Financial Risk Financial Risk ManagementManagementIn a Volatile In a Volatile

EconomyEconomyR.KannanR.Kannan

20 October 201120 October 2011

Annual CFO Conference – Silicon Annual CFO Conference – Silicon IndiaIndia

Economic EnvironmentEconomic Environment

Expectations of Economic Growth had shown a declining trend in Expectations of Economic Growth had shown a declining trend in developed countries.developed countries.

US and Europe are affected in a big way and back to old normal US and Europe are affected in a big way and back to old normal will take a few yearswill take a few years

Corporate Sector outlook in many countries had shown a negative Corporate Sector outlook in many countries had shown a negative trend.trend.

Asian countries offer promise in Economic GrowthAsian countries offer promise in Economic Growth Customer sentiments are very positive in the Developing countriesCustomer sentiments are very positive in the Developing countries The developing countries have to take the lead in sustaining the The developing countries have to take the lead in sustaining the

global economic growth.global economic growth. Focus is shifting to the Real Economy activities.Focus is shifting to the Real Economy activities. Regulators have started discouraging the Profiting from Derivatives Regulators have started discouraging the Profiting from Derivatives

and just paper transactionsand just paper transactions There will be increased regulation on speculative activities.There will be increased regulation on speculative activities. Profiting from speculation will come down Profiting from speculation will come down

TrendsTrends There will be increased volatality in the There will be increased volatality in the

performance of Economies, Corporates, Markets performance of Economies, Corporates, Markets and different asset classes.and different asset classes.

The old method of forecasting and the available The old method of forecasting and the available statistical models can not address all the statistical models can not address all the imponderables.imponderables.

The inflation is likely to come down to 7% and The inflation is likely to come down to 7% and then to 5% within a year.then to 5% within a year.

The Economic growth this fiscal would be The Economic growth this fiscal would be between 8 and 8.5% and depending on global between 8 and 8.5% and depending on global developments, the prospects for the growth will developments, the prospects for the growth will evolve in future.evolve in future.

Managing VolatilityManaging Volatility

Challenges for CFO’s are manyChallenges for CFO’s are many Managing a multi country operationManaging a multi country operation Main challenge is how to manage volatility in Main challenge is how to manage volatility in

Demand, Costs of inputs and managing Cash.Demand, Costs of inputs and managing Cash. Robust Financial and Performance Planning Robust Financial and Performance Planning Ensuring predictable performanceEnsuring predictable performance Measurement of RiskMeasurement of Risk Be ready with an appropriate response for Be ready with an appropriate response for

various types of risks.various types of risks. Introduction of new reporting standards by Introduction of new reporting standards by

regulatory authoritiesregulatory authorities

Strategies to be followedStrategies to be followed Develop a highly flexible organisation and Develop a highly flexible organisation and

Financial Architecture.Financial Architecture. Reduce the level of Fixed costs in the system and Reduce the level of Fixed costs in the system and

increase the variable costs.increase the variable costs. Strategic outsourcing of activities and follow Strategic outsourcing of activities and follow

asset light strategies.asset light strategies. Focus on Cash generationFocus on Cash generation Focus on Core business and reduce the income Focus on Core business and reduce the income

from financial and derivative transactions.from financial and derivative transactions. Scenario planning and be ready with response Scenario planning and be ready with response

for all possible scenarios.for all possible scenarios.

Hedge the input costs and output price at the Hedge the input costs and output price at the budgeted levels.budgeted levels.

Monitoring of performance at regular intervals Monitoring of performance at regular intervals including daily, weekly and monthly depending on including daily, weekly and monthly depending on the need.the need.

Monitor supplier and Customer performance Monitor supplier and Customer performance closely.closely.

Develop a good risk management system and Develop a good risk management system and monitor all types of risks continuously.monitor all types of risks continuously.

Introduce flexibility into the budgeting system.Introduce flexibility into the budgeting system. Review the ongoing Projects and Capital Review the ongoing Projects and Capital

expenditure progammes at regular intervals and expenditure progammes at regular intervals and assess the need for course correction.assess the need for course correction.

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