Managing Risk at the Metropolitan Sewer District of Greater Cincinnati
Abstract:The overall strategic objective of the Metropolitan Sewer District of Greater Cincinnati (MSD) is to provide high-quality, cost-effective wastewater collection and treatment services to the community in a manner that meets their needs, as well as those of the environment. To achieve this objective over the long-term, MSD needed to develop and sustain a risk management culture that maximizes opportunities but minimizes risks associated with its overall objective. Developing a risk management strategy was critical to MSD because it used an enterprise-wide process to identify MSD's top risks and created a risk register that enables risks to be identified and managed on a long-term basis to better enable achievement of MSD's overall service and performance requirements.
MSD provides wastewater services to the City of Cincinnati and Hamilton County, Ohio, and is managed and operated by the City of Cincinnati. MSD has been managing risk since its inception through formal and informal processes, application of certain best management practices, policies and procedures. Currently there are a number of challenges facing MSD – depressed economic climate, the launch of Project Groundwork, the single largest capital program in its history, stringent environmental regulations, rate and financial pressures, service level demands, energy efficiency mandates, infrastructure repair and replacement requirements, and workforce recruitment and retention needs.
In additional, financial policies were recently approved by the Hamilton Board of County Commissioners (BoCC) requiring development, management, reporting and monitoring of key risks by the utility. In defining the term risk, MSD utilizes the following formula: Risk equals the Likelihood of an Activity Occurrence multiplied times the Consequence (or probability) of the Activity Occurrence (or R = L × C). For example, putting the terminology into context, MSD faces complexity around greater uncertainty involving MSD's external economic environment (i.e. Likelihood), while needing to manage continued exposure and impacts in meeting regulations by implementing large capital expenditures under Project Groundwork (i.e. Consequence).
In a forward thinking approach, MSD, in the development of their 2009 – 2012 Strategic Plan, identified a variety of initiatives to help MSD remain competitive and operate efficiently like a private sector business with risk management as a cornerstone element. Several goal areas defined the need to move risk management in a more formal and explicit direction at MSD. Goal 5 is titled “Provide Financial Stewardship for the Utility that Achieves and Sustains Community Service Level Expectations.” One early action and result was completion and adoption of MSD-specific Financial Policies which were updated and now include risk management objectives, and a requirement for a clear, state-of-the-art risk management plan (RMP).
In January 2010 MSD's Office of the Director (OOD) chartered the Risk Management Project to accomplish its goal in developing a definitive Risk Management Plan and sustainable risk management culture at MSD. The OOD project team was charged to complete the following tasks for the Risk Project:
• Develop a Risk Management Model and Process
• Identify Leading Risks
• Solicit and Incorporate Stakeholder Input on the Model, Process and Leading Risks
• Develop ongoing Risk Management Reporting and Control Process
• Document Current Risk Practices at MSD, including Improvement Initiatives
The Risk Management Project uses an enterprise risk management framework to help MSD to identify and respond to its top corporate, operational, asset and capital program implementation risks. By undertaking this project, MSD is in a better position to supplement its traditional financial and other regulatory reporting with more forward-looking information about how MSD incorporates the components of consequence and likelihood for its most important risks into strategic and operating decisions. As a result, MSD should be better able to define and align its risk appetite with key stakeholders, link risk assessment and performance, pool enterprise risks to facilitate critical funding decisions, minimize surprises and losses, seize opportunities, meet its financial policy requirements, and enhance communication both externally and internally.
Specifically, the risk management process responds to MSD's Strategic Plan wherein the Financial Policy action plan requires the organization to develop an enterprise risk management framework that addresses the most important risks facing the organization, which includes appropriately investing in risk mitigation activities to effectively manage risk. The project involved four phases associated with effective risk management: identifying risks, assessing risks, treating risks, and reporting risks. To implement this project, the OOD project team worked to identify and filter risks facing the organizations, leading to identification of the leading risks facing MSD. During the filtering process, risks that were not included on the final listing were added to the overall risk register to be monitored or managed at appropriate levels in the organization. By filtering risks according to the components of consequence and impact to identify the leading risks, MSD was able to develop effective risk treatment plans for its most important risks. These plans involve ensuring appropriate accountabilities, specific actions and recommendations, information sources, and next steps. The project resulted in the development of risk management policies, process, and reporting and an action plan.
This project will provide significant benefits to MSD because it will enable all levels of the organization to be better aligned regarding how risks are managed to ensure that the organization's risk appetite is not exceeded. Perhaps equally important is that MSD can use this risk management project as a platform for effectively communicating its risk management activities to its key external stakeholders, including the county, city, customers, and media, to help in achieving its overall objective on a long-term basis.
Document Type: Research Article
Publication date: January 1, 2012
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