, this practice took a huge amount of time, on the other hand, it was “invested” in a detailed acquaintance with the business of each company.

At the end of the year, all information received on risks was discussed at a meeting of the audit committee, considered by the holding's board, and submitted to the board of directors. To do this, the specialists of the financial block prepared a detailed presentation in which they showed the dynamics of the risk map for the year, spoke about the largest risks and possible ways to minimize them. Let's say risks 1 and 2 from our table could be included in their number. In addition, we noted the number of unrealized risks and their cost compared to those that caused damage.

For example, if, as a result of a tax audit, no additional income tax was accrued, then this risk was considered unrealized. If we saw that some risk was unavoidable, then we accepted it and left it on the map as inherent in our business. This category would include the risk “Declining sales due to high levels of competition and a limited number of customers in the market”, shown in the table in question.

This is how the risk management process was built. But, as it turned out, this was not enough to achieve the goals. The shareholders set the subholding a certain level of annual profit, and at the end of the first quarter we realized that due to new factors and changed market conditions, we are not fulfilling the set task. We also saw that when working on a strategy, the relevant department itself analyzes business risks. It turned out that this process is duplicated - in reporting to shareholders and in drawing up a strategy. We decided to improve the efficiency of using the collected risk data within the sub-holding and identified two areas: strategic and operational. The shareholders approved our proposal.

Risk map and SWOT analysis

In the process of discussing an already existing strategy, we conducted a study of the main risks and made SWOT analysis of the project . True, it was not fully combined with the compilation of a risk map, in fact, these activities were implemented in parallel. In our case, this happened due to the peculiarities of the strategy itself. The fact is that it was mostly aimed at buying new companies, since all existing businesses worked stably and explosive growth was unattainable for them.

Then, on the basis of the existing risk map and audited financial statements, the management drew up a Risk-Return schedule for the sub-holding. The figure below shows its conditional example. Let's figure out how to use it.

Figure 2.

Possible current state of the company (marked with a red star in Fig. 2). We use the margin EBITDA for the last reporting year (or forecast for the current one) on the vertical axis, and on the horizontal - we draw overall rating all risks of the company according to the map. For example, possible locations on the chart are shown. Let's say an organization can operate with high business risks and have relatively small margins. Or to have an insufficient but stable margin with a low degree of risk. This analysis seems simple, but in my 20-year career in finance, I haven't seen it often.

The position of the company in a few years (marked with a green star in Fig. 2) is estimated based on a development strategy for three or five years. An assessment of the degree of risk in the future can be obtained through stress tests of the financial model. It is also advisable to use the subjective opinion of management, since understanding the business may be more important than mechanical checks. The shareholder needs the company to move on the schedule to the left and up. If this happens, then at the final stage, an action plan should be developed that will ensure this movement.

Thus, the risk map becomes not just a list of probable problems for their monitoring and control, but a tool for implementing the strategy. Management can predict a possible map projection in a few years. In this context, it is worth using not the entire risk map, but only those positions that, in the example above, are marked in red on the risk map. They most of all influence the result and the success of the strategy implementation.

Risk map and operational planning

Even at the beginning of the second quarter of the reporting year, we predicted a high risk of non-fulfillment of the budget target in terms of net profit. In order to develop a plan for the measures necessary to prevent it, we took the existing risk map as a basis. In fact, by the middle of the year, a detailed additional analysis of all risks that affect profits for all companies of the group was carried out. If we recall our conditional example in the first part of the article, then during the additional analysis, the subsidiary once again studied all the factors that could lead to a drop in profits, and identified, for example, six more risks. Each of them individually was not significant enough in value to fall into the red zone. However, when all risks materialized, the most pessimistic forecast of net profit at the end of the year was obtained. So, if in the first case we worked with macro-risks in order to “combine” their management with the current strategy, then here we analyzed micro-risks that affect the result of a given year. Moreover, unlike the standard annual or quarterly manipulations with the risk map that were carried out before, we had to monitor the situation for each organization every month until the end of the year. For such an analysis, we used Table 1. At the same time, it was actively corrected for the next meeting of the operational committee - the risks that were closed as a result of the measures taken disappeared, others appeared. The degree of probability of their implementation also changed due to the changed assessment of management and, as a result, the profit forecast for the year.

