This case addresses an interesting issue related to an important function of the risk management department and its functions. When an acquisition is made, what is the impact on the acquiring organization? On the acquired organization? We know the risk profile of the acquiring company will be changed and there may be differences in risk attitude at the acquired company. Finding ways to integrate the new organization into the acquiring company can create problems.
As you read the case, here are the questions that I want you to respond to at a minimum. If you find other aspects of the case noteworthy, I would expect you to include a discussion of those aspects as well. Remember, you are looking at this case, as well as all of the other cases, as if you were the Chief Risk Officer for the entity.
Your paper should be long enough the address the above questions, at a minimum, along with those other issues you identify and discuss. Feel free to any research you think is necessary to provide a complete discussion of the issues you identify.
Transforming Risk Management at Akawini Copper
GRANT PURDY
Associate Director, Broadleaf Capital International
This case study describes how the approach to managing risk can be transformed and enhanced in a company. The case study is based on a hypothetical mining company, Akawini Copper, that has recently been acquired by an international concern, United Minerals. Akawini has a rudimentary approach to risk management (RM) that must be improved if the new owners are to realize the level of return claimed in the business case that was used to justify the acquisition. Akawini owns a single mine and concentrate plant approximately 50 kilometers from the coast. It ships the concentrate using trucks to a nearby port for export. The company earns revenue of $774 million a year from the sale of concentrate and employs a total of 1,500 people at the mine site and port.
THE ACQUISITION AND DUE DILIGENCE
United Minerals has developed and implemented a framework for managing risk based on ISO 31000 (ISO 2009). In particular, this has enabled it to properly integrate the risk management process into its approach to making decisions on major projects and investment decisions and also into the way it develops, plans, and executes projects.
During due diligence prior to the acquisition, the risk management team for United Minerals reviewed the current approach to risk management at Akawini and, from a cursory examination of documents, was able to determine that the approach was very limited and was unlikely to yield much real value. The team found, for example, that:
• A process for formal risk assessment was applied only to what were described as “business risks.” This occurred only once a year as part of a risk review that updated the current risk register so that it could be reported to an Audit Committee.
• There was a different process applied for safety risks that actually did not consider risks as such but generated a risk rating using a matrix system only for hazards.
• No systematic process for assessing and treating risks was used in support of major decisions. In particular, project management did not include any form of explicit risk management process.
• The Akawini risk manager mostly dealt with insurance matters and asked the company’s external audit provider to offer a facilitator for the annual risk review.
• The annual internal audit plan did not seem to be based on the outcomes of the risk assessment and did not focus on assuring many of the critical controls.
• The risk criteria systems used for both “business risks” and “safety risks” covered only detrimental consequences and seemed to be based on five levels of consequences and consequence types that were not associated in any meaningful way with the company’s objectives.
• Both systems used the term probability to estimate likelihood and did not consider the frequency or return period for consequences.
• In both systems, risks were analyzed incorrectly by combining the likelihood of an event with what was described as “the plausible worse-case consequences.” This produced many “extreme” risks, which were then being discounted by managers as implausible.
• Once risk registers were created on spreadsheets, they were kept on separate personal computers and were rarely considered until the next yearly review. Any risk treatment actions decided on were not followed up or closed out.
• Critical controls were not identified and were not assigned to individuals for ongoing monitoring and periodic review.
• There was no coherent process that defined and captured learnings from successes and failures.
The risk management team signaled its concerns to the acquisition team, and the need for improvement of Akawini Copper’s approach to risk management to bring it into line with ISO 31000:2009. Then, the United Minerals framework was placed on the transformation plan and given a high priority.
The case of Akawini Copper, a mining company recently acquired by United Minerals, highlights the critical role of risk management in organizational transformation. As the Chief Risk Officer for United Minerals, it is imperative to assess the impact of this acquisition on both the acquiring and acquired organizations, develop a risk management transformation plan, and recommend performance measures for monitoring progress. This essay will address these key aspects while also exploring other noteworthy issues in the case.
Interviewing the Akawini Management Team: In order to draw objective conclusions for the risk management review, the following questions can be posed to the Akawini management team: a. Can you describe Akawini’s current approach to risk management, including its key processes and stakeholders? b. How does Akawini perceive the impact of the acquisition on its risk profile and risk attitude? c. What challenges do you anticipate in integrating Akawini into United Minerals in terms of risk management practices? d. Can you provide examples of any past incidents or near-misses related to risk that Akawini has encountered? e. What are your expectations from United Minerals in terms of enhancing risk management practices?
The First-Year Risk Management Transformation Plan: In the initial year of risk management transformation at Akawini, the following typical tasks should be included in the plan: a. Conduct a comprehensive risk assessment across all aspects of Akawini’s operations. b. Develop a risk governance structure with clear roles and responsibilities for risk management. c. Implement ISO 31000:2009-compliant risk management processes. d. Establish a risk register that covers both “business risks” and “safety risks.” e. Integrate risk management into project management processes. f. Identify critical controls and assign individuals for ongoing monitoring. g. Develop a process for capturing and applying learnings from past successes and failures. h. Establish a risk communication strategy to promote awareness and alignment.
Performance Measures for Monitoring Transformation: To monitor the progress and performance of the risk management transformation, the following performance measures are recommended for the Akawini management team: a. Key Risk Indicators (KRIs) that track critical risks and their mitigation efforts. b. Risk culture assessments to gauge the organization’s evolving risk attitude. c. Compliance with ISO 31000:2009 standards and internal risk management policies. d. The frequency and quality of risk reporting to senior management and the board. e. Incident and near-miss reporting rates, with a focus on improvements over time. f. The completion rate of risk treatment actions and closure of open issues. g. Employee training and awareness levels regarding risk management. h. Surveys or feedback mechanisms to assess employee satisfaction with the new risk management processes.
The transformation of risk management at Akawini Copper is a crucial endeavor for United Minerals to realize the expected returns from the acquisition. By addressing the questions posed, developing a comprehensive transformation plan, and implementing relevant performance measures, the Akawini management team can effectively promote and monitor the transformation of risk management within their business. This case underscores the importance of aligning risk management practices with industry standards and fostering a proactive risk culture to achieve sustainable success.
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