Risk Management at Encana
An Interview with Tony DiMaio, Vice-President & Chief Risk Officer
Risk: The chance of something happening, measured in terms of probability and impact, that will affect the achievement of business or strategic objectives.
At Encana, we are well aware that businesses face risks every day. We accept that there is inherent risk in operating a leading North American business like Encana; however, we strive to minimize risk through prevention and diligence related to operational aspects in our control. As part of our focus on sustainability, we’ve adopted a comprehensive approach to evaluate and understand risk in order to maximize return and minimize negative impacts. We have a risk management approach in place that is structured, disciplined and pervasive. We create and preserve value by preparing for and managing the uncertainties inherent in a global business climate and our own operations. It’s ingrained in our business. In the following interview, Tony DiMaio, Vice-President & Chief Risk Officer, sheds light on the pervasive risk management culture at Encana.
Q How do you manage your risks at Encana?
A We incorporate risk management principles into virtually every aspect of our business. For example, our corporate governance policies and practices are effective in assessing and mitigating potential risks and impacts arising from our activities. Furthermore, compliance with all applicable regulatory requirements is our priority. We often go beyond those requirements where we see opportunities to reduce our risk. We are also committed to the highest standard of transparency in our reporting.
Q What types of risks is Encana focused on?
A While our risk management strategies are focused on enhancing our bottom line, there are many components that go well beyond the financial statements. Risks such as capital cost overruns or changing commodity prices are always on our radar. In addition to these financial risks, we also face operating risks related to reservoir performance, gaining land access, regulatory changes and environmental, health and safety performance. We are well aware that we must mitigate risks to maintain our social license to operate. We engage with stakeholders at all levels to ensure we are addressing the wide variety of internal and external risks to our overall financial performance.
Q What are some of the strategies Encana uses to manage risk?
A At the company-wide level, our budget and strategic plans are prepared under a variety of scenarios to incorporate financial and operating risks. As well, Encana’s compensation program is designed to reward a balanced approach to risk-taking. Incentives are linked to short and long-term performance using a variety of criteria, including those that are explicitly linked to environmental, regulatory and safety performance.
We continuously evaluate and update our strategies in order to prepare for new and potential risks as they arise. It’s how we operate.
Q Why does Encana place so much emphasis on risk management?
A In any business, there is a cost associated with managing risk. If you don’t identify risks and plan for them, they can harm your business; however, if you identify and plan for risks, you can often improve your business and operations. For example, improved safety and environmental performance has a positive impact on our bottom line.
Q How do stakeholders affect Encana’s risk management strategies?
A Stakeholders have a direct impact on our social license to operate. As a large organization, we face many external and internal risks. Our ability to anticipate, prevent and manage risk has come under increased scrutiny by all stakeholders. We work hard to be a good neighbour and corporate citizen. We consider relationships with our stakeholders in our core business strategies as we strive to continuously improve our performance and mitigate any impacts our operations may have. All stakeholders expect us to have an entrenched and evolving risk management culture. By effectively engaging our stakeholders, we can learn, respond and improve the way we do business. Throughout the company, we’re focused on maintaining positive and productive stakeholder relationships every day.
Q How does Encana ensure its risk management strategies are working?
A Risk management is a top priority at the Executive level and with the Board of Directors. A quarterly risk report is prepared and presented to the Board highlighting our top five risks. A more comprehensive report of risks, grouped by financial, operational and strategic risks, is presented to the Board annually. These reports summarize our risks and the approach being taken to address them. In addition, detailed reports, including risk analysis, are prepared and presented to sub-committees of the Board, including the Corporate Responsibility, Environment, Health & Safety Committee, the Audit Committee and the Reserves Committees. Our leaders are focused on risk management and that commitment extends throughout the organization.