IM3 Manage – Are we properly equipped to be effective?
Management of risk should protect and enhance earnings, which means it is the most direct source of potential value creation in Treasury.
- Lack of experience or skill sets
- Lack of clearly defined processes
- Lack of system-driven workflows producing consistent, actionable outputs
- Lack of access to timely financial markets data and pricing
- Lack of appropriate policy providing clear accountability and expectations
- Lack of pricing transparency internally or with hedging counterparties
- Ongoing experienced strategic and operational support
- Event driven strategic advice and management
- Upskilling internal personnel
- Hedge product advice and product mix implementation
Design. Develop. Implement.
Management of risk is so people focused that any design, development and implementation really only apply to the extent the individuals responsible for management are kept close to these processes and provided the correct training and upskilling to leverage all of this initial hard work.
Key elements include assigning responsibilities to the appropriate individuals and gaining alignment on future expectations.
While Management of risk is the single most valuable activity within treasury, it truly is the simplest to express.
It requires the appropriate design development and implementation of people processes policy and people. If any of these steps or operations are lacking, management will invariably be delivering value below its potential.
Proactivity is the key to successful management. Fast, Flexible and Effective are the critical attributes of proactive actions.
All the hard work in designing and creating systems and policies and upskilling personnel fail to deliver value if the day to day management of risk fails to realise the potential value of these prior efforts. This is equivalent to an athlete doing everything right in training for months or years and failing to turn up on the day of competition.
All the tools and processes should be in place, and so here more than ever true success is achieved based on the calibre of the stakeholders owning these processes. There should at this point be minimal excuses for failure. There is a policy and processes that key stakeholders have agreed are valid.
The tools and systems have been tailored specifically to aid the manager’s ability to make proactive, objective decisions while spending minimal time administering the process. Diligence, discipline and consistency in proactively managing a dynamic, ever changing commercial and financial market environment is all that’s left on the to-do list. It is simply a matter of execution.
IM3 Case Study
Why the challenge was proving difficult to solve
- The underlying business is highly commoditised and competitive, requiring the company to be agile and proactive when using FX rates to cost AUD sales prices
- While senior managers recognised the problem, they had limited FX market risk experience, very low visibility to market moving data (often at least 24 hours behind actual market moves) and no clear view of key market levels and changes of trend
Rochford actions to address and correct the problems
- Assisted design of a process that captured and summarised the USD unhedged position as each new AUD sale was closed
- Collaborated with senior managers to identify the appropriate risk appetite for the underlying business model
- Rochford advice and tactics include: limit and stop loss market orders, key level and major trend identification, intra-day event risk, pre-emptive hedging of highly probable new sales
- Advice extended to foreign currency denominated CAPEX and on-going freight cost management
End outcome, leaving the business in a better position than at the start
- Rochford’s expertise, knowledge transfer and constant market watch allowed senior managers the time to concentrate on the underlying business i.e. sales, competitive advantage and supply chains
- Rochford’s day-to-day participation in hedging decisions turned a history of losses, often sizeable, from currency exposure into a source of profit generation/margin enhancement that has been consistent and constant over 8+ years