Implementing a Risk Management Program

Scott JonesMEAG Power

APPA Business & Finance Conference - 2009

About MEAG Power

• Created by Georgia Legislature in 1975

• Provide wholesale electricity to 49 communities in Georgia

• Total Assets - $4.6 billion

• Total Revenues - $770 million

• Nine generating units at four plant locations with about 2,100 MW

• 120 employees

What is EWRM?

• “Methods and processes used by organizations to manage risks and seize opportunities to the achievement of their objectives”

• Most agree it to be some version of a comprehensive risk management program

• Ideally include a centralized approach to evaluation and/or monitoring

Is the Ideal . . Ideal?

• Difficulties with EWRM implementation:– Most can not devote numerous resources– “Academically ideal” program is expensive,

system driven, sometimes not needed

• What does your entity need? Seriously.– Must balance value of risk management with

company size, complexity, resources– Something short of “ideal” might be

appropriate

MEAG – Pre EWRM

• Reasonable risk management and analysis

• A “silo” approach – each department handled their own process

• No company-wide culture of risk management

• No formal communication lines or company-wide oversight

MEAG – EWRM Phase One

• EWRM Policy– Board approved– Established Board committee, Executive

committee, RM Department, single Executive over RM / Internal Audit

– Defined roles of each authority level

MEAG – EWRM Phase One

• Created more formal communication

• Required risk assessment process

• RM Department reported to committees regularly, submitted work plan

• Some analysis by RM, some by individual departments

MEAG – EWRM Phase One

• We combined RM and Internal Audit– Saw similarities in philosophy of both– Internal audit had moved toward more risk-

based approach, less small-dollar audits– Moved to project-based approach with both

audit and RM work being done in concert

Phase One - Lessons Learned

• Reasonable approach, worked well

• Having single Executive was ideal, but perhaps not necessary with our size

• Recognized importance, but size and staff limitations made us think

• Made progress in creating a RM culture

• Good sign: People came to RM for advise, review of ssues

MEAG – EWRM Phase Two• Reorganization in April

• RM / Internal Audit remain combined

• Manager of RM / Audit reports to Controller (under Chief Accounting Officer)

• Manager has dotted line to CEO and RM Committee of Board

• RM remains an important area with high exposure and heavy involvement

What makes a good program?

• Not a clue . . .– Each company is unique, solution is unique– Experimentation is alright, don’t be afraid to

try different structures– Communication and Analysis are key– Empowerment of groups needed– Make policies that memorialize your intent

Bottom Line: Good Communication

• Good programs need focus on communication

• Set a structure that makes sense, put analysis where it makes the most sense (centralized or departments), but force areas to communicate

• Better communication of issues, analysis, and decisions has been the primary benefit of our program