RISK MANAGEMENT PROGRAM AND PROJECT MANAGEMENT APPLICATION OCTOBER 6, 2006 Presented by Don Devieane, CGA, Manager Risk Management Program

OVERVIEW (RISK MANAGEMENT PROGRAM)

n Program History n Framework Components n Risk Categories n Risk Assessment n Measurement Criteria n Corporate Risk Map

OVERVIEW (PROJECT MANAGEMENT APPLICATION) n Project Justification n Project Risk Identification n Risk Assessment (Measurement) n Risk Treatment n Residual Risk n Reporting and Monitoring

COMPANY PROFILE (MANITOBA HYDRO) n Provincial Crown Corporation n 510,000 electric 258,000 gas customers n 98% of electricity hydroelectric n 14 hydroelectric G.S. n Provide 100 communities with N.G. n 8,700 kilometers of pipeline n Capital assets exceed $11 billion n Approximately $2.4 billion in revenue n Approximately 6,000 employees

COMPANY PROFILE (MANITOBA HYDRO) Major Events Grand Rapids G.S. Bi Pole DroughtStonewall

COMPANY PROFILE (MANITOBA HYDRO)

RISK MANAGEMENT PROGRAM (PROGRAM HISTORY) n Started in CRMSC established in First CRM report in Policy and guidelines issued Internal web site 2006 n Reasons - Business Failures - Market Changes - Pressure from outside (best practice)

RISK MANAGEMENT PROGRAM (PROGRAM HISTORY) n Purpose - Identify risks - Mitigate negative occurrences - Take advantage of opportunities n Benefits - Simple - Systematic - Proactive - Proactive - Integrated

RISK MANAGEMENT PROGRAM (FRAMEWORK COMPONENTS) n Mission / Mandate / Project n Risk Identification n Potential Impact n Risk Treatment n Residual Risk n Reporting and Monitoring

RISK MANAGEMENT PROGRAM (FRAMEWORK COMPONENTS) CROSS FUNCTIONAL FORUM GUIDE AND MONITOR LINK TO AREAS OF RESP. PARTICIPATION / LEADERSHIP RESIDUAL RISK ASSESSMENT RISK TOLERANCE DETERMINE LIKELIHOOD CHAMPION RISK PHILOSOPHY RISK COMMITTEE APPROVALS MISSION / MANDATEEXECUTIVE CORPORATE RISK MANAGEMENT STEERING COMMITTEE RISK MANAGEMENT PROCESS (LINE MANAGEMENT) RISK TREATMENT MONITORANDREPORTMONITORANDREPORT RISK IDENTIFICATION (THREATS TO ACHIEVE) POTENTIAL IMPACT (PRE RISK TREATMENT) DETERMINE CONSEQUENCE ADDITIONAL ACTION REQUIRED RESOURCE FACILITATE TRAIN COORDINATE CRM DEPARTMENT

RISK MANAGEMENT PROGRAM (RISK CATEGORIES)  Market n Financial n Environmental n Infrastructure n Human n Business / Operational Operational  Reputation  Governance / Regulatory / Legal Regulatory / Legal  Aboriginal  Alternative Technology  Strategic MAIN CATEGORIES

RISK MANAGEMENT PROGRAM (RISK CATEGORIES) n Exchange n Interest Rates n Credit n Inflation n Gas Price Volatility n Gas Derivative Instruments SUB CATEGORIES (FINANCIAL) n Capital Structure n Shortage Pricing / Fuel Price n Power Hedging Instruments

RISK MANAGEMENT PROGRAM (RISK ASSESSMENT) n “You don’t want the decimal point you want the order of magnitude” n Each risk impact is assessed in terms of: ConsequenceLikelihood n Consistent across the entire corporation n Worst case scenario

RISK MANAGEMENT PROGRAM (RISK ASSESSMENT) n Consequence rated: - As high, medium or low - Either financial, safety, reliability, environment or customer value environment or customer value - Financial Low$0 - $50 million Medium$50 - $150 million High> $150 million

RISK MANAGEMENT PROGRAM (RISK ASSESSMENT) n Likelihood rated: - As high, medium or low - Low, not likely to occur within 10 years Medium,likely to occur within years Medium,likely to occur within years High, likely to occur within years High, likely to occur within years

RISK MANAGEMENT PROGRAM (CORPORATE RISK MAP) Water Supply Drought Uneconomic Loads Power Hedging Instruments

PROJECT APPLICATION

PROJECT APPLICATION (PROJECT JUSTIFICATION) n Support for the project has already been justified - Reliability - Safety - Opportunity n The best solution has been identified through business case analysis n Environmental concerns are resolved n Prioritize initiatives and opportunities

