Risk Management

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


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.


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


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


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


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.


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.


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


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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Documents

Risk Management