4.3 Group Project- Swissgrid Deliverable 1
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Apr 3, 2024
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Uploaded by CaptainIce8722
Provide an overview of Swissgrid's business, describe ERM, and identify the
roles for ERM.
Swissgrid is a power company that was founded in 2006 once the European electric market began to liberalize. They are a Transmission System Operator (TSO) that manages an electrical transmission system for 122 substations and is one of Europe’s most stable electricity networks (Kaplan & Mikes, 2018). Their electrical grid is more than 6,700 kilometers long and provides power at 380 & 220 kilovolts. Swissgrid also works with Distribution System Operators
(DSOs) that will step down the electrical voltage and distribute electricity to residential homes, factories, and businesses. Swissgrid has 41 connections to other networks around Europe and is the most interconnected power grid in the world. Revenues generated by Swissgrid are regulated and sometimes it is difficult to properly predict future profits. There can be risks associated with maintaining a TSO to include managing power outages, cyberterrorist attacks, human error, and breakdown of equipment. These issues can affect millions of people and have massive effects on the public transportation system. They need to maintain a stable and controlled grid power system that can deal with fluctuations and withstand aging.
Enterprise Risk Management is the “process by which companies identify, measure, manage, and disclose all key risks to increase value to stakeholders” (Segal, 2011). Understanding this concept, Swissgrid’s CRO Kurt Meyer implemented a ERM system from the bottom up to try and identify as may risks as he could. Although it is the responsibility of the line
management to make decisions on risk mitigation, Swisscom was a large organization and Kurt Meyer wanted to be well informed of all the risks. He established “risk managers” and created a risk network “to be close to where the issues are” (Kaplan & Mikes, 2018) rather than in a
detached upper-level office. These risk managers worked their normal job primarily, and in the remaining time they gave risk workshops and had face to face conversations about risk. Swissgrid has over 22,000 employees and therefore a robust ERM program is essential. There are multiple roles in Swissgrid’s ERM program, but it started at the top with an internal memo directly from the CEO. This trickle-down effect empowered ERM to the lowest level. The
ERM goal set forth by the memo was “transparently illustrating the risks, ERM build the foundation for risk-conscious and chance oriented decisions” (Kaplan & Mikes, 2018). This was further delineated down to the lowest level in 2017 when they implemented an app called RiskTalk that allowed employees to report any issues or anomalies from their smart phones. In addition, a good ERM program can increase the company’s value thus increasing the value of the
company to their shareholders. By identifying a need for a reliable grid and recognizing the potential of sustainable energy, Swissgrid invested 2.5 billion Swiss francs to create a Strategic Grid 2025 initiative and potentially increasing returns for their shareholders. Since ERM is more strategic, one aspect if risk is both upside and downside volatility according to Segal. This is apparent by Swissgrid’s strategic plan to identify and accept risks associated with preventing cyber attacks and power outages. After the 2017 cyberattack on Ukraine, Maersk spent $250 million dollars to overhaul its entire IT structure and made it public knowledge as a precautionary tale for other businesses (Kaplan & Mikes, 2018). Another key role that their ERM program had was that it identified an issue where if Swissgrid ever went bankrupt, the powerplants wouldn’t be operations. This led to an agreement to guarantee that the power plants stays operational even if the company went bankrupt. These types of risks were identified thanks to Swissgrid’s risk management program and are just a few examples of the role a good ERM program can play. Without a robust ERM
program, management would not be able to effectively make decisions to support the company’s risk appetite and this ultimately saves the company millions in the long run. This is a more proactive approach to risk as opposed to a reactive approach which pays for itself tremendously over time.
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REFERENCES:
Segal, S. (2011). Corporate value of enterprise risk management : The next step in business management. John Wiley & Sons, Incorporated.
Kaplan, R.S & Mikes, A. (November, 2018). Swissgrid: Enterprise Risk Management in a Digital Age. Harvard Business Publishing Education 9-119-045.