Risk,it's always with us.

When an operational incident occurs in an energy production facility, it normally results in a thorough deep dive into what happened. The application of a total quality management incident analysis tool is normally used to assist in identifying the root cause of the incident.?This analysis process allows the team to understand what actually happened, how can they ensure this doesn’t happen again and how can everyone learn from this incident to ensure they continuously improve. I apply this same continuous improvement philosophy, when I read the energy predictions at the beginning of each New Year and that allows me to expand my knowledge of the possibilities that could occur in the energy sector. However this year, I won’t be stepping up to the line and throwing a dart at the "2023 energy prediction board" and most likely throwing and completely missing the board. So I will be writing this article on my key takeaway from the event that occurred in the energy sector in 2022.?So this is basically a Monday morning quarterback article on risk and how we all could be better at identifying it and then proactively managing it.

Risk is always present in the energy sector and we should be continually assessing these to manage and mitigate each risk in a structured manner. There are numerous risks that could harm an organization in the energy sector and the key risk themes that are always present are:

• Political and Regulatory
• Environmental and Safety
• The Energy Transition
• Changing Weather Patterns
• Succession Planning
• Cyber and Physical Security
• Reputational
• Financial
• Resilience
• Security of Supply (materials and commodities)

Risk management is essential for any organization and it has definitely been a hot topic in the energy sector in 2022. This will continue into the future, as we undertake the energy transition and electrify everything in our lives. A structured risk management process allows an organization to develop strategies to manage or mitigate risk. This process must be agile to allow the organization to quickly adapt to emerging or evolving risk and this ultimately results in an organization that is truly resilient. I have found the word resilience was continually used in 2022 in regard to the energy sector, but it's apparent we have some inherent issues with how resilient our energy companies are at any given time. Over the last 12 months, we've had numerous energy organizations in the United Kingdom go bankrupt or be fully nationalized as occurred with EDF and Uniper in Europe. It appears based on these recent examples, we have some major gaps in how the energy sector identifies and manages risk. I'm sure many people want to understand how these organizations failed

How did so many United Kingdom energy suppliers fail over the last two years, how did they manage risk?

How did EDF and Uniper not understand the risks for the business, did they think they were too big to fail?

So what does it really mean to have a resilient organization? Forbes defines business resilience as the ability to protect and grow value in the face of rapidly changing external conditions.? Before you can have a resilient organization, you have to first identify and understand what risk is apparent that could potentially hinder your success. So businesses continually review their business continuity plans by applying various analysis tools (e.g.Regression Analysis, Value-at-Risk, Scenario Analysis, Total Quality Management analysis tools). These analysis tools are often computer-based models?that are based on previous experience and the outcome is often based on the likelihood or the severity of each risk.?

This risk assessment process is often based on previous historical data that is inputted into the risk analysis tool, the risk review team then discusses the outcomes of the assessment based on an individual or a business's previous experience. Often the discussion can be extremely subjective as we all have varying real-life experiences and we all have different risk perceptions based on experience and tolerance to risk. The risk culture of the organization often depends on the maturity of the business (start-up or mature) and the mindset of the individuals undertaking this assessment. This type of risk analysis could result in short-term success, but the decisions taken could ultimately cause longer-term issues for the organization.

Is this what occurred with the United Kingdom energy suppliers, EDF and Uniper?

The correct balance between an organization's risk culture and long-term mindset can result in a more structured way to assess risks. The mindset of an organization is intertwined with its culture and if the culture of the organization is too risky, it will adversely affect the organization in the longer term. Extensive research has been undertaken to define risk and culture within an organization and both of these themes can change, depending on the maturity of the organization (Is it a start-up or well-established?). James P. Carse released a business book called, "Finite and Infinite Games" in 1986 and it expands on two types of culture and mindset called finite and infinite. When an organization or individual possesses a finite mindset they view situations as either you win or lose (as though there is a scorecard). Whereas if they possessed an infinite mindset, they would be grateful, builds long-term relationships and works toward to common good. Simon Sinek released "The Infinite Game" in 2019 and this book was based on Carse's principles. Sinek debates in "The Infinite Game" that the benefits of applying an infinite mindset greatly assist with being more resilient and he states there’s no trick to becoming “more resilient”, resilience is the capacity to recover quickly from challenges.

The challenge for organizations looking to minimize risks is to better understand their known knowns and known unknowns and most importantly, have contingencies in place for unknown unknowns. The United States Defence Secretary Donald Rumsfeld correctly identified that the “unknown unknowns category tends to be difficult to understand and manage”. The Forbes article "The 10 Biggest Risks and Threats for Businesses in 2022" expands on the projected main incidents for the year and the majority of these risks that were identified were actually "known knowns" on December 31st, 2021 for example:

• Data Breaches
• Climate Change
• The Great Resignation, Burnout, Obtaining Talent
• Pandemic
• The lack of inventory
• Inflation

The Forbes article did not mention the Ukraine War and how that greatly affected the global energy sector in 2022. Even considering the devastating consequences of the Ukraine War, it appears that many organizations in the energy sector did not have structured and robust risk management strategies, as we had numerous bankruptcies in the electricity supply sector in the United Kingdom in 2021. The Ukraine War did influence the nationalization of two major European energy providers and I'm sure in the future, we will be able to read some detailed analysis of how and why this occurred.

How can organizations be better prepared to assess and manage risks?

The maturity of the organization, coupled with the associated risk culture will affect how risks are managed. Successful organizations apply an infinite mindset to assess risks with discipline and without prejudice and ensure their leadership and employees are empowered to effectively manage risk. With this structure, organizations have a better opportunity for long-term success and they will have the ability to be agile and quickly change direction, during uncertain times. The key question for every organization in the energy sector for 2023, is how do you manage for the significant unknown unknown event?

In the meantime, brace yourselves for a bumpy and economically challenging transition in the energy sector and it definitely won’t be boring for us.