Thus, if earlier the companies of the group simply reported on the already existing risk map and discussed the list of measures with us, now work with it was carried out continuously and actively. Declared measures to minimize risks began to be implemented immediately, and all attention was focused only on those that affect the profit of the organization. As a result, already by the end of the third quarter of the year under review, the profit forecast reached the budget level and at the end of the period it was possible to fulfill the planned indicator.

Representatives of various sectors of the economy - including our clients - often ask us, as risk management consultants, the question: are there simple and visual methods available to non-specialists that would help at least roughly assess the risks in the development of new strategic lines of business, large investment plans, etc. It happens that in the process of developing a strategy, up to ten possible strategies are evaluated. Each of them has its own set of often catastrophic risks. So is there a way to quickly and concisely display your organization's business risks that hinder the achievement of strategic goals. How to describe in several pages the details of these risks, as well as the scope of actions to reduce or eliminate them, how to establish and allocate time frames for the completion of work, measures of success and executors responsible for successful implementation?

This can be done by building a risk map for your organization or a separate strategic direction for business development.

What is a risk map and why is it useful?

Risk map - a graphical and textual description of a limited number of risks of the organization, located in a rectangular table, on one "axis" of which the strength of the impact or significance of the risk is indicated, and on the other, the probability or frequency of its occurrence. Figure 1 shows a particular example of a risk map.

Hsomething you can do yourself: the process of building a risk map.

In general, the risk mapping process is part of a systematic methodology covering all aspects of the company's activities that allows you to identify, prioritize, and quantify (break down into classes) the risks of the organization. The methods used by consultants when compiling a risk map include interviews, formal and informal questionnaires, industry surveys and studies, analysis of the company's documentation set, numerical methods of assessment, etc. It should be noted that when it comes to assessing financial risks, it is the quantitative analysis of the company's financial statements that is important. Of course, the individual characteristics of the client company and its needs dictate the appropriate method of data collection and analysis.

We will describe an example of the process of self-mapping risks in solving the problem of identifying risks that are critical for the organization (threatening the existence of the organization), highlighting only the main steps. These steps include initial training, definition of analysis boundaries, team building, time horizons, scenario analysis and ranking, risk tolerance boundary definition, action plan development, scoring and modeling techniques.

Primary training.

When compiling an organization's risk map, it is very important that at least one or two employees of the company receive training in the basics of risk management. They will further help to establish dialogue between team members and guide the entire team during the mapping process. This requires preliminary training, which can last from one to five days. In our experience, the best results are achieved with orientation sessions of two to three days. The role of such a trained employee of the company is the manager of the risk mapping process within the company, constantly orienting the team towards the desired goal. In cases where specific subject matter expertise is required, an expert may be added to the team. Of course, if your organization has a large number of competent specialists, this will strengthen the team.

Do not trust amateurs to work. If you do not intend to contact consultants, train your employees.

Limits of analysis.

The boundaries of analysis, which determine which areas of business decisions are affected by mapping, are defined early in the process. Risk consultants also do this as the first step in an organization's survey. In this example, the boundaries will be defined as the identification, prioritization and understanding of all risks that impede the achievement of corporate strategic goals in the implementation of a specific strategic plan. Note that the scope of the analysis can be as broad or as narrow as the organization desires. However, there must be a balance between breadth of boundaries, depth of information and the value of the information to be gained from the risk mapping process. For example, the value of one risk map for the entire company may be significantly less than risk maps for each business unit or any one business unit of the company, or vice versa.

Decide on the goals, availability and cost of information. Then outline the boundaries of the analysis to build a risk map.

Line-up.

