Risk Management

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Trimming the Sails: the 2009 Risk Agenda Nothing we do in life is free of risk, and if it were, it would not be much of a life at all. Business success is created by knowing when to take risks and to what degree. As we navigate our way through t0he current economic downturn, fear of the unknown has encouraged many of us to ‘batten down the hatches’ and seek refuge in safe havens until the storm has passed. With every treasurer far more conscious of risk than twelve or eighteen months ago, how should we be approaching financial risk today, and how have attitudes towards risk changed?

“A ship in port is safe, but that’s not what ships are built for.”

Grace Murray Hopper, American military leader, mathematician and educator (1906 - 1992)

Trimming the Sails: the 2009 Risk Agenda

by Helen Sanders, Editor

Nothing we do in life is free of risk, and if it were, it would not be much of a life at all. Business success is created by knowing when to take risks and to what degree. As we navigate our way through the current economic downturn, fear of the unknown has encouraged many of us to ‘batten down the hatches’ and seek refuge in safe havens until the storm has passed. With every treasurer far more conscious of risk than twelve or eighteen months ago, how should we be approaching financial risk today, and how have attitudes towards risk changed? In this article, we are delighted to introduce Jonathan Chesebrough, Head of Risk Advisory at RBS Global Banking and Markets, and Nicholas Blake, Sales Executive, J. P. Morgan Treasury Services, Corporate and Public Sector, who give their insights into how treasurers should be addressing risk in the current climate.

“A great ship asks deep waters”

Treasurers approach risk in different ways. In some cases, it is something to be feared and therefore eliminated as far as possible. In others, it has been less of a priority, compared with other issues, simply due to the benign economic climate. In others again, risk management falls into the category of “too hard”, particularly for smaller treasuries where people often feel intimidated by the world of complex risk analytic models which require highly specialist skills to decipher. Jonathan Chesebrough, RBS explains,

“Risk management is now “en vogue,” but it has received relatively little attention in recent years. During a long benign period, the view that “what can go wrong?” has prevailed. Now, companies are reassessing their risk management objectives and policies. Previously, these were simpler and managed in silos - FX risk, liquidity risk etc. In many cases, companies did not check to see that these policies were aligned with each other or with their overall business objectives.”

Another issue is resourcing. As Nicholas Blake, JP Morgan explains,

“The treasurer’s role in many companies has been expanding over the past two or three years, but treasury departments remain small, covering a wide range of risks. An effective and pragmatic approach to managing risk is not simply about policy, but allowing automated processes to be maintained to ensure consistency and avoid the risk of error and fraud.”

Risk brings opportunity as well as danger, and a company, which adequately and realistically assesses and manages their risk appropriately, can create competitive advantage. In practice, this could mean hedging commodity costs or financing suppliers to create security in the supply chain, avoiding the need to pass on price increases to customers, which competitors may be forced to do. This active and competitive approach to risk management will differentiate between great companies and simply good companies in the coming months. There is not sufficient space in a single article to cover comprehensively all the different types of risk for which treasury is responsible; rather, in this article we will consider: traditional risks, the relationship between risks, and the 2009 risk agenda, touching on financing, supply chain and operational risks.

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