Enterprise Risk Management at Russian telecoms giant, MegaFon

Every year, the eight regional branches of Russian mobile network operator MegaFon are required to undertake a major planning and accounting exercise for the 12 months ahead. Each branch states the risks it faces, such as competition, changes in legislation that will require it to operate differently, price increases and changes to staffing costs. They also calculate how much each budget will be over or under the forecast.  

The risk management team at MegaFon’s headquarters amalgamates the information from each of its offices and simulates possible scenarios using a model using @RISK. The variables within these models are analysed in order to identify and mitigate against the five critical factors most likely to significantly affect the company’s gross revenue.

In addition, @RISK shows realistic minimum, best case and median budget figures and the probability of their occurrence. These are compared to the budget plans to determine whether the forecast is too aggressive or not ambitious enough. Overall, the management team can see whether their desired revenue is achievable.

At the same time, MegaFon needs to plan for the continuous upgrading of its network. Projects include building new antenna, installing the latest equipment and laying fibre optic cable. In 2012, MegaFon took the decision to invest in a large data centre construction project.

Two potential locations were shortlisted and the management team used the DecisionTools Suite to make an informed decision on the optimal one. TopRank was used to perform sensitivity analysis to identify the factors in each location that would have the most influence over the total cost of the project. @RISK was then applied to forecast how these critical factors might change. This allowed MegaFon to understand the most likely Net Present Values (NPVs) for each possible location and identify the risks for building or not building (i.e. opportunity cost) each data centre.

Using the DecisionTools Suite enables MegaFon to integrate risk management within its budgeting and investment planning processes. This provides the company’s management team with transparency and understanding about the risks involved in planning, and therefore facilitates decision-making without guesswork. As a result, the company can maximise capital expenditure efficiency.

» Read the case study: Enterprise Risk Management programme at Russian telecoms giant MegaFon

One comment

  1. This is interesting. I would be even more interested to hear about how the risks are identified and how the parameters of the distributions that represent them are assessed, how bias is avoided and so on. I find that is the challenging part.

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