The composition of the team is critical to the success of the risk mapping process. When the work is carried out by professional consultants, the team (working group) usually includes the top management of the company, i.e. professionals with experience and expertise. In the case of self-mapping risks, the consultant is essentially the "collective mind" of the top management of the organization, guided by trained employees. Experience shows that a team works effectively if it consists of six to ten people.

Only by defining the boundaries of the analysis can one determine who is included in the team. When compiling a map of the company's strategic risks, for example, the team includes the chief administrator, the head of the financial department, the head of the treasury, the head of the legal, control, IT departments, the head of the strategic planning department, if there is such a department in the company. If a company already has a risk management department, then, of course, its head is included in the working group.

For narrower boundaries, such as identifying and mapping the risks of a specific division or operating business unit, the team will consist of the top management of the division's management team. Or, if the risks of a certain area of activity such as e-commerce are analyzed, then the team will be formed from senior representatives of the relevant functional areas and those departments whose interests are affected.

Most importantly, the team is most representative of the institutional knowledge of their company and includes top management.

Scenario analysis and ranking.

At this step, the team undertakes a guided brainstorming session to identify all the potential risks for the company with a given development strategy and the scenarios that accompany them. Once they are identified, the risks and scenarios are discussed, consensus is reached and a written description of the scenarios is prepared. The key points of each scenario are the "vulnerability" of the company (the object of risk), the "trigger mechanism" (risk factors) and the "consequences" (the magnitude of possible losses).

Vulnerability or object of risk is the value of the company, which is characterized by exposure to potential threats. Trigger mechanisms (risk factors) cause negative consequences for risk objects. Consequences are expressed in terms of the nature and magnitude of losses resulting from the vulnerability of the risk object and the nature of the trigger mechanism. At the same time, it happens that seemingly dissimilar scenarios and trigger mechanisms that lead to the same consequences for the risk object are combined, when considered from a bird's eye view, into one scenario. Already at this stage of work, it is necessary to strive to understand whether it is possible to combine many small risks, which, as a rule, are identified by employees of the organization during independent work, into some groups, on the basis of which this can be done.

Once a limited number of scenarios have been identified and consensus has been reached, the team should rank the scenarios in terms of “impact” and “likelihood”. The team defines both impact and likelihood in terms that are relevant to the organization. For example, in qualitative terms, the four impact ranks can be defined in descending order as (1) catastrophic, (2) critical, (3) major, and (4) marginal. The probability ranks, of which there are six on our map, are also defined in qualitative terms from “almost impossible” to “almost definitely going to happen”. Both probability and significance can also in principle be quantified by the company. The team can use any quantitative determinations, however, this procedure is much more complicated and requires significant analysis time.

Determination of the risk tolerance limit.

The critical border of risk tolerance is a broken thick line that separates those risks that are currently tolerable from those that require constant monitoring right now. Business risks above and to the right of the border are considered "intolerable" and require direct attention from a management standpoint. In the case of developing an organization’s strategy, it is desirable to understand before adopting a strategy how to manage or eliminate them, will this not lead to such a decrease in the profitability of the business that the strategy will become unattractive? Those threats located below and to the left of the border are currently considered tolerable (this does not mean that they will not need to be managed at all).

The risk tolerance boundary changes depending on the risk appetite of the organization. When classifying risks by significance/probability, even without a numerical assessment, one can roughly estimate the amount of financial losses from a particular risk, which allows one to determine to some extent the organization’s appetite for risk and determine the risk tolerance limit on the map.

And here is the risk map!

The final step in building the map is to place business risks on the risk map based on their impact rank and probability rank, i.e. in fact, the classification of risks according to two parameters. In general, in a more complex case, there can be three or five such parameters. Then math is indispensable. In our example, there are two parameters, and the team aims to place each risk in the appropriate impact/probability cell. In this case, only one risk falls into one cell.

