1.

0 Introduction
Risk is defined as an uncertain event or condition that has a probability of transpiring in which there will be a positive or negative impact to a situation, project or process. A certain risk has one or more causes and when it happens, there will be also one or more impacts. If also these will occurs, there may be impacts with the schedule, cost or performance. All projects or operations assume risks and by means of Risk Management, tools and techniques are used to monitor and control these events that will have some kind of impact to the outcome of a project or production (Gray & Larson, 2006).

Risk Management is a practical method of defining and resolving the workplace health and safety issues and problems. It is an ongoing process of identifying and managing risks in order to avoid the exposure. This method includes the several processes that consists Risk Management Planning, Risk Identification, Risk Analysis, Risk Monitoring and Risk Control. The objective of Risk Management is to reduce the probability and impact of risk that is adverse to the project or production. However, if the impact is positive the probability of the risk should be increased (Heally, 1997).

Risk Management Plan will provide the guidelines and a framework that is based on industry acceptable practices. The purpose of the plan is to establish the methodology for identifying, mitigating and avoidance of risk. Risk Management Plan documents the procedures, processes and tools that will be adapted to manage and control those events that have positive and negative impact on the operation and production. The plan will addressed its Scope and Approach; Risk Identification; Risk Analysis; Risk Response Planning; Risk Plan Implementation; Risk Tracking, Monitoring and Control and Risk Management Implementation (Gray & Larson, 2006).

This report will illustrate a Risk Management Plan for Petron Corporation specifically and limited to its oil refinery operations. Safety in an oil refinery heavily relies on it adopted Risk Management criteria. By definition, the oil refining enterprise is exposed to market risk, counterparty risk, contractual risk, operational risks, health risk, safety risk, environmental risk, IT risk, security risk, political risk and regulatory risks. The Risk Management Plan reflects these risks and will aim in achieving Petron Corporations vision, mission and business objectives (Neste Oil Corporation, 2005).

2.0 Scope
Petron Corporation is the largest oil refining and marketing company in the Philippines. The company is currently supplying nearly 40% of the countrys oil requirements. The company considers its world-class products and quality services as a fuel to the lives of millions of Filipinos. Petron Corporations vision is to be the leading provider of total customer solutions in the energy sector and its derivative businesses. following: Being an integral part of our customers lives, delivering consistent customer experience through innovative product and services; Developing strategic partnerships in pursuit of growth and opportunity; Leveraging our refining assets to achieve competitive advantage; Fostering an entrepreneurial culture that encourages teamwork, innovation and excellence; Caring for the community and environment; Conducting ourselves with professionalism, integrity and fairness; Promoting the best interest of all our stakeholders. The companys missions are the

Petron Corporation operates a refinery in Limay, Bataan, Philippines with a rated capacity of 180,000 barrels a day. Its Integrated Management System (IMS) certified refinery processes crude oil into a full range of petroleum products including gasoline, diesel, liquefied petroleum gas (LPG), jet fuel, kerosene, industrial fuel oil and petrochemical feedstock benzene, toluene, mixed xylene and propylene. From the refinery, Petron transports its finished products primarily by sea to 32 depots and terminals which are strategically located in the different parts in the country. Using this nationwide network, Petron Corporation supplies diesel, fuel oil and Liquefied Petroleum Gas (LPG) to several industrial users. Petron Corporation is also the supplier of jet fuel at several airports for international and domestic air carriers. Petron Corporation retails gasoline, diesel and kerosene to its 1900 service stations. Liquefied Petroleum Gas (LPG) is sold through its dealership network for household and industrial consumers.

Petron Corporation operates a lube oil blending plant with its lubes and greases product line which is located at Pandacan Oil Terminal. This product line is sold through its service stations. To cater to the demand of fuel additives, Petron has also a blending facility at Subic Bay Freeport. This gives Petron the capability to manufacture unique additives for the production of premium fuels. Petron Corporation also exports various petroleum and non-fuel products to Asia-Pacific countries such as Japan, India, Malaysia, Singapore, South Korea, Thailand, Pakistan and United Arab Emirates. Petron Corporation operates an oil refinery in Bataan, Philippines; distributes and markets its products from the refinery all over the country. Apart from this, Petron operates a blending facility in Pandacan, Philippines and Subic Bay, Philippines. The scope of Risk Management Plan is only limited to its oil refinery operation and not its distribution, depot operation and likewise with its nationwide marketing of its various products. This Risk Management Plan also will not cover both the blending facilities operations. Furthermore, this Risk Management Plan will not include its operations for its export distribution business. Any kind of perceived risks pertaining to the nature of Petron Corporations oil refining operation will be taken into consideration with this report and the risk associated with its location particularly the Philippines.

3.0 Risk Fundamentals

The purpose of risk management within Petron Corporation is to protect its assets, finances and operational and strategic position and opportunities through its effective management practices. The company considers a risk as any event that could prevent the operation from progressing as planned or otherwise from having safe and efficient manufacture of its products. Petron Corporation follows an enterprise-wide risk

management framework for identifying, mapping, and addressing the risk factors that affect or may affect its businesses. 3.1 Identification of Risk The risk management process begins by trying to generate several list of possible risk that will affect the efficiency of the production in its refinery.

