Implementing an Enterprise Risk Management Approach
by Constantinos Tsolakas, Head of Group Treasury Risk Management, ABB
Royal Caribbean's Oasis of the Seas, the largest and most spectacular cruise ship ever built,
driven by an energy-efficient power and propulsion system delivered by ABB.
In recent editions of TMI, we have heard from Brocade (edition 203) and Agrium (edition 204) about the changing ways in which treasury is contributing to the business. In this article, Constantinos Tsolakas describes how ABB’s treasury has evolved to become a strong partner to the business by developing an enterprise risk management approach that has revolutionised the way that risks are prioritised, monitored and mitigated.
The ABB business has changed substantially over the past 10 years, triggered by very challenging business conditions and the subsequent crisis in 2002 (when ABB faced challenging times). Until then, liquidity management was largely decentralised, with a reactive approach to cash management, hedging and financing. Transactions were generally conducted locally, while treasury’s role was predominantly that of a profit centre. Since 2003, we have recognised that liquidity is a corporate asset, and treasury has a major role to play in delivering liquidity and risk management services to the rest of the group.
This change in attitude has had a marked effect on our treasury strategy and the way in which our treasury function collaborates with both internal and external counterparties. Treasury operations are now centralised in Zurich, Switzerland, to optimise operational efficiency and reduce costs, whilst ensuring group-wide visibility and control over cash and risk. To provide an effective service to the business, however, we also need to maintain a close proximity to front-line business activities, so we have regional treasurers in Norwalk, USA, Dubai, and Beijing, China. While Group Treasury is based in Zurich, Switzerland, country treasurers are also based in many countries around the world.
Our country treasurers, regional treasurers and group treasury functions work together as a cohesive organisation to manage liquidity and risk on a group basis. As we have expanded our business and extended geographically, the importance of risk management has grown considerably. As an engineering company, the concept of managing risk of all types is integral to all aspects of our business, but we have increasingly recognised the importance of adopting an integrated approach to risk management across the group.