It is important to understand that the ultimate value of an organization's risk map is not in determining the exact impact or probability level of a specific threat, but in the relative position of one threat relative to other threats, and their position in relation to the risk tolerance boundary. Now, in order to accept this strategy, if it suits us in terms of profitability, it is important to understand how to transfer all the risks that lie in the red-lilac zone of “intolerance” into the green zone.

Action plan.

Risks that lie above the tolerance limit require immediate attention right now. Therefore, it is important to develop specific action plans to reduce the magnitude or likelihood of losses from this risk. It is also necessary to define targets and a measure of success in risk management, dates for achieving the targets and assign responsibility. The goal of the action plan in this case is to figure out how to move each "unbearable" risk further to the left and lower into the "tolerable zone". Here it should be noted that it is necessary to correlate the costs of such a move with the benefits from it, and also take into account that a strong reduction in the company's risks can lead to the loss of most of its profitability.

Quantification and modeling.

The degree of detail required in the analysis is specific to each risk and varies from one risk to another, and depends mainly on the goals pursued by the organization. If Western banks often fight for fractions of a percent when assessing possible losses, then even our banks, not to mention enterprises in the real sector of the economy, do not need such accuracy yet. In general, when assessing a fairly wide range of business risks, significant detail is not required or cannot be made. Other risks and action plans will require more detailed research and quantification than can be achieved through questionnaires, brainstorming or industry data studies, etc.

For risks that require additional analysis, sophisticated quantification and modeling techniques must be used.

Risk map - picture or process?

From the point of view of risk management technology with the construction of a risk map, the management process does not end, but only begins. Moreover, your company's risk map is a "living organism" that reacts to decisions made and operations performed. It lives and develops with the development of your business, along with new opportunities, new risks appear, some of the old risks lose their relevance and become insignificant for your business. Therefore, it is important that the process of risk mapping, map refinement, be built into the activities of the organization.

This will allow updating the company's risks as often as necessary. Usually the period of “planned updating” is a year, sometimes it is tied to seasonal cycles, if they take place in business, etc. However, when even weak signals about events appear that can greatly affect the company's risk objects, their impact on the company's risk map should be assessed without any periodicity.

Creating value for the company.

Company risk mapping should be used to test existing strategies in the context of realized and unrealized risks and the company's ability to generate profitability, as well as to support management decision-making on the development of new strategic directions.

Consider traditional approaches to strategic planning. While most companies perform some type of formal strategic planning (they are all well known), companies do not have a business process for identifying, evaluating and integrating opportunities and risks i.e. some "learning strategy". This can be easily illustrated in e-commerce, where traditional strategic planning methods cannot keep up with the pace of change. The nature of technological change suggests that the reasons (returns and risks) that are considered correct for many of today's decisions are very likely not to be so in six months, and will not bear any resemblance to those that will take place in three years. .

There is a gap between those who typically conduct the strategic planning process and those who interact with customers and are responsible for gains or actual business losses in the ongoing business process. Traditional "strategic planners" rely on knowledge available at a particular point in time, while linear management relies on "live" knowledge based on actual market dynamics, which can be called "learning strategy". Business success depends on the quality of decisions made in the dynamic present. A permanent risk mapping process that targets a company's strategy can bridge or narrow the gap between "strategy planners" and line managers, including "live" market information about where a company's competitive advantage can actually be realized.

Thus, risk mapping is a powerful analytical tool for understanding and prioritizing a company's business risks. In addition, in many cases, the risk map is a source for creating the economic value of the company, because. it is already clear that this methodology can be applied beyond the risk management process itself. It plays an important role in strategic and ongoing planning, implementation of existing and evaluation of future business strategies.

One of the main and accessible methods of risk management for many entrepreneurs, even those who are not specialists in the field of riskology, is the construction of a risk map. Entrepreneurs can use this risk management method in cases of strategic planning of their business, new investment projects, etc. After all, it happens that when planning a new business, an entrepreneur has many options for decisions and forecasts, and it is simply impractical not to assess the risk associated with the implementation of these decisions. But the fact is that this risk assessment using risk mapping is quite rough and approximate.

