Best Practices

January 2007 - Posts

• Plus / Minus 0 (Zero) Around 0 (Zero)

  We have surveyed many companies regarding their goals for financial risk management. The vast majority of companies have stated that their ultimate goal is to reduce volatility to plus/minus zero around zero. Companies feel as long as it is not prohibitively expensive, the goal is not just to protect 75 or 80% of their exposure - as often written in the risk management policy - but rather to protect as much as possible.  They state that the policies are written with significant room in order to be able to state that the company is policy compliant.  Goals are defined with room, but lack definitive intend. Does your company: 1) Manage to the minimum protection (i.e. 80%)? 2) Manage to 0 +/- zero around zero? 3) Take a view on the direction of the underlying exposure and given anticipated market direction actively decide to manage towards either end of the allowed spectrum? Posted Jan 19 2007, 05:42 PM by Sunny with no comments

• SAP misses target, in large part due to foreign exchange!

  "SAP misses target, in large part due to foreign exchange. Result: 10 percent decrease in share price and USD 6 Billion in market cap loss!" Some think it is ironic that the large ERP Company missed earnings due to FX. Prof FiREapps is not surprised. Why? 1) SAP is  just like any corporation that does not have a well defined process in place. I could tell from their financials that they had the risk and it was only a matter of time.  2) ERPs like SAP are designed to focus on history and make that data available for analysis and decision making. 3) The recent increase in volatility will hurt many more corporations. They will surprise investors and themselves resulting in significant impact on the share price. 4) If one believes that they should know - as they are closer to the source than others; I can only non- scientifically say: "the hairdresser always has the worst haircut" :-) Don't forget: foreign exchange volatility and surprises will not get a free pass any longer. SAP is just the latest proof for that. Should you be interested in the SAP analysis and possible process change, please let me know. Given the level of interest, a detailed research piece could follow. Also I am curious about the follwing: 1) Are you surprised that SAP missed their numbers due to FX? YES NO Never thought about it 2) Does it surprise you that a USD 30 mil loss reduced the market capitalization of SAP by more than USD 6 Billion? YES NO 3) Did you know that Google had the exact same thing happen roughly 6 months ago? (They lost 8% due to FX losses). YES NO, I did not know surprise, but that does not surprise me NO, I did not know and I am surprised 4) (Optional) Do you think your company could have the same surprise sometime in the future a. YES b. NO   Posted Jan 15 2007, 06:34 PM by Sunny with 3 comment(s)