Why risk should not be a ‘four-letter word’
Risk is without doubt a strange beast. It is an evolving entity that will – if you let it – quickly take control of the way a treasury department operates. Yes, risk must be managed. And the treasurer, as gatekeeper, must make sure that the company’s money is not exposed to significant downside potential.
Equally, as the treasury function becomes more reliant on technology, this presents additional risks that need to be addressed. Security breaches, data protection and continuity plans to name but a few.
But should risk be so feared? And should risk management always be defensive? It’s all too easy to ‘shut down’ risks without looking at the opportunities they may present. Or simply to take the ‘safe option’ although this may not ultimately work out best for the company.
How much is the value of cash sitting in corporate stockpiles being eroded, for example? Is the focus on security and liquidity meaning return on investment is being completely side-lined? Are there good investment opportunities available but the company’s investment policy only permits top notch ratings?
What a best practice risk management approach should allow a company to do is to have 360° visibility over their exposures. From there, the treasurer should be able to use this risk information to make more informed decisions around the best way to manage a given risk that falls within his/her remit. In order to do that however, there also needs to be flexibility within the treasury policy and the company’s overall risk management policy.
All too frequently, such policies are so restrictive that they actually lead to conflicts with the company’s strategic goals. How can growth be achieved when opportunities are being passed by due to out-of-date or overly cautious guidelines?
Of course it’s very easy for observers to pick holes in extremely conservative risk management strategies. It isn’t their job on the line. But while the ‘avoidance’ of risk is seen as part and parcel of a treasurer’s job, strategically exploiting the potential upside of risk is most definitely a value-added activity.
To find out more about managing risk to your advantage, see Treasury Today’s new Best Practice Handbook on Managing Risk in Treasury, published this month. In it we address everything from market risk to business risk, whilst providing insight into risk management technologies and approaches.