Governments all over the world face a seemingly ever-increasing array of risks that may significantly affect their objectives, and ability to deliver on key mandates and promises – no region is uniquely different in this regards. What stands successful and popular governments apart is how they prioritize and manage key strategic imperatives.
Many enhance their understanding and management of strategic risks by embracing an enterprise-wide risk oversight approach, driven by technology.
For the enterprise-wide risk oversight to be effective, actions must be taken to move from a casual, ad hoc way of thinking to a structured and explicit set of risk identification, assessment and monitoring processes.
The nagging petrol scarcity across the country should be of major concern to the government because it affects every citizen. Like electricity, petrol is a necessity. It enables transportation and movement of people and goods. Given its importance, petrol availability at retail distribution stations is a core responsibility of government and petroleum marketers. Any shortage should rank high as a strategic risk for government, and will require that a drastic and deliberate solution be put in place.
Various reasons have been attributed as the cause of the problem ranging from the inability of NNPC to create a window for private importers to import petrol, to an importation gap caused by the landing cost margin of N171 per litre and the selling cost pegged at N145 per litre.
Shortage of foreign exchange and increase in crude prices have made it unprofitable to import petrol and sell same at N145 per litre. Private importers have backed out because the increase in crude price has made the landing cost high. The result is that importation of petrol is being handled, almost 100 per cent by NNPC. There is also the issue of huge debts of over N800 billion owed the operators by NNPC.
The issues involved in fuel refining and/or importation and distribution are multifaceted. The players involve oil marketers, government ministries, departments and agencies (MDA’s) including Petroleum, Labour, and CBN etc. None the less, it should be recognized that such a complex system involving the input of different players comes with inherent risks. With an understanding of these complexities, an enterprise wide solution within a well-designed framework (using ERM principles) will be required. This will ensure a holistic approach to solving the problem in a sustainable manner.
It appears that the downstream oil industry which is saddled with the important role of fuel distribution has been slow to embrace ERM concepts. Red tape and a status quo mentality seem to hang over the entire industry when it comes to risk management. This has to change if this perennial problem of scarcity must be solved.
A coordinating unit with the responsibility of ensuring petrol availability to retail outlets nationwide should be set up. This unit will be assigned the role of Risk Owners. This is one first major milestone to be reached. Defining who is responsible for handling certain risks is key. It must be clear who is responsible for being a risk owner of a certain area. The unit will also provide a strong tone at the top. If managers see their administrators accepting risk ownership roles and making ERM a priority, then it would become important to them as well. By taking this first step of assigning risk owners, both managers and administrators will be able to get on the same page about what risks the entire system faces, who should be responsible for handling each risk, and how it could affect the strategic mandate of petrol availability.
Risks must be prioritized. The complexities of any large fuel importation, storage and distribution system, make prioritizing risks essential, especially because everyone thinks that their risks are the most important. This is why it is so important that this process is driven from the top. It will be easier to see which risks were most prominent at an enterprise-wide level. This is important to apportion effort and resources so that a “fly isn’t swatted with a hammer.” A heat map – which is a risk management tool that measures likelihood and impact of risks can be used to do this.
Involve experienced hands at the coordinating unit. The government may want to consider appointing a board of trustees with explicit responsibility for risk management leadership. The head will lead the development of structured processes related to risk. The unit will coordinate the risk thinking so that senior management of the various operators and the board of directors obtain a top-down, enterprise view of the portfolio of risks on the horizon for the system. They can also push the operators to do more when it comes to risk management and hold it to the same standards stockholders expect of management for publically held companies. However, the board must be very careful not to cross into micromanaging risks and preventing the operators from taking operational risks for potential gains.
Implementing an ERM process across such a wide system is a daunting task and it is tempting to cut corners or to attempt to move fast in order to get a robust process moving quickly. However, guided steps by an ERM professional needs to be taken to ensure that each step is fully completed and done correctly before moving onto the next step.
Government leaders and senior executives may benefit from an honest assessment of the efficacy of our current approach to managing the petrol situation. Most MDA’s have managed risks for decades but generally implement risk oversight using a siloed risk management approach whereby different functions manage specific types of risks with little coordination among silos.
Given the expectations and the demands from citizens on government, it is clear that status quo risk management will likely lead to failure and significant missed opportunities to make a desired impact.
• Mbonu, FERP, FICA, CIRM (UK), HCIB, MSRM (Stern) MBA. Studied Engineering, is an experienced Banker and Enterprise Risk Management professional. Earned a post graduate degree in Risk Management from New York University, Stern School of Business. A member of the UK Institute of Risk Management, and is presently the IRM Regional Group Chair for Nigeria
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