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CFO Risk management

Shaun Drummond (Australian Financial Review) | April 5, 2011
Companies are now trying to reintroduce years of risk management theory - left in bottom drawers when times were good - and make it work in practice, which brings challenges.

The budget idea allows greater risk to be taken where it is needed. For example, in Asia, where AMP has a long-term growth strategy for its investment banking business, the "level of risk capital or the level of risk budget that absorbs today is much greater than the earnings that part of the business is making".

Situational awareness

Over at the largest printer in the country, PMP Ltd, Robert Oldfield, group risk and assurance manager, has been part of the company's "transformation" program since it received an enforceable order from the Australian Competition and Consumer Commission in mid-2009.

Subsidiary PMP Distribution provided misleading information to customers on how their brochures had been distributed in 2007 and 2008. The misreporting was found following an internal audit by the company itself and reported to the ACCC. The company has since lost a number of large contracts and, in the last half-year results, posted a loss on the previous corresponding period due to one-off costs, including site relocations, redundancies and lease obligations.

PMP is also threatened by the shift online, which was cited as one of the reasons for a $19.2 million impairment of its book distributor and wholesaler Scribo in its last half-year results. The threat involves more books being bought online and a faster than expected take-up of e-readers. "There is talk of printed material not being required in the next few years, but we're finding that is not necessarily the case," Oldfield says.

 "But that is enforcing the need to monitor not just the internal environment but the external environment and any minute changes that could influence what could happen in future."

Oldfield spends about 20 per cent of his time now on "situational awareness", he says. "I spend a lot of my time looking at what's happening in the Australian and global economy and attempting to identify anything that might impact us."

Since the GFC, he says, one of the disparaging terms for risk management has become "list management". Boards no longer want to see a list of risks identified, but a strategy to minimise them.

"They are far more interested in actually looking at information as opposed to data - forcing me to do some risk analysis - and they want far more assurance on the risks."

Cultural change has also been important. Oldfield has championed open communications internally so that senior management is notified early on of problems or opportunities that are arising.

"I spend a lot of my time discussing the risk environment with the executive management team to identify any potential issues internally," he says. "It is not necessarily formal risk workshops, but it is just open, non-hierarchical communication - that is absolutely essential. You need to have that non-hierarchical communication where people feel comfortable enough to phone me up and say 'hey, there's a change of business here or there's a change in our competitor, or there's a change to the economy'. "

 

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