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Tool Sections: Overview Module 1 Module 2 Module 3 Module 4 Module 5
 
Module 2 Business Risk Assessment
   
 

Module Purpose

Based on the identified areas of water use and impact, Module 2 helps tool users identify, characterize, and prioritize potential corresponding business risks. Business risk often comes in the form of potential constraints on economic activity. These may result from cost increases, process and production delays, limits on capacity expansion, decline in demand for products and services, and changing customer preferences and expectations. Module 2 helps organizations answer the following questions:

  • What are the business risks linked to the organization’s water uses and impacts, taking into account the vulnerability of key water sources affected by these uses and impacts?
  • Which risks are most significant?

Prioritized risks from Module 2 highlight the focus areas for consideration in Module 3. Module 3 helps tool users to identify creative options to reduce risk, create business value, and contribute to water sustainability.

Module Approach

Understanding the business sensitivity to water-related changes, as well as the relative likelihood of these changes occurring (which is often linked to the vulnerability of the affected water sources), provides important information regarding potential business risks. Such information enables business managers to assess and articulate the business case for developing a strategy to mitigate potential water-related constraints to business activity.

Most businesses employ well-established procedures for identifying and evaluating potential business risks. Tool users are encouraged to seek opportunities for incorporating the risk information and evaluation criteria into such core business risk evaluation processes, including due diligence assessments for site acquisition, issue identification systems, environmental management system risk assessment processes, and other risk assessment activities. Such processes help ensure that water-related risks are routinely considered as changes in business operations and water trends occur.

 

Step 1

 

 

 

Water Use Risk Assessment

  • How much would an external change in water availability affect the current business use?
  • What is the likelihood of change?

Business Importance of Each Water Use

Consider each water use identified in Module 1 to determine how sensitive the business is to external changes that could affect this water need. A business would be highly sensitive to a change if it, or the company’s response options, would result in significant business constraints. External changes can result in steep increases in water costs, production delays, limits on production, or strong community opposition to company activities. For each water use, consider how sensitive the business is to a change in 1) water price, 2) water availability, 3) water quality, or 4) the loss of a specific source. By exploring the business sensitivity to water-related changes, tool users should be able to make a qualitative assessment of the business “importance” of each use.

Probability of Change (in water price, quantity or quality)

Next, tool users should consider the water source assessment information prepared in Module 1 to assess the likelihood of the changes considered in the sensitivity analysis actually occurring. Frequently, this will be linked to the vulnerability of the water source(s) relied on for the use. For example, an aquifer that is being rapidly depleted or contaminated would likely be vulnerable to changes or response actions such as public policy changes or price increases that can affect the business. However, changes in water prices and allocations are often not directly related to the vulnerability of local water sources, but may instead stem from broader changes in public opinion and policy related to the needs of other water users.
 

Step 2

 

 

 

Water Impact Risk Assessment

  • How much would an external change in water impact requirements affect the current business use?
  • What is the likelihood of change?

Business Significance of Each Water Impact

Consider each water impact identified in Module 1 to determine how sensitive the business is to external changes related to this water impact. A business would be highly sensitive to a change if the change, or the company’s response options, would result in significant business constraints. For example, stricter effluent standards can result in significantly higher treatment costs to remove contaminants. Community concerns about a company’s water impacts can affect your “license to operate.” Certain spills have potential for high liability and impact on company reputation. In some industries, product use has been linked to water quality problems. For each water impact identified in Module 1, at each stage of the value chain, consider how sensitive the business is to increased costs or short time turnarounds to reduce water impacts. By considering the organization’s sensitivity to external changes associated with its water-related impacts, tool users should be able to make a qualitative assessment of the business “significance” of this impact.

Probability of Need to Change Current Water Impacts

Next, tool users should consider the water source assessment information prepared in Module 1 to assess the likelihood of the changes considered in the sensitivity analysis actually occurring. Frequently, this will be linked to the vulnerability of the water source(s) affected by the water impact. For example, response actions to address more stringent regulatory requirements, opinions of the public and NGOs, or legal liability are more likely to be necessary when the water impacts are contributing to harm or degradation that impinge upon other water demands—including human needs, other industrial or agricultural needs, and ecosystem needs. Users should also assess changes in broader public opinion, policy and regulatory approach.
 

Step 3

 

 

Prioritize Water-Related Risks

Once tool users have identified the importance or significance of water uses and impacts, and assessed the vulnerability of affected water sources and the likelihood of external changes stemming from those source vulnerabilities, the information can be plotted on a simple risk matrix to help prioritize the resulting business risks.

Risk Matrix

Water uses and impacts that fall in the high and medium risk quadrants are likely to demand further consideration and assessment. Tool users are encouraged to adapt the output format from Module 2 to match the risk evaluation and ranking formats used in their organization’s core risk identification and management processes. 
 

 

Module Outputs

Prioritized risks from Module 2 signal key areas of focus for Module 3, as tool users develop options for mitigating water-related business risks.

Module 3