Erm Case

Case study: ERM at Hydro One

A CEO and a risk expert suggest, in different ways, that risk management has not demonstrated value, or explained how it might do so. In response we define value-based risk management in terms of (1) its key features and (2) those which seem to be a natural consequence of a value focus. We examine and reference the claims made for the value of enterprise risk management. We offer two case studies, including one of our own.

The purpose of this case study is to fill this gap in the literature by providing the process by which one firm, Hydro One Inc., has successfully implemented ERM.

Background.

H1 is a Canadian company which delivers electricity. H1 was initially state owned, although this changed over time, as Canada deregulated its electricity markets.

1. Hydro One (H1) was a relatively early adopter, starting the process in 1999.

2. The driver was that H1 wanted to look at risks and opportunities in an integrated way that would lead to a better overall allocation of corporate resources.

3. Initially the ERM implementation was led by external consultants, "... but no lasting benefits or transfer of knowledge appear to result from those initiatives."

4. In late 1999 the position of Chief Risk Officer was created, with the head of internal audit, John Fraser, being appointed to the role on a part-time basis.

5. There were two other risk management staff: both had professional "non-risk" qualifications in the areas of process re-engineering and industrial engineering.

6. A corporate risk management group (CRMG) consisting of these three people was set up to progress the development of ERM in H1.

7. The group was given six months to prove its worth; if it failed the ERM concept would be abandoned and the CRMG dissolved.

8. In early 2000 the CRMG took an ERM policy and ERM framework to the executive risk committee (ERC) for discussion.

9. The ERC suggested a pilot study be undertaken with one of...