How do you use the results of this analysis?
The output of the analysis is the “Group ERM risk map”, summarized in the Italgas Group Risk Report. It is a document produced every three months, presented to the Top Management and the Supervisory and Control Bodies.
Monitoring is therefore quite frequent…
Yes, we monitor the Group’s main risks on a quarterly basis, involving the responsible Process Owners. Whenever it is possible, we use the measurement of specific Key Risk Indicators, collecting data that allow us to analyze the main risk factors: basically, they are real signs that anticipate future evolution. During the meeting with the Process Owners, we also monitor the completion status of the treatment actions that we are implementing.
You were saying before that ERM is also in charge of the analysis of Business Plan Risks…
Sure.Together with the Strategic Planning process, the ERM function, in coordination with the Finance, Planning and Control functions and the contribution of all other competent departments, conducts an additional quantitative analysis on risks, opportunities and uncertainties connected to the financial targets of the Strategic Plan.
What is your specific role as ERM function?
We ensure the identification and evaluation of risks, opportunities and uncertainties in the Strategic Plan and we estimate the comprehensive exposure of Plan’s targets.
As regards financial variables, we use quantitative methods to determine the volatility and its correlations, while, for more operational and managerial elements, we involve the Management, asking them to evaluate the potential variability of the main operating assumptions behind the Plan. This way, we have the availability of forecasts on possible variations as regards both timing and contribution from specific initiatives included in the Strategic Plan.
How do you use so many information?
We “aggregate” data to obtain a measure of the total variability of financial targets in the Strategic Plan. Through our proprietary MonteCarlo simulation model, the ERM team uses the information collected on risks, opportunities and volatility to generate over 2,500 alternative scenarios for variables evolution and assumptions behind the Plan; then, we evaluate their overall impacts on the value drivers of the Strategic Plan. Furthermore, we coordinate the identification, deployment and evaluation of the “disruptive” scenarios, meaning those scenarios that, in case they occur, would substantially change, for better or for worse, the reference context of the Strategic Plan.
What are the ultimate results of this work?
In conclusion, the analysis done by the ERM team provides Italgas with an estimation of the volatility of the financial targets of the Strategic Plan and allows for an evaluation of the Company’s resilience level in case of context changes.
You were mentioning the ERM model needs a constant evolution. What drives this evolution?
The drivers could be changes in the perspectives of the external environment, but even changes inside the Italgas Group. Among the factors driving the evolution of Italgas risk profile, and that of its ERM, we can think for example of regulatory changes, like GDPR, or perimeter changes, new services offered by the Group,… With the acquisition of Seaside, for instance, our Group entered the energy efficiency services business; that clearly implies a change in the risk profile as well. In that specific context, as ERM function we collaborated with our Seaside colleagues to identify and evaluate the industry risks, prioritizing them in an “Enterprise” view; we also ensured adequate reporting at all levels.
Are there any other factors that can play a role in the ERM evolution?
Sure. Some evolutions or extensions of the model can be driven by the opportunity to improve the management system of some specific risks. For example, at the moment we are working with the Procurement & Material Management division to evolve the risk management model connected to the procurement process. Those solutions will allow us to strengthen our analysis skills and to enhance the information to support the Procurement & Material Management function in its decision-making process, also with the aim of reducing from the start the occurrence of execution risks.