The method of building a risk map allows you to quickly and concisely assess the risks that are possible in the implementation of managerial decisions of an entrepreneur.

A risk map is a display of the main number of company risks using graphs and their descriptions. The horizontal axis of the risk map shows the strength of the impact, i.e. the significance of risk, and on the vertical axis it is customary to mark risks in terms of their frequency of occurrence, or, in other words, the probability of risk Nedosekin A.O., Maksimov O.B. Comprehensive assessment of the financial condition of an enterprise based on a fuzzy_multiple approach // www.vmgroup.ru

You can build a variety of risk maps with different sets of indicators. Figure 5 shows one of the options for building a risk map.

Here, the vertical axis shows the probability, or frequency, of the occurrence of a risk, and the horizontal axis shows the significance, or strength of the impact, of a given risk.

Rice. 5.

Before building such a risk map, the specialist first classifies the assessed risks into several categories of significance. In the figure, these categories are shown in Roman numerals from I to IV. Then the same specialist determines the categories of risk occurrence probabilities. In the figure, the categories of occurrence probability are indicated by Latin letters. Arabic numerals from 1 to 10 denote risks classified according to different categories of probability and significance. The team that builds the risk map must identify all possible company risks that are potential for a given company development strategy. Next, the team compiles a written description of the resulting scenarios. Important for describing each scenario is the definition of the object of risk or “company vulnerability”, risk factors or “trigger mechanism”, the magnitude of possible losses or “risk consequences”. The next step for the team is to determine the rank of each scenario. The ranking is done in terms of "probability" and "impact". The data obtained are summarized for convenience in a table (Table 3), and then the values of "probability" and "significance" are transferred to the risk map. Thus, a graph of combinations of the probability of occurrence and significance of each risk is built, and it is important that each combination corresponds to one type of risk. A thick broken line is drawn on the map, which represents the risk tolerance boundary. This border originates from the upper left corner of the probability value A and is drawn along the average values towards the lower right corner of the map. It separates the risks that can be considered tolerable at the present time from those that right now need to be given a lot of attention and brought under strict control. The specialist identifies critical risks that are above the tolerance limit and are considered unbearable for the company. Before making the right strategic decision, the specialist must take measures to reduce them or transfer them to other persons. And risks below the tolerance limit are manageable.

All these calculations, the assessment and analysis of the identified risks, as well as the construction of a tolerance graph, can be done on your own. But, despite the apparent simplicity of the method, the procedure for constructing a risk map is preceded by a huge amount of work done by specialists in quantitative risk assessment and their formalization. In addition to quantitative analysis, specialists have to do a lot of work to build a chain of probabilities.

The main task solved by building a risk map is to reduce the cycles and time of decision making. The risk mapping process itself is the application by the entire company of a methodology that would allow it to identify risks, prioritize them and quantify them, while dividing them into classes. Often a company with sufficient financial capacity does not manage risks on its own, but resorts to the help of consultants or specialists.

The consultants use various methods when building a risk map. These are interviews, various questionnaires and questionnaires of a formal and informal nature, industry research, analysis of the company's document flow, etc. When we talk about the company's financial risks, namely their assessment, it is impossible to do without analyzing the company's financial statements. Here it would be more appropriate to use quantitative methods for evaluating and analyzing data. If the company has any characteristic features by type of activity or its format, then in this case, these features must be taken into account when the consultants analyze the risks of this company.

Next, we describe the process of independently building a risk map by any company in order to identify critical risks that threaten the existence of the organization. This process consists of several stages, each of which has its own special characteristics.

