Risk Management: 2012 Risk Analytics Study Insights for the Chemicals Industry

The Accenture 2012 Risk Analytics Study has found that chemicals companies around the world have significant opportunities to use analytics to mitigate operational risks—helping them optimize processes along their entire value chain from feedstock procurement through distribution.

The purpose of the study was to assess the support for and relative maturity of risk analytics methods, tools, technologies and processes; to determine the effectiveness of those factors in driving business, uncover customer and market insights to support better decision making; and to identify current trends.

Based on analysis of the data, Accenture identified five common trends across the industries studied.

The Accenture 2012 Risk Analytics Study has found strong support for analytics across several important industry sectors, but also reveals that many components of the analytics field are still growing in maturity. In general, companies should be looking to make focused investments along three dimensions in particular: technology, people and organizational structures and processes.

Advancements need to be made in modeling and testing but, as the study clearly found, investments in capability development will be equally important. As analytics grows in importance, especially within the risk function, better approaches to talent sourcing, development and retention will be essential, especially as the value of top talent becomes clearer to companies.

The report is based on a survey of 465 managers and executives from all major geographic regions. Respondents were from the chemicals, banking and insurance industries and all held corporate positions in which they were responsible for developing or utilizing industry specific analytics capabilities.

Support is generally strong for analytics as a means to mitigate risks more effectively, though the patterns of responses from those surveyed show that the risk analytics field is, in many respects, still in its infancy. Compared with companies surveyed from the banking and insurance industries, chemicals firms are less advanced on the overall maturity curve of risk analytics.

Within the chemicals industry, the focus of risk management in general is on operational risk—the series of activities that enable a company to manage complex and interrelated decisions spanning the entire value chain from feedstock procurement to marketing, logistics and distribution. Perhaps not surprisingly, more survey respondents from the chemicals industry than the other sectors studied apply risk analytics to their supply chain management capabilities.

The industries studied vary widely in their business challenges and strategic goals; however, based on analysis of the data, Accenture has identified five common trends across the industries studied:

• Investments in risk analytics are increasing and executives expect ongoing developments in this area.

• The maturity of risk analytics is uneven across essential capabilities and functions, so the value being achieved is not yet robust.

• Data consistency is a significant challenge.

• Risk analytics is currently more preventive and reactive than predictive.

• Lack of expertise in risk analytics looms as an important challenge.

Chemicals companies around the world have significant opportunities to use analytics to mitigate operational risks—helping them optimize processes along their entire value chain from feedstock procurement through distribution. Because of chemicals companies’ exposure to energy price volatility, more predictive capabilities are needed to protect margins, especially as firms expand globally. Our survey points to many significant areas in need of improvement;

• About one in five companies are still using manual processes for production planning and optimization, so increasing the use of risk analytics can have a big impact.

• To produce meaningful analytics to drive effective decision making, companies need to improve data centralization to support the creation of actionable intelligence.

• Companies must also work to overcome siloed functions and structures to improve their capabilities in areas such as commodity hedging.

With improvements in technology, staffing and governance, the chemicals industry has enormous opportunities for risk mitigation and achievement of greater business value through real-time analytics to proactively manage supply chains and identify areas for growth.

S. Hurley, is an executive director—Risk Management, Global Resources. Based in Austin, Texas, Hurley has more than 30 years of global industry and consultancy experience in the energy, resources and metal sectors as a trader, managing director and NYMEX seat holder.

A. Chandy, is a senior director and global lead for Accenture’s Commodity Trading and Risk Management group. Based in Houston, Texas, Chandy helps clients become high performers in commodity risk management; procurement; operations and supply chain; and financial reporting.