1.0 Introduction
Risk is defined as an uncertain event or condition that has a probability of transpiring in
which there will be a positive or negative impact to a situation, project or process. A
certain risk has one or more causes and when it happens, there will be also one or more
impacts. If also these will occurs, there may be impacts with the schedule, cost or
performance. All projects or operations assume risks and by means of Risk
Management, tools and techniques are used to monitor and control these events that will
have some kind of impact to the outcome of a project or production (Gray & Larson
2006).
Risk Management is a practical method of defining and resolving the workplace health
and safety issues and problems. It is an ongoing process of identifying and managing
risks in order to avoid the exposure. This method includes the several processes that
consists Risk Management Planning, Risk Identification, Risk Analysis, Risk Monitoring
and Risk Control. The objective of Risk Management is to reduce the probability and
impact of risk that is adverse to the project or production. However, if the impact is
positive the probability of the risk should be increased (Heally 1997).
Risk Management Plan will provide the guidelines and a framework that is based on
industry acceptable practices. The purpose of the plan is to establish the methodology
for identifying, mitigating and avoidance of risk. Risk Management Plan documents the
procedures, processes and tools that will be adapted to manage and control those events
that have positive and negative impact on the operation and production. The plan will
addressed its Scope and Approach; Risk Identification; Risk Analysis; Risk Response
Planning; Risk Plan Implementation; Risk Tracking, Monitoring and Control and Risk
Management Implementation (Gray & Larson 2006).
This report will illustrate a Risk Management Plan for Petron Corporation. Safety in an
oil refinery heavily relies on it adopted Risk Management criteria. By definition, the oil
refining enterprise is exposed to market risk, counterparty risk, contractual risk,
operational risks, health risk, safety risk, environmental risk, IT risk, security risk,
political risk and regulatory risks. The Risk Management Plan reflects these risks and
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will aim in achieving Petron Corporation’s vision, mission and business objectives
(Neste Oil Corporation 2005).
2.0 Scope
Petron Corporation is the largest oil refining and marketing company in the Philippines.
The company is currently supplying nearly 40% of the country’s oil requirements. The
company considers its world-class products and quality services as a fuel to the lives of
millions of Filipinos (Petron Corporation n.d.).
Petron Corporation’s vision is to be the leading provider of total customer solutions in
the energy sector and its derivative businesses. The company’s missions are the
following:
Being an integral part of our customers’ lives, delivering consistent customer
experience through innovative product and services;
Developing strategic partnerships in pursuit of growth and opportunity;
Leveraging our refining assets to achieve competitive advantage;
Fostering an entrepreneurial culture that encourages teamwork, innovation and
excellence;
Caring for the community and environment;
Conducting ourselves with professionalism, integrity and fairness;
Promoting the best interest of all our stakeholders.
(Petron Corporation 2011)
Petron Corporation operates a refinery in Limay, Bataan, Philippines with a rated capacity
of 180,000 barrels a day. Its Integrated Management System (IMS) certified refinery
processes crude oil into a full range of petroleum products including gasoline, diesel,
liquefied petroleum gas (LPG), jet fuel, kerosene, industrial fuel oil and petrochemical
feedstock benzene, toluene, mixed xylene and propylene (Petron Corporation 2011).
From the refinery, Petron transports its finished products primarily by sea to 32 depots
and terminals which are strategically located in the different parts in the country. Using
this nationwide network, Petron Corporation supplies diesel, fuel oil and Liquefied
Petroleum Gas (LPG) to several industrial users. Petron Corporation is also the supplier
of jet fuel at several airports for international and domestic air carriers (Petron
Corporation 2011).
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Petron Corporation retails gasoline, diesel and kerosene to its 1900 service stations.
Liquefied Petroleum Gas (LPG) is sold through its dealership network for household and
industrial consumers (Petron Corporation 2011).
Petron Corporation operates a lube oil blending plant with its lubes and greases product
line which is located at Pandacan Oil Terminal. This product line is sold through its
service stations. To cater to the demand of fuel additives, Petron has also a blending
facility at Subic Bay Freeport. This gives Petron the capability to manufacture unique
additives for the production of premium fuels (Petron Corporation 2011).