1. Primary education. To analyze risks and assess them, it is not enough to have superficial skills, it is necessary that at least a few employees of the finance department have completed formal training in the specialty "Risk_management". Even if not all financial professionals involved in risk research receive this training, but only some of them, it will already be beneficial. Trained professionals will guide the team in the right direction and guide the risk mapping process. You can only conduct preliminary training, which will take from three to five days. But practice has shown that the most effective for mastering are introductory courses or seminars on risk_management lasting about three days. The premise of training employees in the basics of risk_management in general and the mapping process in particular aims to educate the average financial officer to be promoted to the level of a mapping manager who will orient the team towards the right goal. If simply trained a few managers are not enough, then the company can take advantage of the help of experts in this field, who can be introduced to the team during the mapping. Naturally, the more well-trained specialists work in the company, the more effective its activities and the stronger the team. It is important to remember that you should not trust amateurs to work in this area. It is better to contact specialists or train your employees.
2. Limits of analysis. The first step in building a company risk map is always to determine the scope and boundaries of the upcoming analysis. Under the boundaries of the analysis, it is customary to understand those strategic decisions that the risk map is able to cover. This is done through a complete survey of the organization. The boundaries of analysis can be both wide and quite narrow. It depends on the desire of the organization itself. Setting the boundaries of the analysis is tantamount to identifying risks, prioritizing and understanding the risks that can hinder the achievement of the company's corporate goals. Although the size of the boundaries is controlled by the company itself, there must be a balance between the breadth of the boundaries and the volume and value of the information that is expected to be obtained from the results of the risk mapping process. For example, it may be that developing a risk map for the entire organization may not be as valuable as producing multiple risk maps separately by activity or for each individual business unit. The opposite situation is also possible. It is important that the team of specialists first decide on the goals, availability and cost of information, and then set the boundaries of the analysis for mapping.
3. Composition of the team. The most important step in the mapping process is the selection of a team to carry it out. The success and successful completion of a mapping project depends on the right specialists. If a company resorts to the help of third-party consultants in the field of risk analysis and assessment, then in this case the working group includes top managers of the company, i.e. highly qualified specialists with extensive experience and knowledge in the field of risk, capable of conducting an expert assessment. If the organization resorts to the use of only its own forces, then in this case the working group includes a team directed by trained employees, i.e. "collective mind", oriented by several specialists. As practice has shown, the most effective and well-coordinated is the work of six to ten people. Such a stage in compiling a risk map as the selection of the composition of the team must necessarily follow the stage of determining the boundaries of the analysis, and not vice versa. After all, it is important to determine the range of departments affected by the risk, and on the basis of this, attract employees who specialize in these departments. Most often, those employees who have the authority to make strategic decisions take part in the compilation of a risk map. These are both administrators and heads of financial, treasury and legal divisions, as well as those may be the heads of strategic planning departments, if they are available in the company. The heads of control departments and information and information departments are still involved in mapping at some enterprises. computer technology. In the event that there is a risk_management department among the company's divisions, its head is also included in the working group. If it is necessary to draw up a risk map for a separate division of the company or a specific operating business unit, then the team will consist of managers and the head of this division.
4. Scenario analysis and ranking. At this stage, the "collective mind" of the company is "brainstorming", associated with the definition of all potential risks that threaten the organization's activities with this chosen strategy, and the possibility of these risk events. As a result of identifying these risks, their identification, a discussion of the results obtained about the existence of risks and scenarios for their occurrence is carried out. Further, the team strives to achieve consensus on all the issues outlined: a written description of all types of risks and scenarios for their occurrence is being prepared. In each scenario, three characteristics are important. These are the object of risk (company vulnerability), risk factors (trigger mechanism) and the magnitude of possible losses (consequences). The object of risk is the value of the company, which is constantly exposed to potential threats. A trigger mechanism refers to risk factors that cause negative consequences for risk objects. Consequences represent the magnitude of losses caused by the vulnerability of the risk object and the nature of the risk factors. At this stage, there may be a situation where it would be appropriate to combine seemingly dissimilar scenarios and various risk factors leading to the same consequences into one scenario. It is also important to determine the need to group many small risks into larger groups and on what grounds this grouping is possible. Once the working group has identified a specific number of scenarios and reached consensus on their content, the team can proceed to rank the scenarios using the impact-probability method. It is important to determine the quantitative or qualitative characteristics of the ranking. An example of a qualitative ranking is the division of a possible risk into catastrophic, critical, significant and marginal. As shown in Figure 5, risks can be ranked by their likelihood of occurring. So, there are six ranks of probability, defined in qualitative terms from "almost impossible" to "almost definitely going to happen". It is also possible to quantify the probability and significance ranks of risks, but this is a painstaking method that requires a lot of time for analysis. The results of the scenario analysis and ranking are presented in the form of a table. The table usually has the following form (Table 3).

