Moving From Risk Management to Strategic Resilience
Risk management should be an essential part of any industrial operation. Nevertheless, such management approaches can be restrictive, as experts argue companies should move beyond risk management and develop the ability to look ahead by predicting, managing and preventing future risks to gain enhanced efficiency.
Risk management involves identifying, assessing and controlling the financial, legal, strategic, and security risks to an organization's assets and profits. These risks can stem from various sources such as financial instability, legal obligations, poor strategic planning, accidents and natural disasters.
The strategic resilience required to adequately tackle risks involves anticipating future challenges while navigating present problems and adapting to changing circumstances while maintaining focus on long-term goals. Strategic resilience is forged in a dynamic and fluid operating environment.
Osvaldo Barrios, Chief Risk Officer, Fresnillo, highlights the importance of considering all the possible risks in mining projects to be able to prevent and control them. “Faced with so many variants and risks, I stress the importance of creating different scenarios to be able to visualize how the risks can be managed,” said Barrios.
Barrios thinks every company must start by questioning whether they have identified their operational risks. He divides risks into several categories: the short-term of up to six months ahead, the medium-term of about three years ahead and long-term risks of up to 10 or more years in the future.
According to the World Economic Forum, two of the most prominent risks in 2023 are supply chain disruptions and inflation rates. Being able to source adequate energy may also represent a problem.
Barrios explains that risks associated with environmental, social and governance (ESG) compliance represents are equally key to the mining industry because of their urgency and pressure to meet legal obligations.
“Although ESG issues may become more relevant in 5 to 10 years, when access to water or raw materials becomes more difficult to achieve or when key resources begin to run out, international demands surrounding ESG issues have already been established and require compliance. Therefore, they have a great impact on the mining industry, which cannot be understood without considering environmental and sustainability issues,” elaborates Barrios. Moreover, the increasing threat of climate change and the demands of communities close to mining sites necessitate more attention and care from the industry.
“Geopolitics also pose a threat. International tension reaches beyond the conflict with Russia, as other disputes could escalate. As we have seen, these conflicts can threaten the stability of supply chains that closely affect the mining industry. Upcoming elections in Mexico and the US will also be crucial factors,” Barrios explained.
Together with the global issue of inflation, increases in operational costs have and can continue to affect the industry. Similarly, access to capital and new business models are issues that need close attention to avoid future setbacks. “We have all been affected by higher operating costs. This is especially clear in the mining industry: the prices of steel, fuel, chemicals and other key inputs have risen. It is therefore important to implement appropriate operational efficiency measures. It is essential to do more with less and maintain good cost records,” said Barrios.
Barrios emphasized the need to pay close attention to talent training and retention. Since talented workers struggle with increases in living costs like everyone else, the need for competitive compensation stands out.
Subsequently, innovation and digitization represent an opportunity as well as a challenge. “The main challenge for mining companies to adopt innovative solutions and technologies is strongly linked to risk culture. In the absence of such a culture, investing in these solutions is not the main objective. We have to create awareness regarding the importance of implementing a risk culture and getting rid of resistance to change,” he said.
Barrios identifies other two risks for Mexico in particular. “The government’s actions pose a risk to mining operations. At the beginning of the administration, the authorities declared that no more mining concessions would be granted and even existing concessions were going to be reviewed and possibly withdrawn. This remains a significant risk, so we must work to challenge the negative emotions toward our industry. We must work closely with authorities to foster the necessary transitions.”
Finally, tackling insecurity in Mexico is paramount. “We must bear in mind that we cannot control this in the short term. Insecurity can even increase in the long term and have a major impact. For this reason, we must be attentive to the risks that surround the industry,” Barrios concluded.