Petron Corporation also exports various petroleum and non-fuel products to Asia-Pacific
countries such as Japan, India, Malaysia, Singapore, South Korea, Thailand, Pakistan and
United Arab Emirates (Petron Corporation 2011).
Petron Corporation operates an oil refinery in Bataan, Philippines; distributes and markets
its products from the refinery all over the country. Apart from this, Petron operates a
blending facility in Pandacan, Philippines and Subic Bay, Philippines. The scope of Risk
Management Plan is only limited to its oil refinery operation and not its distribution,
depot operation and likewise with its nationwide marketing of its various products. This
Risk Management Plan also will not cover both the blending facilities’ operations.
Furthermore, this Risk Management Plan will not include its operations for its export
distribution business (Petron Corporation 2011).
Any kind of perceived risks pertaining to the nature of Petron Corporation’s oil refining
and marketing operation will be taken into consideration with this report and the risk
associated with its location particularly the Philippines (Petron Corporation 2011).
3.0 Risk Fundamentals
The purpose of risk management within Petron Corporation is to protect its assets,
finances and operational and strategic position and opportunities through its effective
management practices. The company considers a risk as any event that could prevent the
operation from progressing as planned or otherwise from having safe and efficient
manufacture of its products. Petron Corporation follows an enterprise-wide risk
management framework for identifying, mapping, and addressing the risk factors that
affect or may affect its businesses (Petron Corporation 2008).
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3.1 Identification of Risk
The risk management process begins by trying to generate several list of possible
risk that will affect the efficiency of its processes:
Bottom-up approach – The Company’s management process is a
bottom-up approach, with each division mandated to identify risks. More
than 80 risks are identified by the Petron Risk Management System’s
bottom-up approach. This approach mandated each division of the
refinery production to conduct regular identification of risks. The bottom-
up approach identifies risk at a low level. All personnel will participate in
the identification of risk process and the update of the risk definition.
Since, Petron Corporation operations form an integrated value chain, risks
emanate from every process. The identification of risk flow up to the
management committee and to the board (Petron Corporation 2008).
Checklists – This approach is not considered in the identification of risks,
although this is considered as fast in anticipating risk. However, a simple
checklists can be questioned if it is useful since each division processes
are unique. In this case, checklist can be rendered inadequate in the
identification of risk. Checklists lead to more paperwork and its
advantages outweigh the paperwork involved. On the hand, each division
of the company may include very specific points that checklists cannot
verify. Therefore, people from the bottom-up are the great source to
discover risks (Lock 2003).
Brainstorming sessions – This approach in which core team members
from different divisions together with other relevant stakeholders uses
brainstorming to identify risk is not considered in this case. This type of
approach in which a special risk meeting will be organised in order to find
risk can sometimes become chaotic if a brainstorm shifts from finances to
strategy and back to technology in a short period of time. Aside from the
reason that meetings can be time consuming if it will be very lengthy
since each team member have a lot of risks on their minds (Lock 2003).
SWOT exercises – This approach in which the positive and negative risks
(Strengths and Weaknesses) inside Petron Corporation and the impacting
risks from the external environment (Opportunities and Threats) structure
in identifying risks. This structure will be used in the brainstorming of all
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possible risk. The same disadvantages in using the brainstorming sessions
approach can be applied. Therefore, this is not put into consideration in
the technique use in the identification of risks (Stapelberg, R. F.
7001ENG lecture notes Griffith University).
Regular productive meetings – In the bottom-up approach, regular
meetings were conducted by employees involved in each division in order
to identify risks (Stapelberg, R. F. 7001ENG lecture notes Griffith
University).
The following ways in identifying risks was not considered as techniques to
be used in Petron Corporation:
Behavioural Models Figure 1.
(Chatterjee, Wiseman, Fiegenbaum & Devers 2003)
Diagramming Techniques Figure 2.
(Stapelberg, R. F. 7001ENG lecture notes Griffith University)
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Flowcharting Project and Process Models Figure 3
(Stapelberg, R. F. 7001ENG lecture notes Griffith University)
3.2 Classification of Risk
Risk can be classified into positive or negative risk. The Petron Risk
Management System classifies major risks as having the relatively high
probability of occurring and a substantial adverse financial impact. The major
risks that the company identified and classified are:
Business Risk
Financial or Interest rate risk – This risk involve possible losses due to
the fluctuating interest rates that is inherent to the Philippine economy.