Table 3 Zinkevich V.A., Cherkashenko V.N. Risk map - an effective management tool // www.consult.ru

Trading company "Crocus" is engaged in the implementation of household chemicals. The company's management decided to expand the range of its products by adding some perfumes to it. A team of specialists was assembled and tasked with developing a risk map for this project. In this case, the main objects of this project were identified. They are: profit from the perfume trade, the overall profit of the company, an increase in sales space, an advertising campaign and a promotion campaign, market research, an increase in the staff associated with the hiring of perfume specialists, an increase in the cost of wages to employees, etc. d. Further, the experts identified all possible risk factors, and one object may have several "trigger" mechanisms. Then the possible consequences to which the organization will be exposed if these risks do overtake it are determined. All these data are entered in table 4.

Table 4

Risk categories, or significance, are defined as: I - catastrophic, II - critical, III - significant, IV - boundary. And the probability of loss is denoted as follows: A - it will definitely happen, B - it will almost certainly happen, C - it will not necessarily happen, D - it is possible, E - it is almost impossible, F - it is impossible.

Based on the data obtained, a risk map is compiled (Fig. 5), on which a broken line is drawn - the tolerance limit.

5. Determination of the risk tolerance limit. As shown in Figure 5, the thick broken line - the tolerance line - separates the risks that are currently tolerable for the company from those that should be immediately considered and for which measures should be taken to reduce them, abandon them or transfer them. risks to third parties. Above and to the right of the tolerance limit are those types of risks that require constant monitoring and special attention from management, they are considered unbearable. Those types of risks that are below and to the left of this border are currently tolerable, but this does not mean at all that they should be neglected, they just do not require management at the moment. Carrying out the classification of risks according to their significance, it is already possible to roughly draw the border of tolerance and approximately determine the amount of possible losses from each type of risk.
6. Drawing up a risk map. The final step in this mapping process is to plot the acquired and available data on a map. Risks are mapped based on their impact rank and probability rank. Here we consider the classification of risk only in two parameters - impact and probability. But there can be more classifiers. In this case, qualitative methods are indispensable, you need to resort to mathematical methods. After risk mapping, it is important to take all possible measures to move risks from the upper zone of intolerable risks to the lower one. To do this, it is necessary to develop an action plan to reduce the magnitude and likelihood of possible losses from the negative consequences of the risk (Table 5). This is, first of all, the development of target indicators, the determination of the date for achieving the target results, as well as the appointment of those responsible for carrying out these activities. The purpose of the plan in this case is the same - to find ways to move some intolerable risks into a tolerable zone. And the most important thing in this case is to evaluate and compare the costs of this movement and the benefits from it. It should also be taken into account that a significant reduction in the level of risk for the company can lead to a significant decrease in the level of profitability.

Table 5 Zinkevich V.A., Cherkashenko V.N. Risk map - an effective management tool // www.consult.ru

It can be said that once the risk mapping is completed, the risk management process is just beginning. Moreover, the risk map is considered a “living organism”. It develops and changes with the development and change of business. New risks and new opportunities appear, old risks lose their relevance and become insignificant for business relative to some new risks. And all these changes should be constantly introduced into the company's risk map. It is not drawn up for life, its validity period is a certain period, after which it requires adjustment and clarification. Regardless of the period for which the risk map was approximately drawn up (year, season, etc.), if any new events appear that can affect the company's risk objects, measures should be taken immediately to assess, analyze these events and apply them to new risk map.