Introduction
In a world where there is an increase in competition and different innovations are heightened, the issue for competitive advantage is getting surreal. The companies are aware that they are plagued with different uncertainties but their focus is on the ways on how to gather strategies to be profitable and avoid the risks involved. It is impossible in every organization to create a business that doesn’t take risks, same as no business can avoid it. The only way to achieve their goal is to acknowledge the risk and formulate the best suitable solution out of it.
The Nature of Oil Marketing Companies
Oil companies applied the basic understanding in energy risk management. This is the nature of understanding the risk exposure. In the complex nature of the industry, there are risk management techniques available in volatile markets while maximizing efficiencies and limiting the identified risks. Through the techniques recognized by the oil trading companies, the international oil trading and pricing can be establish, adjusted, and position in the market. Oil companies believe that well-developed and managed strategies can be design to maximize the corporate profitability (Kubian, 2004).
Risk Management
Risk management can occur in even the most successful companies and can be in a form of insurance risk, technological risk, financial risk, operational risk, and environmental risk but all can be well-managed through the coordination of the management (Rao and Marie, 2007). When there is an appearance of a risk management and changes, companies fully understand that there are no longer enough right insurance policies (Marsh, Inc., 2006). To gain the competitive advantage in the market, oil companies need to strategically minimize the risks in new and innovative ways. This can be done by leveraging the in-depth knowledge of the company’s risks as well as industry expertise, trusted advisor, and external support such as stakeholders. Through the idea of strategically thinking, the companies can complement the risks in formulating the internal steps like operational improvements to the point of protecting the assets of the company (Marsh, Inc., 2006; Rao and Marie, 2007).
There is a wide array of risk management strategy of the companies that involves the concept of the policies, infrastructure, and methodologies. Only few companies meet the best practice in establishing an effective risk management function and as opposite, oil companies recognize the risk management as a key in establishing the business strategy. It is noted that oil companies with a weak risk management practice in their operations have a great exposure in loss (Pratt, 2007). In this area of concern and analysis, the overall risk management practices allow the companies to expand their risk assessment approach and provide a well-defined sound business strategy. Without the discipline of the company in terms of risk quantification and prioritization, it would be impossible to manage a company effectively. And companies consider the successful risk management is more that a technique, but rather a strategy (Marsh, Inc., 2006).
Analysis
The importance of risk management in all companies is to recognize the need for appropriate levels of protection against the potential losses. Therefore, companies or organizations’ acknowledges the areas of their strength and weaknesses to fully assess the total scope of their risks and proactively lessen the losses through the risk management techniques (Marsh Inc., 2006). It is a great advantage when the companies are guided by their business objectives, plans and strategies, and views on past performance. It is important that the entire organization is willing to support the decision in managing the risks. Two of the identified risk in oil companies is the project risks and regulatory risks. The common technique they applied to manage the risk is through the mixture of crude oils used. This is where the refineries allotted crude oil from oil and natural gases (ICRA, 2009). This enables the refiners to achieve higher distillate yield and achieve the desired product specifications. In addition, efficient imported crude sourcing by employing optimization techniques can also aid the profitability. The first two risk management techniques are identified as assessment and prioritization that can formulate the solution or treatment.
Insurance for the companies is important, it is considered as the great first aid in the event that something goes wrong, but a strategic approach to rick management allows the company to stay healthy and gain the room for improvement. With the appropriate risk management techniques, potential liabilities can actually be transformed into a competitive advantage. One beneficial business outcome of the risk management process is to be prepared to continue operations when competitors are not and this is where the advantage takes place (Marsh, Inc., 2006).
Conclusion
The point of risk management is not to eliminate but to manage the risk involves. It is where the management has to choose where to place bets, where to hedge best, and where to avoid betting altogether. It should be expected that the risk environment has major far-reaching consequences and the management should adopt the value it can deliver.
References:
ICRA, 2009. Rating Methodology for Downstream Oil Companies, Internet Content Rating Association Rating Feature. [Online] Available at: http://www.icra.in/Files/PDF/ArticleFiles/2009-October-Rating-Methodology-Oil-Co.pdf. [Accessed 26 Jan 2010].
Kubian, T., 2004. International Oil Supply, Trading and Risk Management Courses. Oxford Princeton [Online] Available at: http://www.oxfordprinceton.com/pdf/suptrad2004.pdf. [Accessed 26 Jan 2010].
Marsh, Inc., 2006. The Impact of Risk on National Oil Companies. [Online] Available at: http://global.marsh.com/documents/NOCRisks4-24-07.pdf. [Accessed 26 Jan 2010].
Pratt, T., 2007. S&P Completes Initial “PIM” Risk Management Review For Selected U.S. Energy Firms. Standard & Poor’s Ratings Direct. [Online] Available at: http://www2.standardandpoors.com/spf/pdf/events/InitailPIM.pdf. [Accessed 26 Jan 2010].
Rao, A., & Marie, A., 2007. Current Practices of Enterprise Risk Management in Dubai, Management Accounting Quarterly, Vol. 8, No. 3.
No comments:
Post a Comment