Enterprise Risk Management

Enterprise Risk Management

Enterprise Risk Management

Introduction

Chesapeake Energy is the second largest natural gas producing company in US headquartered in Oklahoma City. It is among the top 15 producers of oil and natural gas liquids and most active driller of wells in US. Initially started with 10 employees and an investment of $50000 but now has an employee base of 13000 people with net income touching a $2 billion mark. The company is headed by the CEO, Aubrey McClendon (Chesapeake Energy, 2013).

Enterprise risk management is a “process, effected by an entity's board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives” (Coso, 2013).

Aims and Objectives

The aims and objectives of this work is to identify different risks that could occur at Chesapeake energy and cause operational difficulties to the company. Operational, financial, legal, business, reputational risks have been focused upon in this report. Also how these risks will be responded at different times and mitigation techniques that will be used to address these risks have been discussed.

Porter's five forces model and PESTEL framework has been applied for identifying risks to the Chesapeake Energy.

Risk Analysis

Risk analysis processinvolves risk assessment, risk profiling, risk identification, risk consolidation and risk quantification (Kamran, 2010, pp.10).

Risk Identification

Risk identification involves conducting brain storming sessions, physical inspections, benchmark testing by the management or the board of directors (Kamran,2010, pp.15)

Threat of Substitute Products

The biggest threat to the Chesapeake Energy is that of the substitute products. Substitute products to Chesapeake Energy could be energy resources other than oil and gas, they could be renewable energy sources or nuclear, solar, thermal or hydro energy sources. If people in US are switching to energy resources other than oil and gas the company's supply of oil and gas will increase and with demand falling will result in prices to fall as a result revenues of the company will fall significantly (Marketline, 2012, pp.18).

Purchasing power of customers

Purchasing power of customers is high as there are local and also international players competing, so the company's power in relation to its customers is weak. Buyers if quoted a higher price may switch to other companies for supply of oil and gas to them. So a fair price is always quoted to the buyers so that they are retained (Marketline, 2012, pp.15).

Intensity of competitive rivalry

The company faces intense rivalry probably because it is in a highly competitive industry with a lot of players in the race to capture the market share, the exit is not that easy from this industry as it will lead to significant divestments from specific assets and cancellation of lucrative projects. So it could be analyzed from this information that there is intense competition within the industry as a result is can be categorized as high profile risk ...