PROJECT APPLICATION (PROJECT JUSTIFICATION) n Well documented cost estimate - Costs should be representative of most likely scenario likely scenario - Costs must not contain hidden contingencies and allowances contingencies and allowances

PROJECT APPLICATION (PROJECT JUSTIFICATION)

PROJECT APPLICATION (RISK IDENTIFICATION) n Risk can be defined as what can cause variability in possible outcomes. n Cost / delay / deliverable (performance) n Brainstorming n History n Corporate risk categories/subcategories

PROJECT APPLICATION (RISK IDENTIFICATION) n Listing of possible risks n Proper and detailed analysis can stream line the effort required n Properly developed forms and support information will ensure consistency

PROJECT APPLICATION (RISK IDENTIFICATION) n Risk identification - Business Operational (Supply Chain) - Legal (Licensing, Property) - Environmental (Weather, Land) - Human (Availability, Skilled) - Financial (Exchange, Inflation,)

PROJECT APPLICATION (RISK ASSESSMENT) n Business operational (supply chain) - Having the right material available when its required - Having the right material available when its required (Level of engineering design, - proven / unproven (Level of engineering design, - proven / unproven technology) technology) - What are the costs associated with: - What are the costs associated with: - 1 month - 2 month - 6 month - What is the likelihood of this occurring (probability)

A.1.1 Low MediumHigh LIKELIHOOD CONSEQUENCE Low Medium High A.1 PROJECT APPLICATION (RISK ASSESSMENT) 6 Month 2 Month 1 Month Supply Chain Note : Can be done for each material item

A.1.1 A.3A.2 Low MediumHigh LIKELIHOOD CONSEQUENCE Low Medium High C.3 D.3 E.1 F.2 D.2 E.2 C.1 A.1B.1B.3 A.3 F.1 B.2 PROJECT APPLICATION (RISK ASSESSMENT)

PROJECT APPLICATION (RISK TREATMENT) n RISK MITIGATION - Elimination of risk by exclusion, sharing, insuring or by the use of appropriate legal documentation and by the use of appropriate legal documentation and financial documents. Risk allowance and financial documents. Risk allowance and acceptance. acceptance. - Identify what can be done to manage and mitigate - Identify what can be done to manage and mitigate the potential for cost overruns or delays. the potential for cost overruns or delays. - Adjust risk impact assessment for reduction due to - Adjust risk impact assessment for reduction due to risk treatment efforts (revise risk map) risk treatment efforts (revise risk map)

PROJECT APPLICATION (RISK TREATMENT) n Business operational (Supply Chain) - Scheduling - Supplier ( Foreign / Local ) - Transportation - Penalties (Legal Clauses / Performance Bond) Bond) - Surplus

A.1.1 A.3A.2 Low MediumHigh LIKELIHOOD CONSEQUENCE Low Medium High C.3 D.3 E.1 F.2 D.2 E.2 C.1 A.1 B.1B.3 A.3 F.1 B.2 PROJECT APPLICATION (RISK TREATMENT)

A.1.1 A.2 Low MediumHigh LIKELIHOOD CONSEQUENCE Low Medium High C.3 D.3 E.1 F.2 D.2 E.2 C.1 A.3B.1B.3 A.1F.1 B.2 PROJECT APPLICATION (RESIDUAL RISK) A.3

A.1.1 A.3A.2 Low MediumHigh LIKELIHOOD CONSEQUENCE Low Medium High C.3 D.3 E.1 F.2 D.2 E.2 C.1 A.3B.1B.3 A.1F.1 B.2 PROJECT APPLICATION (RESIDUAL RISK) C.3E.2 C.1 F.2 E.1 A.3B.1B.3 A.1 F.1B.2 C.3E.2 C.1 F.2 E.1 A.3B.1B.3 A.1F.1B.2

PROJECT APPLICATION (REPORTING AND MONITORING) n RISK CONTROL Takes place during project execution and consists of a rigorous control of scope, quality, cost and schedule and being constantly alert of potential concerns.

PROJECT APPLICATION (REPORTING AND MONITORING) n Establishment of tolerances n Defined as the allowable or permissible variation from a standard n Actions are taken when the risk exceeds its allowable tolerance n Low, zero or limited variability n Medium, some variability is accepted n High, significant variability is accepted

PROJECT APPLICATION (REPORTING AND MONITORING) n Monitor Points n Trigger Points n On Site Inspection n Dispute Resolution Mechanism n Who Needs to Know and When (Predetermined)

PROJECT APPLICATION (REPORTING AND MONITORING)

QUESTI0NS