Effective Integration of Commercial and Operational Risks

Abstract This paper will focus on the process of aligning commercial performance targets with operational capability and resourcing. Though this concept is applicable to multiple sectors and businesses, this paper will focus on the midstream pipeline systems sector of the oil and gas industry. Organizations aim to maximize performance and return on investment by setting strategic goals, objectives, and targets. Line of sight across the enterprise to corporate objectives and proper alignment to common strategic goals will enhance the likelihood of success, improve efficiency, maximize business performance and minimize risk. The process of refining goals and aligning priorities with finite resources is a complex task. Many organizations are structured with intentional separation between commercial and operational functions. This may be due to the diversity of the skill sets required for each of the functions, or as a byproduct of accounting based decisions, but the separation introduces opportunities for misalignment of objectives. Segregation of reporting structures may create conflicting directives. Such misalignment could result in counter-productive resource drains driven by duplication of efforts, contradictory initiatives that can erode value, inability to react to market shifts, inability to capture opportunistic market demand, and potential misses in forecasted performance. Commercial functions are market and customer-facing. They require a focus on market demand, forecasts, global and local market trends, price sensitivities, political and economic factors, and customer trends and opportunities. The main responsibility of this group is to understand which market opportunities offer maximum value. Commercial managers are incentivized through their performance structure to capture as much of the market as possible. They do not focus on engineering drawings, failure data, purchase orders, reliability graphs, work permits, sparing philosophies, and operational integrity factors that are the focus of their counterparts in Operations and Integrity. They assume that the physical asset is maintained, reliable, and available. Alignment of commercial demand with operational capabilities is a key requirement to maximize return on investment. It provides both the revenue benefits as well as the cost to capitalize on the benefits. When goals are aligned and the “right” initiatives have been defined, the organization minimizes waste, ensures risk tolerances are aligned, and allows for resources to be efficiently optimized. With this approach, scenario planning, resource management, and business strategies can be better aligned to deliberately achieve maximum return on investment. This paper discusses considerations needed to effectively integrate commercial demand with operational readiness to reduce the possibility of an over-committed market position or an underutilized asset.