A Critical Analysis of How Enterprise Risk Management Impacts Organisational Performance

Abstract

This research aimed to investigate the impact of enterprise risk management (ERM) on the organizational performance of oil companies in Qatar. The study uses two case studies of ORYX GTL and Qatar Petroleum in investigating the influence of implementing ERM practices on the performance of the companies. The ERM implementation is captured in respect of the different components of internal environment, objective setting, event identification, risk assessment, risk performance, information and communication, control activities, and monitoring. Organisational performance was assessed in respect to profitability, improved decision making, strong shareholder’ confidence and compliance with the government requirement.

In order to establish the impact of ERM practices on organisational performance, a mixed methods research approach was adopted. This involved the administration of 300 questionnaires (158 in ORYX GTL and 142 in Qatar Petroleum) and the use of semi-structured interviews which provided additional context to the study.

The study found that the critical success factors for the effective implementation of ERM were culture, risk appetite and top management commitment. With respect to culture, the promotion of an organisational culture that is attuned to risk mitigation is significant. This implies an organisation that promotes a high safety culture (whose attitudes, values and perceptions that are attuned to risk management). A high safety culture was observed in both ORYX GTL and Qatar Petroleum, with a relatively better performance in ORYX GTL.

Further, in both companies, the ranking of internal environment, objective setting, event identification, risk response, control activities, information and communication, and monitoring was highly implemented whilst risk assessment aspect was found as moderately implemented in respect of Qatar Petroleum. In addition, the study highlighted that there were no significant differences observed in the companies at either 5% or 10% significance level in 5 aspects (internal environment, objective setting, risk assessment, control activities, and information and communication). However, significance differences were found at 5% significance level with respect to risk response and at 10% significance level with respect to event identification and monitoring. In all these 3 aspects, ORYX GTL had better performance than Qatar Petroleum.

When risk management performance level was assessed at departmental level, significant differences were observed at 1% significant level for internal environment, event identification, risk response and monitoring whilst at 5% significant level, objective setting and control activities were identified as significantly different. The study further showed that risk management implementation has most influence on strong stakeholders' confidence and compliance with government requirements than decision making and profitability. Significant differences were not found between the two companies with respect to profitability, improved decision making, and compliance with government requirements.

In the oil and gas industry, the importance of promoting a safety culture through implementing a robust ERM strategy is significant. This, however, requires good corporate governance that fosters an effective risk management strategy.