The table below sets out important objectives and actions for an organization’s chief executive officer, chief financial officer and chief risk officer:
| CEO PERSPECTIVE |
| Objective |
Required Action |
- Sell high-margin products to monetize embedded asset optionality
|
- Set up adequate, accurate and comprehensive risk quantification methodology that takes into account commodity and asset properties
- Apply consistent and compatible methodologies for deal valuation and risk quantification
- Ensure competitive yet adequate pricing by accounting for effect of transaction on overall portfolio
- Share trade and risk analytics to leverage advanced financial and econometric methodologies
|
- Steer existing operations and strategies based on risk/return principles in line with the organization’s risk appetite
|
- Capture and synthesize key portfolio risks, e.g. market, credit and liquidity risks
- Identify and quantify upside and downside of strategic alternatives – allocate capital accordingly
- Foster understanding of fundamental drivers and their impact on trade performance
- Provide basis for performance measurement
- Monitor regulatory landscape and reflect on implications for commercial strategy
|
| CFO PERSPECTIVE |
| Objective |
Required Action |
|
|
- Ensure adequacy and accuracy of risk capital requirements
- Identify financial vulnerabilities of trading operations and implement mitigation measures
- Monitor key financial covenants in light of current and future operations
|
- Finance strategic growth initiatives
|
- Meet transparency requirements of existing financing structures and potential structured trade finance innovations
- Account for all major risks and diversification effects in portfolio, e.g. maximizing scope of risks captured and capital efficiency
- Model key financial covenants in light of current operations and strategic undertakings
- Install comprehensive working capital management linked to market and credit risk management
|
| CRO PERSPECTIVE |
| Objective |
Required Action |
- Quantify future risks with required accuracy and comprehensiveness
|
- Establish adequate risk quantification methodologies accounting for commodity properties, physical asset characteristics and market conditions
- Institutionalize interaction between centralized risk management functions
- Ensure that the operational risk team has enough time to think about specific risks in the portfolio outside of the standard daily process and to define specific stress scenarios
- Facilitate ongoing model validation
|
- Maintain flexibility to keep up with commercial strategy
|
- Assume modular view in set-up of risk and pricing infrastructure
- Define flexible system interfaces as a prerequisite for design and implementation
|
- Increase operational efficiency
|
- Harmonize risk and pricing methodologies within the organization
- Adopt stable reporting processes, automated to the extent possible
|
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