Foreign exchange risk – This risk comes from the difference in the US
dollar denominated assets and liabilities when it will be converted to
Philippine Peso since this currency are used by Petron Corporation as its
functional currency.
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Credit risk – This risk is about the exposure of Petron Corporation’s
financial assets to this kind of risk as shown on the statement of financial
position.
Commodity price volatility risks – These risks emanates from the
exposures to fluctuations in the prices of crude oil and products in the
world market.
Liquidity Risk - This risk is the outcome if there are adverse changes in
the business environment or internal operations that will result to a
substantially higher working capital requirements and the presence of a
difficulty in financing additional working capital.
Other market price risk – Risk that will result from investments carried
at fair value.
(Petron Corporation 2008)
Political Risk
Regulatory Risks – These risks come from changes in national and local
government policies and regulations which can result in substantial financial
cost for the company, either directly or indirectly.
Operational Risk
Risk of operational disruptions – This risk emanates from accidents, process
or machinery failure, human error, adverse events outside of human control
and delays in major capital expansion projects.
Catastrophic and environmental risks – These risks will come from external
factors. Petron Corporation will have to recognise the need to include climate
change as this pose a significant risk to the continuity of its operations. This
was proven during Ondoy storm that several service stations were forced to
shut down due to heavy rains that caused flooding (Petron Corporation 2009).
3.3 Main Sources of Risk
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Risk has its main sources or origins both within and outside Petron Corporation’s
organisational structure.
External Sources of Risk
International Oil Market – changes in crude oil and products prices.
Philippine Economy – fluctuations of interest rate and foreign exchange
rate.
Environmental conditions – affects the operations continuity
National and Local Government regulations – result in financial and
other costs (Petron Corporation 2008).
Internal Sources of Risk
Process Failure
Machine Failure
Human Error
(Petron Corporation 2008)
3.4 Measurement of Risk
In Petron Corporation, negative risk is measured according to its relative high
probability of occurring and a substantial adverse financial impact. These risks
were classified as the major risks by the company’s Petron Risk Management
System. The major risks were the one identified above where measured using
this method (Petron Corporation 2008).
3.5 Risk and Hazards Analysis
The major risks that will be identified by Petron Risk Management system
structure are prioritised at the management level through comparable quantitative
assessments of impact and likelihood. By design, the system mainly addresses
threats to profitability under the Petron Sustainability Framework. As mentioned,
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the system’s main focus is how to protect and enhance the company’s
profitability by prioritising risks (Petron Corporation 2008).
Likelihood/Impact Matrix
Table 1 (Treasury Board of Canada Secretariat, n.d.)
Petron Corporation does not consider this Risk and Hazard Analysis:
Probability / Severity Matrix
Figure 4 (Stapelberg, R. F. 7001ENG lecture notes Griffith University)
Furthermore, the company is not considering the following qualitative approach
in Process Hazard Analysis:
Failure Modes and Effects Analysis (FMEA)
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Failure Modes and Effects Criticality Analysis (FMECA)
Hazards Analysis Study (HAZOP)
Event Tree analysis (ETA)
What-if/Checklists
(Stapelberg, R. F. 7001ENG lecture notes Griffith University)
Also with the quantitative risk assessments which are the following are not
considered by the company:
Fault Tree Analysis (FTA)
Event Tree Analysis (ETA)
Statistical Analysis
Process modelling
Event probabilities
Risk/cost trade-off
(Stapelberg, R. F. 7001ENG lecture notes Griffith University)
However, Petron Corporation’s Board of Directors creates the Audit Committee
which has the authority and responsibility in managing risk and also ensures the
integrity of internal control of Petron Corporation’s activities. Aside from this,
the Board of Directors also authorise a Compliance Officer that will also
identifies and monitors compliance risks (Petron Corporation 2008).
4.0 Risk Management Methods
4.1 Risk Assessment This process is the activity that will determine the likelihood that a risk will occur
and the impact that an event would have or should it occur. This is also called a
“cause and effect” analysis. The “cause” is the event the may occur, while the
“effect” is the potential impact to the operations of Petron Corporation if the
event may occur (Northrop Grumman Corporation 2007).