Bottom-up approach The Companys management process is a bottom-up approach, with each division mandated to identify risks. More than 80 risks are identified by the Petron Risk Management Systems bottom-up approach. This approach mandated each division of the

refinery production to conduct regular identification of risks. The bottomup approach identifies risk at a low level. All personnel will participate in the identification of risk process and the update of the risk definition. Since, Petron Corporation operations form an integrated value chain, risks emanate from every process. The identification of risk flow up to the management committee and to the board. Checklists This approach is not considered in the identification of risks, although this is considered as fast in anticipating risk. However, a simple checklists can be questioned if it is useful since each division processes are unique. In this case, checklist can be rendered inadequate in the identification of risk. Checklists lead to more paperwork and its

advantages outweigh the paperwork involved. On the hand, each division of the company may include very specific points that checklists cannot verify. Therefore, people from the bottom-up are the great source to discover risks. Brainstorming sessions This approach in which core team members from different divisions together with other relevant stakeholders uses brainstorming to identify risk is not considered in this case. This type of approach in which a special risk meeting will be organised in order to find risk can sometimes become chaotic if a brainstorm shifts from finances to strategy and back to technology in a short period of time. Aside from the reason that meetings can be time consuming if it will be very lengthy since each team member have a lot of risks on their minds. SWOT exercises This approach in which the positive and negative risks (Strengths and Weaknesses) inside Petron Corporation and the impacting risks from the external environment (Opportunities and Threats) structure in identifying risks. This structure will be used in the brainstorming of all possible risk. The same disadvantages in using the brainstorming sessions

approach can be applied. Therefore, this is not put into consideration in the technique use in the identification of risks. Regular productive meetings In the bottom-up approach, regular meetings were conducted by employees involved in each division in order to identify risks. The following ways in identifying risks was not considered as techniques to be used in Petron Corporation: Behavioural Models

Diagramming techniques

Flowcharting project and Process Models

3.2 Classification of Risk Risk can be classified into positive or negative risk. The Petron Risk

Management System classifies major risks as having the relatively high probability of occurring and a substantial adverse financial impact. The major risks that the company identified and classified are:

Business Risk
Financial or Interest rate risk This risk involve possible losses due to the fluctuating interest rates that is inherent to the Philippine economy.

Foreign exchange risk This risk comes from the difference in the US dollar denominated assets and liabilities when it will be converted to Philippine Peso since this currency are used by Petron Corporation as its functional currency.

Credit risk This risk is about the exposure of Petron Corporations financial assets to this kind of risk as shown on the statement of financial position.

Commodity price volatility risks These risks emanates from the exposures to fluctuations in the prices of crude oil and products in the world market.

Liquidity Risk - This risk is the outcome if there are adverse changes in the business environment or internal operations that will result to a substantially higher working capital requirements and the presence of a difficulty in financing additional working capital.

Other market price risk Risk that will result from investments carried at fair value.

Political Risk Regulatory Risks These risks come from changes in national and local
government policies and regulations which can result in substantial financial cost for the company, either directly or indirectly.

Operational Risk Risk of operational disruptions This risk emanates from accidents, process
or machinery failure, human error, adverse events outside of human control and delays in major capital expansion projects.

Catastrophic and environmental risks These risks will come from external
factors. Petron Corporation will have to recognise the need to include climate change as this pose a significant risk to the continuity of its operations. This

was proven during Ondoy storm that several service stations were forced to shut down due to heavy rains that caused flooding. 3.3 Main Sources of Risk Risk has its main sources or origins both within and outside Petron Corporations organisational structure.

External Sources of Risk International Oil Market changes in crude oil and products prices. Philippine Economy fluctuations of interest rate and foreign exchange rate. Environmental conditions affects the operations continuity National and Local Government regulations result in financial and other costs. Internal Sources of Risk Process Failure Machine Failure Human Error

3.4 Measurement of Risk

In Petron Corporation, negative risk is measured according to its relative high probability of occurring and a substantial adverse financial impact. These risks were classified as the major risks by the companys Petron Risk Management System. The major risks were the one identified above where measured using this method.

3.5 Risk and Hazards Analysis

The major risks that will be identified by Petron Risk Management system structure are prioritised at the management level through comparable quantitative

assessments of impact and likelihood. By design, the system mainly addresses threats to profitability under the Petron Sustainability Framework. As mentioned, the systems main focus is how to protect and enhance the companys profitability by prioritising risks.

Likelihood/Impact Matrix

Petron Corporation does not consider this Risk and Hazard Analysis:

Probability / Severity Matrix

Furthermore, the company is not considering the following qualitative approach in Process Hazard Analysis: Failure Modes and Effects Analysis (FMEA) Failure Modes and Effects Criticality Analysis (FMECA) Hazards Analysis Study (HAZOP) Event Tree analysis (ETA) What-if/Checklists

Also with the quantitative risk assessments which are the following are not considered by the company: Fault Tree Analysis (FTA) Event Tree Analysis (ETA) Statistical Analysis Process modelling Event probabilities Risk/cost trade-off

However, Petron Corporations Board of Directors creates the Audit Committee which has the authority and responsibility in managing risk and also ensures the integrity of internal control of Petron Corporations activities. Aside from this, the Board of Directors also authorise a Compliance Officer that will also identifies and monitors compliance risks.

