Enterprise Risk Management

CHAPTER 12How to Allocate Resources Based on Risk

JOSEPH P. TONEGUZZO

Director—Implementation & Approvals, Power System Planning, Ontario Power Authority

INTRODUCTION

Optimal allocation of resources to maximize the probability of achieving the business objectives of an enterprise is a key deliverable of the business planning process undertaken annually by leading companies. This chapter describes a practical business framework for allocating resources, assumed in this chapter to be company expenditures, based on managing risks that jeopardize the successful achievement of company objectives. Resource allocation based on identifying and managing risks is a common business practice for enterprises that own, operate, maintain, and replace a portfolio of industrial or civil assets, such as energy, transportation, and hospitality sector companies and government entities responsible for managing public infrastructure. Although the discussion is focused on the optimal allocation of resources based on risk, the concepts have also been applied in businesses that focus on opportunities or a combination of opportunities and risks.

The Risk Focused Resource Allocation Framework (RFRAF) described is based on about a decade of best practice learning of this specific subject area by the electric power industry. This business sector has been studying, developing, implementing, operating, and improving risk-focused resource allocation processes to improve business performance, as part of the ...