Assessment of a risk by the Petron Risk Management System involves two
factors. First the likelihood of the risk in which is the measure of certainty that an
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event or risk may occur. This can be measured from Low, Medium or High
(Northrop Grumman Corporation 2007).
The second factor is estimate of the impact on the operations. Although, this is
considered as a subjective assessment, the risk should be quantified whenever or
however possible. This factor is estimated from Minor, Moderate to Significant.
In estimating impact Cost, Scope, Schedule and Quality is considered since this
will be affected by the impact (Northrop Grumman Corporation 2007).
This system is used to compare one risk to the other and make prioritisation
possible. As a result, the mitigating measures on major risks can be prioritised in
order to protect and enhance the company’s profitability. Petron Corporation will
maintain the quality of its quantitative approaches and ensure that the main
aspects will be enhanced (Northrop Grumman Corporation 2007).
Risk assessment from all levels of Petron Corporation Organisational Structure
Figure 5 The Risk Assessment Model (Al-Thani 2008)
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4.2 Risk Analysis
Risk analysis in Petron Corporation through its Petron Risk Management System
develops an understanding of the risk. It will provide information for decision
making on whether risks involve need treatment by the most appropriate and
cost-effective risk treatment strategies that will be implemented by top
management (Raftery 1994).
Risk analysis will aim to establish an understanding of the level of a certain risk
and its nature. This process will ascertain the absolute level of risk and on the
other hand will assist in determining the priorities. In Petron Corporation the
level of risk is determined by combining likelihood and impact (Raftery 1994).
4.3 Risk Evaluation
The aim of risk evaluation in Petron Risk Management System is to make
decisions that are based on the outcomes of its Risk Analysis. This process will
determine which risks need priority treatment and in the other hand which
activities should or should not be considered to take. The main objective of this
process is to ensure that effective strategies will be in place in order to minimise
the frequency and severity of any identified risks (University of Canberra n.d.).
In Risk Evaluation, the process will assess risk tolerability decisions and analyse
at the same time different options. The table below will show different levels of
risk tolerance. Table 2 (Shire of Mundaring n.d.)
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4.4 Risk Control
There are four risk control options available and can be used by Petron Risk
Management:
Risk Avoidance – making decisions or taking actions which ensure that
the risk involve cannot possibly occur.
Risk Reduction – making decisions or taking actions which will reduce
the likelihood of a risk occurring.
Risk Mitigation – making decisions or taking actions which reduce the
impact of a certain risk if it will occur.
Risk Transfer – making decisions, taking actions and establishing
management systems for the risk or responsibility to finance the effect of
risk if it will occur.
The choice of which is the best risk control to be used will be based on many
variables such as cost, human resources and the degree of difficulty of a particular
option (University of Canberra n.d.).
5.0 Risk Management Plan
The main objective in Petron Management Plan is to protect and enhance the company’s
profitability. Other aspects is also to enhance the company to a more holistic and
sustainable co-existence with its internal and external environment (Petron Corporation
2008).
5.1 Scope and Approach
Petron Corporation will follow an enterprise-wide risk management framework
for identifying, mapping and addressing risk factors that affect or may affect it
businesses (Petron Corporation 2008).
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The company will form the Petron Risk Management System that is responsible
for the risk management process which is the bottom-up approach. Each division
within the organisation is mandated to identify, assessed and formulate actions
plan for the management of the risks identified (Petron Corporation 2008).
Petron Corporation operations are an integrated value chain, which is why it can
be viewed that in every process risks may or may not emanate from it. The
outcomes of all this activities flow up to the management committee and to the
Board of Directors. Through Petron Corporation’s annual business planning
process and quarterly updates on major risks are the venues in discerning
strategies for the mitigation of the identified risks. Technical assistance and
oversight are also provided by different corporate units within Petron
Corporations organisation (Petron Corporation 2008).
5.2 Risk Identification
More than 80 risks are identified by the Petron Risk Management System by
means of the bottom-up approach. All personnel will participate in the
identification and the update of definition of these risks. Some of the major risks
identified are the following:
1. Financial or Interest rate risk – This risk involve possible losses due to the fluctuating
interest rates that is inherent to the Philippine economy.
2. Foreign exchange risk – This risk comes from the difference in the US dollar
denominated assets and liabilities when it will be converted to Philippine Peso since
this currency are used by Petron Corporation as its functional currency.