4.0 Risk Management Methods 4.1 Risk Assessment

This process is the activity that will determine the likelihood that a risk will occur and the impact that an event would have or should it occur. This is also called a cause and effect analysis. The cause is the event the may occur, while the effect is the potential impact to the operations of Petron Corporation if the event may occur. Assessment of a risk by the Petron Risk Management System involves two factors. First the likelihood which is the measure of certainty that an event or risk may occur. This can be measured from Low, Medium or High.

The second factor is estimate of the impact on the operations. Although, this is considered as a subjective assessment, the risk should be quantified whenever or however possible. This factor is estimated from Minor, Moderate to Significant. In estimating impact Cost, Scope, Schedule and Quality is considered since this will be affected by the impact. This system is used to compare one risk to the other and make prioritisation possible. As a result, the mitigating measures on major risks can be prioritised in order to protect and enhance the companys profitability. Petron Corporation will maintain the quality of its quantitative approaches and ensure that the main aspects will be enhanced. Risk assessment from all levels of Petron Corporation Organisational Structure

4.2 Risk Analysis

Risk analysis in Petron Corporation through its Petron Risk Management System develops an understanding of the risk. It will provide information for decision making on whether risks involve need treatment by the most appropriate and

cost-effective risk treatment strategies that will be implemented by top management. Risk analysis will aim to establish an understanding of the level of a certain risk and its nature. This process will ascertain the absolute level of risk and on the other hand will assist in determining the priorities. In Petron Corporation the level of risk is determined by combining likelihood and impact. Petron Risk Management System has developed a risk assessment tool which allows risks identified to be assessed and recorded from bottom-up in its organisational structure. Likelihood and Impact tables are used to provide definitions for the rating scales so the Petron Risk Management system will have a common understanding of the meaning within the organisation. In its bottomup approach, all personnel from all levels of the organisation will participate in this quantification process of Petron Risk Management System. Hence, this system also will serve as an empowering tool up to a certain degree across the organisation. Peron Corporation follows an enterprise-wide risk management framework, Petron Risk Management System cuts across divisions and will attempt to cover the widest possible spectrum for covering risk. The system will touch on concerns with the environment regulatory and socio-political issues, strategic partnership, continuous project innovation and other identified risks that makes up the 80 risks identified. Petron Risk Management system will undertake different but parallel journeys. There are three steps in the risk analysis process: Consider the likelihood of risk what is the likelihood that the risk may actually occur within the existing controls. The personnel will choose the description which is best suits the likelihood of the risk occurring based on the risk assessment tools used. Consider the impact of the risk this is based on what happened in the past and what could possibly happen in the future. The personnel will also select a descriptor which will best reflect the impacts of the risk in relation with the existing controls that are already placed. Calculate the risk calculate the risk by matching the impact rating and the likelihood rating on the Risk Matrix.

Risk rating using the Likelihood/Impact Risk Matrix

The risk assessment tool above is one example on how likelihood and impact is measured in order to have a structured approach across the organisation. All personnel will examine the following likelihood table and will analyse about what examples of events in Petron Corporation have occurred. This will assist on how likely the identified risk is to happen. The range of likelihood is from Almost certain to Rare.

On the other hand, the personnel will at the same time look at the impact at such rick occurring on the Impact and determine the range from Insignificant to Catastrophic. When both likelihood and impact rating are plotted on the Risk Rating table, this will give a risk category from Low to Extreme.

Impact Matrix

4.3 Risk Evaluation The aim of risk evaluation in Petron Risk Management System is to make decisions that are based on the outcomes of its Risk Analysis. This process will determine which risks need priority treatment and in the other hand which activities should or should not be considered to take. The main objective of this process is to ensure that effective strategies will be in place in order to minimise the frequency and severity of any identified risks. In Risk Evaluation, the process will assess risk tolerability decisions and analyse at the same time different options. The table below will show different levels of risk tolerance.

4.4 Risk Control There are four risk control options available and can be used by Petron Risk Management: Risk Avoidance making decisions or taking actions which ensure that the risk involve cannot possibly occur. Risk Reduction making decisions or taking actions which will reduce the likelihood of a risk occurring. Risk Mitigation making decisions or taking actions which reduce the impact of a certain risk if it will occur. Risk Transfer making decisions, taking actions and establishing management systems for the risk or responsibility to finance the effect of risk if it will occur.

The choice of which is the best risk control to be used will be based on many variables such as cost, human resources and the degree of difficulty of a particular option.

5.0 Risk Management Plan

5.1 5.2 5.3 5.4 5.5 5.6 5.7

Scope and Approach Risk Identification Risk Analysis Risk Response Planning Risk Plan Implementation Risk Tracking, Monitoring and Control Risk Management Implementation

6.0 Compliance with Risk Management Standard 7.0 Conclusion