Utility and Energy Companies Must Practice Risk Management to Benefit Shareholders

August 11, 2015 · READ

Energy and utility companies are facing a growing number of challenges that hinder their ability to operate. Everything from increased government regulations to geopolitical tensions stand in the way of making a profit and functioning smoothly. Risk management practices will help businesses in this industry better cope with the obstacles that stand in their way while also providing more value for shareholders who want to remain confident in companies. In the utilities industry, the greater the profitability that exists, the more likely there are risks that could impede operations. Research from Frost & Sullivan suggests that oil and gas production as well as electricity distribution showed the highest level of profitability. Achieving excellence in financial and risk management through a focus on cash flow generation can help companies remain in the black and avoid incidents. Sound risk and financial management practices were observed in the leading companies of the energy and utility industry, highlighted the strong correlation between risk and financial management and business success. “High-performance enterprises diminish uncertainty in demand recovery and risks in customer refinancing through operative measures and customer partnerships,” said Frost & Sullivan Business and Financial Services Analyst K. Vinod Cartic. “They follow supply chain management best practices to leverage the economies of scale and minimize raw material price volatility and procurement risks.” Frost & Sullivan suggested companies consolidate their presences in new geographies and investigate renewable energy sources. Although renewable energy has grown tremendously competitive over the past few years, it can help businesses stand strong in the face of new regulations designed to crack down on organizations that rely on wasteful energy sources. As companies prepare to diversify their services, Frost & Sullivan recommends using their own capital as much as possible. “Continuous product advancements to keep up with mega trends such as rapid urbanization, depleting energy resources, and climate protection are crucial for financial sustainability,” concluded Cartic. “With the global demand for energy escalating and the focus on a smaller carbon footprint popularizing renewable energy, companies must focus on research and development to match the requirements and growth opportunities in power generation and energy efficiency.” Regardless of whether energy and utility companies are looking into new service lines, expanding into different regions, boosting productivity, renovating existing facilities or simply staying on course, it’s crucial that they perfect their risk and financial management operations. Better financial management is more attractive to shareholders and can power expansionary efforts. Meanwhile, better risk management ensures that companies remain compliant as they put new practices into motion.

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