Are risks to be fully avoided or should they instead be optimized? Are relevant departments working towards a common end? No commodity price risk program functions without the support of clear and understood goals.
- Goal alignment between commercial departments and risk management is fundamental. Is the commercial department’s key measure to keep inventory low, to beat industry sales or to purchase with low metal premiums at any cost? Could the “expedient concessions” they’re making to meet their targets be undermining your price risk program?
- Goals must be realistic. “Zero price risk” is a long-time management favorite but the reality is that it is uneconomic and probably impossible. It may in fact be tolerable or even desirable to maintain a degree of risk. Measurement and limits are management’s mechanisms that allow for pragmatic goal setting.
- Goals need a proper launch to raise effectiveness. Burying risk goals in an e-mailed annual plan delivered to over-stuffed employee inboxes is about as good as stuffing them in a dusty drawer. Rollouts are a must and will require management’s creativity and energy to explain, especially for risk goals that can otherwise seem intangible to the front line.