3. Credit risk – This risk is about the exposure of Petron Corporation’s financial assets to
this kind of risk as shown on the statement of financial position.
4. Commodity price volatility risks – These risks emanates from the exposures to
fluctuations in the prices of crude oil and products in the world market.
5. Liquidity Risk - This risk is the outcome if there are adverse changes in the business
environment or internal operations that will result to a substantially higher working
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capital requirements and the presence of a difficulty in financing additional working
capital.
6. Other market price risk – Risk that will result from investments carried at fair value.
7. Regulatory Risks – These risks come from changes in national and local government
policies and regulations which can result in substantial financial cost for the company,
either directly or indirectly.
8. Risk of operational disruptions – This risk emanates from accidents, process or
machinery failure, human error, adverse events outside of human control and delays
in major capital expansion projects.
9. Catastrophic and environmental risks – These risks will come from external factors.
Petron Corporation will have to recognise the need to include climate change as this
pose a significant risk to the continuity of its operations. This was proven during
Ondoy storm that several service stations were forced to shut down due to heavy rains
that caused flooding.
(Petron Corporation 2008)
Other risks that can be considered base on the nature of Petron Corporations as an
organisation on the Oil industry are the following:
Design Risk
Facility Risk
Technology Risk Transportation Risk
Planning Design Risk
Construction Risk
Commissioning Risk
Permits and License Risk
Availability of Material Risk
Delay Risk
Decommissioning Risk
Quality of Supply Risk
Quantity of Supply Risk
Labour Issues Risk
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Interruption of Refining Process Risk
Resource Risk
Liquidity Risk
Debt Service Risk
Demand Risk
Marketing Risk
Commercial Risk
Product Off take Risk
Terrorism Risk
Criminal Risk
Risk of natural Disaster
Recruitment and retention of qualified Workforce Risk
Outbreak of pandemic Risk
Supply chain risk (Al-Thani 2008)
5.3 Risk Analysis
Risk analysis in Petron Corporation through its Petron Risk Management System
develops an understanding of the risk. It will provide information for decision
making on whether risks involve need treatment by the most appropriate and
cost-effective risk treatment strategies that will be implemented by top
management. Risk analysis will aim to establish an understanding of the level of
a certain risk and its nature. This process will ascertain the absolute level of risk
and on the other hand will assist in determining the priorities. In Petron
Corporation the level of risk is determined by combining likelihood and impact.
Petron Risk Management System has developed a risk assessment tool which
allows risks identified to be assessed and recorded from bottom-up in its
organisational structure. Likelihood and Impact tables are used to provide
definitions for the rating scales so the Petron Risk Management system will have
a common understanding of the meaning within the organisation. In its bottom-
up approach, all personnel from all levels of the organisation will participate in
this quantification process of Petron Risk Management System. Hence, this
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system also will serve as an empowering tool up to a certain degree across the
organisation (Petron Corporation, 2008).
Peron Corporation follows an enterprise-wide risk management framework,
Petron Risk Management System cuts across divisions and will attempt to cover
the widest possible spectrum for covering risk. The system will touch on
concerns with the environment regulatory and socio-political issues, strategic
partnership, continuous project innovation and other identified risks that makes
up the 80 risks identified. Petron Risk Management system will undertake
different but parallel journeys (Petron Corporation 2008) .
There are three steps in the risk analysis process:
Consider the likelihood of risk – what is the likelihood that the risk may
actually occur within the existing controls. The personnel will choose the
description which is best suits the likelihood of the risk occurring based
on the risk assessment tools used.
Consider the impact of the risk – this is based on what happened in the
past and what could possibly happen in the future. The personnel will
also select a descriptor which will best reflect the impacts of the risk in
relation with the existing controls that are already placed.
Calculate the risk – calculate the risk by matching the impact rating and
the likelihood rating on the Risk Matrix.
Table 3 Risk rating using the Likelihood/Impact Risk Matrix (Shire of Mundaring n.d.)
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The risk assessment tool above is one example on how likelihood and impact is measured in
order to have a structured approach across the organisation. All personnel will examine the
following likelihood table and will analyse about what examples of events in Petron
Corporation have occurred. This will assist on how likely the identified risk is to happen.
