Commodity Risk Management

 

The global economy is driving many organizations to develop enterprise risk management strategies.  Unfortunately for many they often interpret this as SOX on steroids and fail to deliver a true enterprise view of risk.  ERM often is trapped in an internal control view of risk that fails to comprehend and interpret the complexities of global business.

For this reason I am introducing a critical area of risk management that should be part of enterprise risk strategies for organizations that are susceptible to risk in the availability and pricing of commodities. 

Organizations are in an ongoing effort to achieve sustainability, consistency, transparency, accountability, and efficiency across risk and compliance initiatives. The fact of the matter is: organizations need complete visibility into the portfolio of risks spread across distributed and complex business processes and relationships. A spectrum of organizations are susceptible to uncertainty and risk in relation to commodities. Rising demand for commodities, limited supplies, complex supply chains, international relations, hedging, and exchange rates – all have a large impact on the ability of organizations to produce and deliver goods to their clients profitably.

As organizations define their enterprise risk and GRC strategies it is essential that they gain an understanding of the central relevance that commodity risk management plays. 
Risk management is ultimately about managing uncertainty in business. While there are a number of risk management initiatives that are part of a GRC or ERM program (e.g., treasury, operational, strategic risk), commodity risk management is often overlooked and poorly managed across a number of siloed roles in the organization which are focused on specific commodities.

If an organization’s bottom line is subject to extensive variability because of fluctuating commodity prices, it becomes paramount that the organization develop and implement processes and systems to manage commodity risk centrally on a holistic basis.

To learn more about Commodity Risk Management I encourage you to download (no charge) my latest research on the topic from my website:  Foundations of GRC: Commodity Risk Management.

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