Chapter Nineteen

Risk Management in Practice: Ensuring the Right IMAGE©

THERE ARE MANY APPROACHES TO risk management in practice, and each firm needs to institutionalise the practice that works for its Treasury design, culture, objectives, and management.

IMAGE© METHODOLOGY1

The IMAGE© methodology consists of five easy-to-implement and manage steps:

1. Identify and be aware. (What is the risk?)
2. Measure and quantify the risk. (How much is the risk?)
3. Account and report the risk. (Who knows about the risk and its management?)
4. Govern and execute the risk management process. (What is being done to manage the risk?)
5. Evaluate and assess the process. (How well is the process working?)

Figure 19.1 outlines the IMAGE© methodology.

FIGURE 19.1 IMAGE© Framework for Risk Management

image

RISK IDENTIFICATION

The objective of the risk identification stage is to identify the financial risks to which the firm is exposed. These arise because of the nature of business activity and geographical presence across markets.

How does a firm know which risk it is sitting on? Anything that moves or has variability is a risk—these include market exposures, supply chain elements, balance sheet items like accounts receivable (ARs) and inventory across currencies, dependence on liquidity, exchange control, process implementation, and so on.

Risk identification uses some simple methods to identify, bottom-up, ...

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