The range of likelihood is from “Almost certain” to “Rare” (Shire of Mundaring n.d.).
Table 4 (Shire of Mundaring n.d.)
On the other hand, the personnel will at the same time look at the impact at such rick
occurring on the Impact and determine the range from “Insignificant “to Catastrophic”. When
both likelihood and impact rating are plotted on the Risk Rating table, this will give a risk
category from “Low” to “Extreme” (Shire of Mundaring n.d.).
Table 5 Impact Matrix (Shire of Mundaring n.d.)
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5.4 Risk Response Planning
The aim of Risk Response planning is to create options and plans that will allow
Petron Corporation to face the major risks identified which can reduce the
likelihood of it to occur.
There are four options available and can be used by Petron Risk Management:
Risk Avoidance – making decisions or taking actions which ensure that
the risk involve cannot possibly occur.
Risk Reduction – making decisions or taking actions which will reduce
the likelihood of a risk occurring.
Risk Mitigation – making decisions or taking actions which reduce the
impact of a certain risk if it will occur.
Risk Transfer – making decisions, taking actions and establishing
management systems for the risk or responsibility to finance the effect of
risk if it will occur.
The choice of which is the best risk control to be used will be based on many
variables such as cost, human resources and the degree of difficulty of a particular
option (University of Canberra n.d.).
5.5 Risk Plan Implementation
The Petron Risk Management System classifies major risk as the one having the
high probability of occurring and at the same time has a substantial adverse
financial impact (Petron Corporation 2008).
These are the major risk the company will manage and the corresponding actions
to be taken:
Financial Risk – Petron Corporation management will hedge its dollar-
dominated liabilities by off-setting this with dollar dominated sales using
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financial derivatives such as forwards. This risk can be avoided by limiting the
use of hedging instruments to 100% of the underlying values.
Interest Risk – The Company should balance the mix of cash balances with the
various deposit rates and fixed and floating rates on its debts.
Credit Risk – Credit should be regulated and only extended to qualified and
credit-worthy customers that are consistent with the established Petron
Corporation credit policies, guidelines and credit verification procedures.
Liquidity Risk – Petron Corporation should maintain a poll of credit lines from
financial institutions that exceeds projected financing requirements for working
capital.
Commodity Price Risk – Petron Corporation should implement the hedging for
petroleum products to protect margins. Derivative instrument such as swaps and
options can be used in hedging commodity-price-volatility risk exposures.
Risk of operational disruptions – Petron Corporation should implement
programs designed to directly address avoidance of operational disruptions
through effective maintenance practices and the inculcation of an organisational
culture that will foster a continuous process improvement. Petron Corporation
should have a corporate-wide health and safety and environment program to
address this risk.
Regulatory Risks – Petron Corporation should maintain strong lines of
communication with its various counterparts in government and in the public
arena. This should be done to both National and Local Governments. This line
of communication can also be used in the identifications of potential risk factors.
Catastrophic and environmental risks – Petron Corporation should insure
various business activities. This insurance coverage should balance with the
accompanying costs. The insurance should provide adequate financial protection,
manages costs and will optimise premium recovery. This will also allow the
minimisation of premium costs and widen risk coverage by accessing to major
international reinsurers. Petron Corporation should implement preventive and
preparatory measures, contingency plans, standard operating procedures and
manuals, regular drills and practices, regular inspections by authorities, insurers,
consultants and constant training of personnel. A response program will be
included in Petron’s Risk Management System that will address public
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notification and emergency medical treatment and other specifying response
procedures.
(Petron Corporation 2008)
5.6 Risk Tracking, Monitoring and Control
The objectives of risk tracking, monitoring and control are to systematically track
the identified risks, identify any new risks, effectively manage the contingency
reserve and document the lessons learned for future risk assessment and
allocation efforts (University of Canberra n.d.).
Petron Corporation will use the Risk Management Plan and a Risk Register as
inputs and tools to provide a framework for managing risks through a formalised
monitoring and control process. The development of the Risk Register is to cover
all elements of the process and the corresponding response from the top
management involve and the Board of Directors of Petron Corporation to the
identified risks. Sample of tools for Risk Management Plan and Risk Register are
the following (University of Canberra n.d.):
Figure 6 The Risk Management Model
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(Al-Thani 2008)
Table 6 Risk Management Plan (Shire of Mundaring n.d.)
