Risk matters - June 2018

FOR A long time, we have taken supplies of water, electricity and gas for granted, but recent events around the world have told us that nothing is guaranteed.  How confident are you in your supplies, and should you be looking more closely at what if…?

During the recent bad weather in the UK the national grid declared supplies were running low.  Some experts threatened that some industrial operations could be reduced within a couple of days. Global brands Jaguar Land Rover and Cadbury’s chocolate reduced production recently because of a water shortage. All around the world, utility supplies are under threat. Cape Town was threatened with drought in April, but it is now looking more like mid-July.

We have become used to utilities on tap. While prices have moved up and down, supply has been there, and neither individuals or organisations have had to plan for gas, electric or water failure. How would your organisation fair in the event of a collapse of major utility supply?   

Efforts to harness natural resources have moved on significantly in recent years. Hydro, solar and wind power, micro power and smart energy are altering the energy sector, but they are all reliant on nature behaving in a predictable manner. While technology is evolving, nature will sometimes throw us a curve ball.

Climate change means the fifty-year storm might not be what we thought it was.  Fifty-year storms are probability indicators, providing a measure of severity and likelihood rather than certainty, but as climate change progresses, severity and likelihood change.  The problem is that we don’t know what that change will look like.

Many organisations buy gas supplies at reduced rates with an agreement that they can be limited or ceased.  For low risk organisations, this risk can be offset through the provision of temporary additional electrical heating.

Many organisations choose to pay more for secured supply.  Some high-risk organisations face catastrophic damage if they lose power (such as some glass manufacturers), have back-up heat generation using liquified petroleum gas (LPG) – in Europe this means buying the equipment, storing the gas, operating as a site regulated under the Seveso directive, and establishing supply agreements, including emergency supply arrangements with local or national LPG suppliers.  Even with these controls, continuity of supply is not a certainty.

Lean thinking means that organisations have removed surplus or unused processes, pressure on costs has meant choosing ‘lowest-bid’ supply contracts.  Decisions have not always been recorded on risk registers, contractual changes are not always reflected (or accurately reflected) in updates to risk registers, which means that decision makers are unaware of the threat to supply that they face.

If executives have read the news (and many will not), there is a chance that they will have been reminded of utility supply risks.  Some executives that have read the news will be investigating the implications for their organisation with a series of ‘what if…’ questions to ascertain what types of contracts are in place and what the consequences of a loss of supply would be.

Some organisations may also be approaching their supply chain to understand what inherent risks they are exposing themselves to through a loss of supply.  Those organisations that have secured supply and protected their operations are in the best place to approach customers and potential customers with the added value that secured supply brings.

With the cold weather in the UK estimated to have cost £1bn per day and threatening to influence UK quarterly growth statistics, it has to be worth the cost of an investigation.

John Huckstepp is director of human resources, health and safety and transformation at Blank Canvas Ltd. He is aspeaker at the IIRSM Conference 2018. For more information, visit www.iirsm.org