The arrival of the Grey Swan… risk visualisation in an uncertain world
Published: Nov 2017
Vice President of Treasury & Commodities Solutions
Mark O’Toole joined OpenLink in 2006, and helped establish the Commodity Intensive Corporates (CIC) business within the company, responsible for treasury and commodities solutions. He has more than 20 years of experience working with Fortune 100 companies helping solve complex commodities risk. He previously worked at Dow Jones, SunGard Energy (formerly Caminus) and RiskMetrics (now MSCI). Mark is a regular speaker at EuroFinance and at numerous other industry conferences. Regularly quoted in the Wall Street Journal. Articles frequently published in: Treasury Today, GT News, Accounting Today, Manufacturing Global, Treasury Asia, Bob’s Guide, TMI Magazine, AFP Exchange, Supply & Demand Chain Executive Magazine, Risk Magazine & Co-Author of several commodities related white papers.
In a recent webinar hosted by Treasury Today Group, Mark O’Toole, Vice President of Treasury & Commodities Solutions at Openlink advocated the arrival of Grey Swan events and discussed some key areas to focus on for improved risk management.
The presentation focused on the following:
Treasury situation: expectations and volatility.
Grey Swan risks.
Risk and complexity.
Visualising risk management.
Risk management frameworks.
Mark O’Toole opened the dialogue by describing the increased volatility in today’s world. This is heightening the focus on risk and on strategies to mitigate such risks. He cited forces including the Trump factor, Brexit, cyber-security and the threat to world peace as a result of the recent actions of Kim Jong-un in North Korea. Currency devaluations, changes in the US position on international trade and a weakening global economy were all deemed to present Grey Swan risks.
Mark then spoke about the risks inherent in the growing complexity of supply chains, ‘what-if’ scenario analysis and stress testing.
Attendees were polled during the webinar with a series of questions; here are the results of one of these polls:
Which area do you believe your department requires the most education in the near term?
FX risk management: 47%
Commodities/procurement risk management: 16%
Interest rates risk management: 16%
Derivatives modeling and risk management: 21%
Given today’s volatile markets, it is perhaps unsurprising to see corporate treasurers needing the most education in FX risk management. The other polls conducted suggest sensitivity analysis and ‘what-if’ simulations also need to move up the agenda. Manually generated spreadsheets acting as risk dashboards remain prevalent too; a risk in themselves where a single error can often go undetected with potentially catastrophic consequences. Perhaps now would be a good time to review the way you manage your enterprise-wide risk and plan for the Grey Swan.
How well do we manage the risks?
How much risk are we willing to take?
What else can go wrong and how are the risks interconnected?
Governance and policies
How good are we at overseeing risk taking?
What are we doing about the risks?
Measurement and evaluation
How do we determine the size and scope of the risks?
What are all the risks to our business strategy and operations?