Visualising Risk in a Turbulent World
Based on a webinar with Mark O’Toole, Vice President, Treasury Solutions, OpenLink and Craig Jeffery, Managing Partner, Strategic Treasurer. Chaired and edited by Helen Sanders, Editor, TMI
Visualising risk using dashboards that bring together data from across the enterprise, and modelling the impact of different market and hedging scenarios is fast becoming a priority for treasurers. In doing so, they can communicate risk issues and factors that influence risk decisions more clearly, both to senior management and the wider organisation, and inform risk discussion on risk appetite, mitigation, and how risk decisions can drive strategic advantage. This feature summarises some of the discussions that took place during a recent webinar featuring Mark O’Toole, VP, Treasury Solutions, OpenLink and Craig Jeffery, Managing Partner, Strategic Treasurer, and chaired by Helen Sanders, Editor, TMI. A recording of the webinar can be found here.
Greater volatility, heightened expectations
Every week, we see a new natural or geopolitical event that impacts on both the global economy, and corporations’ own cash flow, financial and credit risk positions. This impact may be positive or negative, but most important of all is that the impact is unpredictable, as the effects of the Brexit referendum outcome and the election of President Trump amongst other recent events have demonstrated. Different regulatory trajectories, with the potential for deregulation in the United States, and greater regulation in Europe, also add risk pressures for treasurers, as does the prevalence of low and negative interest rates. Low rates have redirected the role of treasury from earnings booster, through investment of surplus cash, to earnings stabiliser, through risk mitigation and hedging. Low rates are also putting pressure on margins and the need to manage costs. Managing risk on an enterprise basis can be an essential way to both manage unpredictability, but also protect margins and reduce costs by managing the drivers that impact on profitability and hedging judiciously. Of course, this will remain just as important as interest rates rise in the future.
Although treasurers have different priorities, depending on their industry, business model and risk appetite, the relationship between managing volatility and improving financial performance has become more widely recognised. As Craig Jeffery, Managing Partner, Strategic Treasurer comments,
“Since the global financial crisis of 2008-9, there has been a greater emphasis on risk; subsequently, the demands and expectations on treasurers to manage risk have increased. In the past, treasurers rarely engaged directly with the CEO and the Board, but this is now a regular event.”
At the same time, treasurers are tasked to play a more strategic role within the business, such as by participating in mergers & acquisitions and engaging more proactively with procurement, particularly for the purchase of commodities. The question for many treasurers, therefore, is how to mitigate the effect of volatility on one hand, whilst contributing to the strategic ambitions of the organisation.
Fig 1 – Building an enterprise risk framework
Source: OpenLink, 2017