BP Annual Report and Form 20-F 2011 - Company Reporting

Our management of riskPutting safety and risk management at the heartof the company is the foundation for building trustand creating value. In 2011 we began a processto review, refresh and enhance our managementof risk.The role of the boardThe board is responsible for the direction and oversight of BP as set out in itsgovernance principles, which include that it will satisfy itself that the materialrisks to BP are identified and understood and that systems of risk management,compliance and control are in place to mitigate such risks. The board, throughits governance principles, requires the group chief executive to operate with acomprehensive system of controls and internal audit to identify and manage therisks that are material to BP. See Risk management: from operations to the boardon page 122.Our system of internal controlThe system of internal control comprises the holistic set of management systems,organizational structures, processes, standards and behaviours that are employedto conduct the business of BP. The system is designed to meet the expectationsof internal control of the Corporate Governance Code in the UK and of COSO(Committee of Sponsoring Organizations of the Treadway Commission) in the US.Key elements of the system include: the control environment; themanagement of risk and operational performance; and the management of peopleand individual performance. As such, BP’s risk management system is an integralpart of our system of internal control, and is designed to be a simple, consistentand clear framework for managing and reporting all risk from the group’soperations to the board.Review of risk managementIn 2011, we initiated a review of our risk management system. The reviewconsidered the group’s existing risk management system, along with goodpractices in risk management from outside the company, with a view toidentifying what might be done to enhance the clarity, simplicity and consistencyof our risk management system.Using the findings of this review, we have begun implementingenhancements to the way we manage and report risks. This has involved thedevelopment of common language, concepts and templates for consistentreporting on risks and risk management; designing enhancements to board andexecutive processes; and greater alignment of risk management activities andbusiness processes. These improvements build from our existing managementsystems, standards and practices and we will continue to embed these in 2012.See the information on Safety and operational risk on page 65 for examples ofenhancements to the S&OR function and management of safety and operationalrisks.42 BP Annual Report and Form 20-F 2011