GE Oil & Gas was facing extensive average FX exposures of $2 billion, which represented almost 30% of the company’s revenues. These exposures were spread through more than 80 legal entities around the world, arising from the company’s long-term projects, such as sales of turbines, which have an order-to-remittance cycle time of six to 18 months. Exposures also came from shorter term sales of spare parts as well as intercompany and external purchases.

In addition to managing and hedging these exposures using derivative instruments (predominantly forwards), like many other corporations GE Oil & Gas is required to comply with US GAAP accounting rules. In particular, FAS 133 requires companies to keep hedges and exposures aligned.

In order to achieve this, GE Oil & Gas was using the second release of a single-entity in-house tool built on the Oracle platform in 2004 (the first one dated back to 2001 and was based on the Access platform), as well as spreadsheets, to track receivables/payables and derivatives, measure the effectiveness of hedges, mark-to-market derivatives and manage and mark-to-market embedded derivatives.

“A very time-consuming activity had to be performed, with tons of Excel files to be developed and maintained,” says Giacomo Baldi, Treasury Leader.

“These were needed in order to hit accounting requirements. They were also needed to provide the CFO with reliable monthly estimates of the FX-related quarterly impacts to the business profit and loss statement (P&L). However, there was a high risk of inaccuracy,” adds Giacomo Borgogni, FX Accounting Leader.

“This is a solution that enables us to track and manage the profit and loss volatility and the derivative FAS 133 complex accounting.”

In order to improve process efficiency, GE Oil & Gas developed a multi-entity FX database platform, which has been fully integrated with the company’s Oracle ERP system, enabling prompt and automated data collection. “The result is a very low manual effort needed to complete the FX hedge risk analysis as well as to obtain accounting accuracy and full compliance with US GAAP FAS133 requirements,” comments Baldi.

“This tool permits us to have a ‘single source of the truth’ to analyse the situation regarding the FX hedge contracts for GE Oil & Gas,” adds Andrea Ciabattini, IM Finance Shared Services Leader.

By automating manual procedures, the solution has enabled GE Oil & Gas to realise significant time savings, as well as an improvement in the reliability of data. The solution can also be used to obtain real-time reports and analysis to support the company’s overall risk management strategy.

The solution was developed entirely in-house, although Tata Consulting Services was employed to help with the implementation.

The platform has been gradually enhanced using Six Sigma methodology, which defines a structured means of implementing the project, including a series of steps to assess the level of completeness. In line with the plan developed at the outset of the project, the implementation was completed within a timeframe of three months.

“This is a solution that enables us to track and manage the profit and loss volatility and the derivative FAS 133 complex accounting,” says Baldi in summary.

“We believe this represents a very good example of a well co-ordinated project between Treasury and IM (Information Management) teams, completed on time and within budget.”