Assessing interdependent operational, tactical and strategic risks for improved utility master plans

Fusing strategic risk and futures methods to inform long-term strategic planning: case of water utilities

Risks and futures methods have complementary strengths as tools for managing strategic decisions under uncertainty. When combined, these tools increase organisational competency to evaluate and manage long-term risks, improving the flexibility and agility of the organisation to deal with gross uncertainties. Here, we set out a framework to guide the assessment of strategic risks for long-term business planning, based on its application at Portugal’s largest water utility, Empresa Portuguesa das Águas Livres. Our approach extends strategic risk assessment by incorporating scenario planning—a futures approach used to help the utility move beyond single point forecast of risks to focus on critical dimensions of uncertainty that are fundamental to the resilience of corporate objectives and their vulnerability to external pressures. We demonstrate how we combine two complementary approaches—risk and futures—and use them to assess (i) how a set of baseline strategic risks for a water utility evolves under alternative futures, (ii) the aggregate corporate-level risk exposure, and (iii) the process and responses needed to manage multiple, interdependent strategic risks. The framework offers a corporate approach to evolving strategic risks and improves a utility’s (i) knowledge of uncertainties, (ii) ability to assess the impacts of external developments over long time horizons and the consequences of actions and (iii) degree of flexibility to adapt to possible future challenges. The framework supports risk managers in their long-term strategic planning, through the appraisal and management of multiple, interdependent long-term strategic risks and can be replicated in other organisational contexts to bridge operational and corporate perspectives of enterprise risk.

Appraising longitudinal trends in the strategic risks cited by risk managers in the international water utility sector, 2005-2015

We report dynamic changes in the priorities for strategic risks faced by international water utilities over a 10year period, as cited by managers responsible for managing them. A content analysis of interviews with three cohorts of risk managers in the water sector was undertaken. Interviews probed the focus risk managers' were giving to strategic risks within utilities, as well as specific questions on risk analysis tools (2005); risk management cultures (2011) and the integration of risk management with corporate decision-making (2015). The coding frequency of strategic (business, enterprise, corporate) risk terms from 18 structured interviews (2005) and 28 semi-structured interviews (12 in 2011; 16 in 2015) was used to appraise changes in the perceived importance of strategic risks within the sector. The aggregated coding frequency across the study period, and changes in the frequency of strategic risks cited at three interview periods identified infrastructure assets as the most significant risk over the period and suggests an emergence of extrinsic risk over time. Extended interviews with three utility risk managers (2016) from the UK, Canada and the US were then used to contextualise the findings. This research supports the ongoing focus on infrastructure resilience and the increasing prevalence of extrinsic risk within the water sector, as reported by the insurance sector and by water research organisations. The extended interviews provided insight into how strategic risks are now driving the implementation agenda within utilities, and into how utilities can secure tangible business value from proactive risk governance. Strategic external risks affecting the sector are on the rise, involve more players and are less controllable from within a utility's own organisational boundaries. Proportionate risk management processes and structures provide oversight and assurance, whilst allowing a focus on the tangible business value that comes from managing strategic risks well.

Expert opinion on risks to the long-term viability of residential recycled water schemes: An Australian study

The water sector needs to make efficient and prudent investment decisions by carefully considering the long-term viability of water infrastructure projects. To support the assessment and planning of residential recycled water schemes in Australia, we have sought to clarify scheme objectives and to further define the array of critical risks that can impact the long-term viability of schemes. Building on historical information, we conducted a national survey which elicited responses from 88 Australian expert practitioners, of which 64% have over 10 years of industry experience and 42% have experience with more than five residential recycled water schemes. On the basis of expert opinion, residential recycled water schemes are considered to be highly relevant for diversifying and improving water supply security, reducing wastewater effluent discharge and pollutant load to waterways and contributing to sustainable urban development. At present however, the inability to demonstrate an incontestable business case is posing a significant risk to the long-term viability of residential recycled water schemes. Political, regulatory, organisational and financial factors were also rated as critical risks, in addition to community risk perception and fall in demand. The survey results shed further light on the regulatory environment of residential recycled water schemes, with regulatory participants rating the level and impact of risk factors higher than other survey participants in most cases. The research outcomes provide a comprehensive understanding of the critical risks to the long-term viability of residential recycled water schemes, thereby enabling the specification of targeted risk management measures at the assessment and planning stage of a scheme.

Risk management for drinking water safety in low and middle income countries - cultural influences on water safety plan (WSP) implementation in urban water utilities

We investigated cultural influences on the implementation of water safety plans (WSPs) using case studies from WSP pilots in India, Uganda and Jamaica. A comprehensive thematic analysis of semi-structured interviews (n=150 utility customers, n=32 WSP 'implementers' and n=9 WSP 'promoters'), field observations and related documents revealed 12 cultural themes, offered as 'enabling', 'limiting', or 'neutral', that influence WSP implementation in urban water utilities to varying extents. Aspects such as a 'deliver first, safety later' mind set; supply system knowledge management and storage practices; and non-compliance are deemed influential. Emergent themes of cultural influence (ET1 to ET12) are discussed by reference to the risk management, development studies and institutional culture literatures; by reference to their positive, negative or neutral influence on WSP implementation. The results have implications for the utility endorsement of WSPs, for the impact of organisational cultures on WSP implementation; for the scale-up of pilot studies; and they support repeated calls from practitioner communities for cultural attentiveness during WSP design. Findings on organisational cultures mirror those from utilities in higher income nations implementing WSPs - leadership, advocacy among promoters and customers (not just implementers) and purposeful knowledge management are critical to WSP success.

Integrating horizon scanning and strategic risk prioritisation using a weight of evidence framework to inform policy decisions

Poor connection between data on emerging issues and credible policy decisions continues to challenge governments, and is only likely to grow as demands on time and resources increase. Here we summarise recent efforts to integrate horizon scanning and risk prioritisation approaches to better connect emerging issues to the political discourse on environmental and food-related issues. Our categorisation of insights including potential future risks and opportunities to inform policy discussions has emerged from a structured three-year programme of horizon scanning for a UK pan-governmental futures partnership led by the Department for Environment, Food and Rural Affairs (Defra). Our efforts to integrate horizon scanning and risk prioritisation, utilising a qualitative weight of evidence framework, has created a systematic process for identifying all signals of potential future change with significant impact for the strategic mission and underlying values of policy actors. Our approach encourages an exploration of factors out of the control of organisations, recognising that resilience depends on the flexibility of management strategies and the preparedness to deal with a variety of unexpected outcomes. We discuss how this approach addresses key cultural and evaluative challenges that policy actors have had in embedding horizon scanning in evidence-based policy processes, and suggest further developments to build confidence in the use of horizon scanning for strategic planning.

Evolution of strategic risks under future scenarios for improved utility master plans

Integrated, long-term risk management in the water sector is poorly developed. Whilst scenario planning has been applied to singular issues (e.g. climate change), it often misses a link to risk management because the likelihood of impacts in the long-term are frequently unaccounted for in these analyses. Here we apply the morphological approach to scenario development for a case study utility, Empresa Portuguesa das Águas Livres (EPAL). A baseline portfolio of strategic risks threatening the achievement of EPAL's corporate objectives was evolved through the lens of three future scenarios, 'water scarcity', 'financial resource scarcity' and 'strong economic growth', built on drivers such as climate, demographic, economic, regulatory and technological changes and validated through a set of expert workshops. The results represent how the baseline set of risks might develop over a 30 year period, allowing threats and opportunities to be identified and enabling strategies for master plans to be devised. We believe this to be the first combined use of risk and futures methods applied to a portfolio of strategic risks in the water utility sector.