Importance of strategic risk management within the energy sector. A content analysis

Academic Paper from the year 2021 in the subject Economy - Environment economics, grade: 1,3, The FOM University of Applied Sciences, Hamburg, language: English, abstract: This paper provides further research to understand the importance of strategic risk management within the energy sector. Beyond traditional risk considerations of catastrophe, terrorism, and the potential for operational failure, the energy sector is like almost all sectors confronted with disruptive risks through the adoption of new and more efficient technologies in this era. Additionally, our society is facing challenges regarding climate change, which forces the development towards a renewable instead of the traditional, fossil energy environment. Through mobile applications, analytics, sensors, social media and cloud computing the entire business landscape already fundamentally changed.

There are many things happening "that are beyond direct human influence and managerial control".

The rapid changing business environment with new upcoming and disruptive business models are not identifiable with the traditional risk management frameworks. The reduced ability to forecast environmental conditions and potential risk events implies "that the formal strategic and investment planning frameworks based on forecasts become inadequate". Traditional enterprise-wide risk management frameworks do not necessarily provide sufficient conditions for effective risk management outcomes. There are too many aspects to be contained, which makes it impossible to reflect all the risks within a simple, formalized control system.

The importance of strategic risk factors and related corporate responsiveness in increasingly changing market environments exhibit a need to a more comprehensive view of the risk management process. Formalized reporting and internal control systems clearly have improved in order to let the executive board prove that it has acted to their best knowledge and belief in case of potential scandals. This defensive corporate mentality hinders innovative response to business environmental changes and therefore excludes appropriate management of strategic risks. Increasing uncertainty to determine the changes or even anticipate future risk events indicate the relevance of incorporating strategic risks into the enterprise risk management practice.