At a time when treasurers are demanding more from their treasury management systems to provide an accurate, instant and global view of their cash and liquidity, it’s good to hear that our customer, the global paint and coating manufacturer, AkzoNobel has won awards for the “Treasury Technology Implementation Project of the Year” and “Treasury Team of the Year” at the inaugural gtnews Global Corporate Treasury Awards.
The company was recognized for transforming its treasury operation from a reaction-oriented organization to a highly dynamic and strategic business unit. They chose the SAP® Treasury and Risk Management application to support its treasury transformation project; optimizing its global transaction banking infrastructure, redesigning treasury policies and integrating, automating and standardizing its treasury systems and processes.
Well done to all - time to paint the town red?
On Friday I spent the morning with a 20 or so other folk as guests of the Universities of Cranfield and Cambridge working through some opinion leader research and participating in workshops to help the academics identify the emerging trends in performance managment so they can hone their research agenda for the coming years.
I can’t share the details of the research, which will eventually be published, but it should come as no surprise that two issues that came out prominently in the research were ‘Responsiveness to both predictable and unpredictable events’ and ‘Risk awareness and risk management’. My syndicate group decided to focus on the risk issue, working with the academics to drive out the issues and suggest some research topics. We were a fairly mixed group included among others someone from the pharmaceutical industry and someone from the footwear and apparel business. Both of these guys were personally involved in integrated risk into performance managment and indeed commerical decision making. But interestingly Mark (Head of Performance Management and Risk) from the apparel company perhaps had the most comprehensive approach to risk, having in place a process where every major investment decision and business plan has to have the risks quantifiied, assigned a probability and a mitigation plan before the risk-weighted cash flows are formally assessed using NPV and the like.
On hearing of this well developed practice, you immediately want to know who or what bought it about. In this case the causal factors seems to be the fact that the company is owned by a family trust and is still chaired by the man responsible for its phenomenal growth. Mark told us that whenever he is faced with a commercial decsion, the first think he wants to know about is the downside; probing and questioning until he is satisfied that risks have been adequately assesed and built into the projections. Hardly surprising for someone who has built a global company without resorting to external funding.
So while this is only an anecdotal story, can we summise that large, privately-owned companies are more likely to have more thorough risk management practices that public companies? They got more flesh in the game and more to lose! It’s defintely a topic on the academics’ research agenda.
While you are reflecting on that; take a look at a short video ]we put together showing how risks can be incorporated into budgets – we’re currently working to update this, but we think it’s heading in the right direction.
De La Rue Share Price UK pence
De La Rue, founded in 1813, prints notes for the Bank of England and 150 other countries. Back in July the company revealed a quality problem when it announced that production at its main plant in Hampshire UK had failed to meet “certain quality specifications”. Apparently the quality of the paper used for printing some banknotes for India, one of its key customers, was ‘marginally’ below specification and couldn’t be shipped. At the time the company advised that sales and production levels would be “materially” lower than previously expected.
In order to stop other people printing their own notes, the integrity and specification of currency is not something that you should not take risks with and the announcement frightened both other customers and the stock market. But it was far from over. The company called in fraud investigators and subsequently revealed that some staff had “deliberately falsified” banknote paper quality test documents. As the sorry sage had occurred on his watch, the CEO admitted responsibility and resigned. Meanwhile the stock price continued to go south.
Today looks like endgame from De La Rue when it announced a £750m offer from Oberthur Technologies, a privately-owned French competitor. So just three years short of its bicentenary, a noble British company gets taken out having lost its stockholder roughly a third of its value.
And the lesson here – operational risk management cannot be ignored. It’s time to bring risk management out of the back office and out into the open so that senior managers can monitor key risk indicators with the frequency they need. With an application like SAP BusinessObjects Risk Management deployed, it might never have happened.
In the latest edition of SAP Insider magazine, my colleague David Milam sets out a compelling case for integrating risk management and performance management. He points out that in most organizations, risk and other governance and compliance processes tend to be siloed off to one side and puts forward the case for making key risk indicators (KRI’s) more visible across the organization so managers can focus on the areas that matter most. Most often risk management is associated with protecting value by preventing events that would cause revenue to be lost or unnecessary expenses to be incurred, but David also stresses the role of risk management in creating value.
By incorporating risk with strategy and planning processes, and by mapping your strategic KPIs with KRIs, he suggests that companies are better able to analyze the impact of risks, increase the success rate of your strategic initiatives, and, by extension, decrease the cost of capital through reduced risk exposure. He asks you to imagine you are launching a new product line. When a KPI you’ve defined for this launch — say, the number of recordable employee injuries — goes red, like most organizations you go into fire-fighting mode to bring it back to green. But if you align a KRI — the number of overdue safety work orders, for example — with this KPI, you can become more forward- looking and better able to identify issues before they go red.
The key message is that KPIs tell you where you are now; KRIs tell you where you are headed. So by embedding the tracking and analysis of key KRIs into business processes, companies can achieve increased operational efficiency and performance across the enterprise. And as companies become aware of the opportunities that such an approach can bring, the emphasis then switches to which enterprise GRC vendor can provide the capabilities needed and provide the best integration with the ERP systems and performance management applications being used. Guess you know what his answer’s going to be – but click here to read the article yourself.