As a risk manager one of your primary responsibilities is the managing and hedging of enterprise-wide exposures. Although day-to-day operations keep you busy, there are 10 fundamental questions every risk manager should review from time to time.
The first five questions are related to exposure management:
1. When last was our risk management policy updated? Should it be updated in line with changing business needs, competitor and peer analysis and changing regulations?
2. What risk is our company exposed to? Are there risks procurement is exposed to that treasury should consider?
3. Are we looking at risks on an enterprise-level or silo basis? Are we considering the impact of correlations between different risk factors?
4. Do we have a global, consolidated view of all of our exposures in each of the asset classes?
5. Are we working efficiently, when capturing, analyzing and mitigating these risks?
The last five questions are looking at hedging of enterprise-wide risks:
6. Does our hedging strategy make sense in the current market environment?
7. Are our hedges effective throughout the derivative life cycle?
8. Are we sure we are not over or under-hedging?
9. Are we using the most efficient and effective hedging instruments?
10. What are the implications of upcoming regulations such as IFRS 9 to our hedging strategy?
If it is difficult for you to answer these questions, you might have outgrown your existing set-up or are in need of a fresh review. As companies´ operations expand globally (particularly through mergers and acquisitions) new currencies, commodities volatility and new regulations often overload existing workflows and require a review of the risk framework. This review should include a technology check, as transitioning from spreadsheets or outdated risk software to new technology such as cloud-based treasury and risk management systems, can help increase visibility into enterprise-wide exposures, boost efficiency in risk and hedge accounting workflows and significantly save money through more targeted hedging programs.