Table 7 Risk Register (University of Canberra n.d.)
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The Risk Tracking, Monitoring and Control will closely monitor and control risks
based on the Likelihood and Impact Matrix and the Risk Register with an established
unacceptable rating range.
5.7 Risk Management Implementation
The Risk Management Implementation Plan for Petron Corporation is prepared to
give effect the implementation of all risk management policy and strategy that
will be made by Top Management and the Corporation’s Board of Directors.
This document will set out all risk management activities for a period of time
usually one calendar year.
The development of Petron’s Risk Management implementation plan will take
into consideration the following:
The Risk Management Policy
The Risk Management Strategy
Costs and Available Resources
The Urgency of the Situation and its Corresponding Sustainability
(Petron Corporation 2008)
6.0 Compliance with Risk Management Standard
Petron Corporation has a corporate-wide health; safety and environment program that
should be fulfil requirements of relevant legislative requirements and codes of practice.
Risk management is the cornerstone of legislation and good practice relating to health
and safety. In Petron Corporation, consultation with employees and management should
be done including redesigning jobs, processes or workplaces. Such as introduction of
mechanical handling equipment, rearranging material flow, timing and scheduling.
Eliminating hazards by removing stored goods permanently from emergency exits is one
example. Over-all, the risk management plan of Petron Corporation through its Petron
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Risk Management System will comply with ISO 31000 Risk Management Standard as
shown on the model below (Purdy 2010).
Figure 7 Risk Management Process from ISO 31000:2009 (Purdy 2010)
Petron Risk Management System complies with ISO 31000 Risk Management Standard to ensure that risk will be managed effectively and efficiently. This is evident since its Risk Management Model reflects the above Model. All aspects of the Risk Management System are in accordance with the principles of effective risk Management in ISO 3100 which are the following:
Create and protect value – Petron’s main focus which is to protect and enhance the company’s profitability.
Be an integral part of all organisational processes – this is addressed by its bottoms-up approach.
Be part of decision making – again will be addressed by the same approach. Explicitly address uncertainty – this is seen in the identification of numerous
risks. Be systematic, structured and timely – evident in Risk Analysis, Risk Assessment
and Risk Management Implementation. Be based on the best available information Be tailored Take into account human and cultural factors Be transparent and inclusive Be dynamic, iterative and responsive to change Facilitate continual improvement of the organisation
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All risks in this system are identified and assessed at all levels in the Petron Corporation’s
organisation making it an integral part of the process. In ISO 31000 Risk Management
Standard, risk analysis is concerned in developing the understanding of each risk by
quantifying its consequences and likelihood. Petron’s system will use the Likelihood and
Impact Matrix as an approach to risk analysis, thus, it will conform to the said standard
(Purdy 2010).
A response program will be included in Petron’s Risk Management System that will address
public notification and emergency medical treatment and other specifying response
procedures. This program which addressed Operational, Catastrophic and Environmental
Risks will use inspection, test, maintenance of emergency response equipment, and training
of all employees in the relevant procedures, development and review of plan. This plan will
also comply to ISO 31000 Risk Management Standard (Falcone 1998).
7.0 Conclusions
The management of risk is one of the most important issues facing the oil industry and Petron
Corporation. It can be considered as the sustainability factor of Petron Corporation in the
environment it is in at present. The Risk Management Plan involves Risk Identification, Risk
analysis, Risk Response, Risk Plan Implementation, Risk Tracking, Monitoring and Control
and Risk Management Implementation. In Petron Corporation’s bottoms-up approach in
Risk Management, all risks are identified and assessed at all levels with its organisation. The
results of the risk analysis in this organisation are measured using the Likelihood and Impact
matrix in order to quantify the effect on the whole process. The whole Petron Risk
Management System is in accordance with ISO 3100 Risk Management Standard. All risks
in this system are identified and assessed at all levels in the Petron Corporation’s organisation
making it an integral part of the process. Petron’s system will use the Likelihood and Impact
Matrix as an approach to risk analysis, thus, it will conform to the said standard. The main
aspects of the whole framework is geared to enhanced toward a more holistic and sustainable
co-existence of the company with its external and internal environment.
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