The four pillars of water risk assessment

Recognizing the four pillars of risk assessment will aid in managing your water challenges.

In this economic climate and as part of our natural lives we are all familiar with undertaking risk assessments in our everyday professional and personal existence; from the most basic travel decisions ensuring punctuality, to the most comprehensive health and safety issues ensuring the safety of our colleagues in the workplace.

Undertaking a risk assessment of water is definitely at the more complex end of the spectrum as there are significant external factors which affect the results. Not least of which is the availability of this now seriously considered precious natural resource. Recent concerns began with the drought restrictions, swiftly followed by rainfall deluges (consummating in 2012 being the wettest year on record for England) and the current wintry conditions. In the most basic of water terms, or risk, that equates to lack of supply, flooding and burst pipes simply due to the climatic impact.

Understanding the geographical demographics of a business is a good foundation for commencing a water risk assessment as it enables meteorological mapping to understand water scarcity, flood risk and other weather impacts related to ground source water, the water cycle and the consequential damage which can affect the environment and natural habitat. There are excellent basic online tools widely available to assist in the mapping of your portfolio which can be supported with research data from credible sources.

The four pillars of risk assessment

The initial analysis then needs to be contextualised in the four pillars of any good risk assessment that of: financial, operational, regulatory, and reputational risk.  All of these risks are intrinsically linked with the priority dependent upon the business sector however the scope of the exercise and definitions of the timeframes if dealing with short, medium or long-term risk significantly alter the complexity of the task. 

Operational Risk

Operational risk tends to be at the forefront of most assessments; although, let’s be honest, it’s the financial risk which underlies all of these pillars and is the thrust of all businesses, for without income there is no business to assess. The operational risk from water scarcity for a retailer, for example, means they may not be able to operate carwashes on their petrol forecourts, operate their store, and will impact supply chain production and goods on sale. In times of flood, store openings can be affected; travel for employees, customers, and logistics delivering goods to store; not to mention stock damage and structural damage in extreme cases.

Most businesses have already addressed the impact of weather in the last year and legislation in new buildings forces this consideration; however, many are still not addressing the real operational risk of external leakage and other wasteful practices. With erratic Water Company billing practices and continued estimated readings external leakage represents a great risk and significant cost to many businesses that can be rectified through technologies such as an AMR, which provides many other additional benefits for effective water management. Water efficient technologies are effective in mitigating risk and significantly reducing consumption; or a consideration for many is incorporating water recycling into a drought policy or capturing the natural resource through an effective rainwater harvesting system.

Reputational risk

The inclusion of environmentally friendly technologies enhances a company’s reputation when effectively implemented; although any changes implemented or considered following a risk assessment can have a positive or negative impact on a company’s reputation if not successfully managed. Reputational risk is often of higher consideration in service industries. For example, in the hotel industry, the greatest consideration is given to the customer experience - i.e. the quality of a shower when low flow head or water quality when utilising a greywater recycling system. The reputational risk is not simply that of poor customer experience but often that of fulfilling the company’s green agenda embedded in their CSR or ensuring repeat business.

There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else - Sam Walton, Walmart Founder

Financial risk

There is little to expand on financial risk as everyone fully understands the impact of the two formerly described risks upon this area.  However, one must consider the market changes, with predicted market opening in 2016/17 and the impact of the new Charging Schemes imposed on the 1stApril each year by the Water Companies. What risk do the current draft determinations pose and how will market changes impact your business? This leads on nicely to regulatory risk as it is the legislative differences with the opening of a competitive market that will be the seed of change.

Regulatory and legislative risk

Currently regulatory risk is mostly encapsulated in the building and infrastructure of your premise and then how you utilise and dispose of your water once it is occupied.  Building regulations and the Flood Water Management Act 2010 ensure new buildings are water efficient and adequately protected from flood risk; however existing buildings prior to the legislation need to fully consider the risks and consider many of the available options to rectify them.

Other legislative risk which can also impact operational risk is that of failing to meet Water Regulations through poor installations and procedures and/or discharging waste incorrectly.  This has a significant impact on many businesses and can result in both disconnection of the supply and fines.

In summary, a water risk assessment is an excellent exercise to undertake and provides a good foundation for developing a comprehensive water strategy. It can provide you with a clear sense of direction and enable effective prioritisation; it is important to regularly review the strategy with current data and to ensure it develops at the same rate as your business growth.

Claire Holmes is director at Waterscan Ltd.