4/20/2020 Understanding Enterprise Risk Management for Utilities © Copyright 2007, CCRO. All rights reserved. 35 Figure 3.3: ILLUSTRATIVE COMMUNICATION NETWORK FOR UTILITIES In addition to decision-making and capital allocation, management also needs to demonstrate a commitment to investigating surprises, both up-side and down-side. Most utilities have no trouble commissioning a post-mortem analysis to analyze what went wrong, but the investigation of upside surprises is much less common. A symmetrical response by management to both up- side and down-side surprises is a straightforward way to communicate the importance of risk management to the entire utility. Most utilities provide earnings guidance to its shareholders/stakeholders in some form (EPS, EBITDA, EBIT, Net Operating Profit, and Net Income, or for public power entities, revenue requirements/cost and margin metrics). It is very important for the utility to meet its estimates or be able to explain clearly why financial targets were missed. In addition, upside surprises, while certainly more welcome than those to the downside, can still create the perception that management does not have an effective grasp of the business and lacks he necessary infrastructure to project and measure performance. Earnings risk can be estimated using techniques with varying levels of sophistication, complexity and cost. The increased complexity and cost of pursuing advanced measurement techniques is counterbalanced by the sophistication and insights potentially available. 3.3.2. Culture A risk management culture is a set of beliefs, values, attitudes, customs, and behaviors about the management of risk that are shared among people in an organization. The organization’s culture sets a tone and expectations for which behaviors will be either rewarded or discouraged. The corporate risk culture begins at the highest level of management the Board of Directors and senior management. The Board and senior management should be major advocates of risk management within the organization and should be aware of, understand, and support risk management activities throughout the organization. The tone at the top is the key enabler to risk BU Leadership Corporate Risk Management Corporate Leadership RMC BOD Oversight Committee BOD Committee MC* CEO BOD BSC Enterprises Energy Delivery Genco Internal Audit Environmental Security Ethics & Compliance Legal Accounting & Governance Business Unit Corporate Functions *Management Committee BU Leadership Corporate Risk Management Corporate Leadership RMC BOD Oversight Committee BOD Committee MC* CEO BOD BSC Enterprises Energy Delivery Genco Internal Audit Environmental Security Ethics & Compliance Legal Accounting & Governance Business Unit Corporate Functions *Management Committee