Managing Credit Risk in the Energy Industry—A Strategy for High Performance in Volatile Times

As businesses renew their pursuit of growth after the recent downturn, they find they must now focus on a concern brought to the fore by the recent turmoil: credit risk management. Accenture is ready to help energy companies meet the challenge.

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The most recent downturn has made the skillful management of credit risk a business necessity. For the energy industry, the issue is especially demanding as all counterparties in an energy transaction are likely to be experiencing new difficulties and uncertainties.

Gaining a clear picture of how counterparties in a transaction might perform, and whether they will be able to meet their obligations, is becoming more and more difficult, yet critically important. Complicating the situation is the fact the energy sector must deal with extreme pricing volatility.

Increasingly, businesses engaged in commodity transactions, and energy firms in particular, need to monitor, measure and manage their credit risk aggressively to prevent potential losses and extract business value. In short, credit risk management has become an essential prerequisite for high performance.

To carry out an aggressive approach to credit risk management, companies need to have a good picture of their capabilities. They will want to understand their strengths and deficiencies and develop a road map to close any existing gaps.

To do this requires a dynamic and enabling credit risk management infrastructure that helps organizations prevent potential loses while allowing them to leverage credit risk for business value.

Leading practice credit risk organizations accomplish this by mastering credit risk strategy, process, organization and technology. Together, these help the company avoid missteps and stay ahead in an unforgiving and unpredictable credit environment.

To create the right infrastructure, companies pursuing high performance in credit risk management will want to validate and master their capabilities in these six practice areas:

• Credit risk governance. The starting point for creating a leading credit risk management capability.
  
  
• Risk rating of counterparties. The need for a standardized methodology and integrated system for quick and accurate risk rating.
  
  
• Managing contracts and legal documents. A solid contract management process provides credit protection when needed.
  
  
• Measuring and reporting credit exposure across the enterprise. To get credit exposure information from across all levels to management on a moment’s notice.
  
  
• Technology and systems integration. To know at any point in time what a counterparty owes or could potentially owe in the future.
  
  
• Managing credit exposure through margining and collateral. Essential when a credit limit is exceeded or when a counterparty is downgraded.

In an unpredictable world, Accenture can help you manage credit risk so that one business is not at risk—yours.

Contact us to find out how Accenture can help your organization on the journey to high performance through credit risk management.

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