Energy

Value-Chain Risk Advisory

The value chain -- the process of acquiring resources and transforming them into goods and services -- is at the heart of almost every organization. Although there are significant potential risks at each stage of the value chain, most companies give less attention to value-chain risk than to risk associated with finance and business processes. Organizations should recognize that successfully managing value-chain risk is just as important as managing other types of risk, and can mean the difference between success and failure.

Value-chain risks are different than finance and business process risks. To address their unique challenges, NERA has developed a specialized three-phase approach:

• In the risk structuring phase, we examine both internal and external metrics to develop a comprehensive understanding of the full range of value-chain risks -- including those that are not easily quantified -- and their relationships.
• In the risk assessment phase, we quantify key value-chain risks using public markets, prediction markets, and expert judgment, and aggregate the quantified risk into an overall statement of value-chain risk exposure.
• In the risk management phase, we develop risk mitigation and response alternatives that include nonstandard financial instruments such as insurance and bilateral agreements, and "real" instruments such as investments in physical, intellectual, and/or human assets.

NERA's approach provides a complete understanding of the value-chain risk picture; an accurate, credible, and defensible risk assessment; and a comprehensive, in-depth management plan of preparation and response.