Mitigating Financial

Risk

EY CAFTA Case Championship

 AGENDA
What is Financial Risk?
1
Risk management strategies
2
Risk Management Policy
3
Vision for managing financial
risk
4
Discussion on Roadmap, next steps and
closing remarks
What is financial risk?
Financial risk for a corporation refers to the potential for adverse financial outcomes resulting from various factors that can impact the company's
earnings, cash flow, and overall financial stability
01 Market Risk
Corporations are exposed to market risk
due to fluctuations in interest rates, foreign
exchange rates, commodity prices, and
equity prices.
04 Operational Risk
Operational risk stems from internal
processes, systems, and human errors
within the corporation. This could include
errors in financial reporting, technological
failures, supply chain disruptions, and other
operational challenges that can result in
financial losses.
02 Credit Risk
Credit risk arises when a corporation
extends credit to customers, suppliers, or
other business partners. There's a risk that
these parties may not fulfill their payment
obligations, leading to bad debts and a
negative impact on the company's financial
position.
05 Regulatory and Compliance risk
Corporations must comply with a complex
web of laws, regulations, and industry
standards. Regulatory and compliance risk
arises when a company fails to adhere to
these requirements, potentially resulting in
legal penalties, fines, and reputational
damage.
03 Liquidity Risk
Corporations need access to sufficient cash
and liquid assets to meet their short-term
financial obligations. Liquidity risk occurs
when a company doesn't have the
necessary funds to cover its immediate
liabilities, which can lead to operational
disruptions, missed payments, and
reputation damage.
06 Macroeconomic Risk
Broader economic factors such as economic
downturns, inflation, and changes in
government policies can impact a
corporation's financial performance and
overall business environment.
Risk management strategies
Identify, assess, mitigate and monitor various types of risks

Diversification- Diversification involves spreading investments across different asset classes, sectors, and geographic
regions.

Contingency planning - identifying actions, resources, and responsibilities to minimize the impact of an adverse event.

Hedging – Using financial instruments like derivatives to offset potential losses from adverse price movements.

Risk Stress testing – subjecting a system, process, or portfolio to extreme scenarios to assess how it would perform under adverse
management conditions. This helps identify vulnerabilities and areas of weakness.
strategies

Risk Transfer – shifting the financial burden of a risk to another party. Insurance is a common example of risk transfer

Compliance and regulation - Developing strong compliance programs and internal controls can reduce the likelihood of violations.

Monitoring and review - Regularly monitoring risks and reviewing risk management strategies is essential to ensure their effectiveness
and relevance
Risk management policy

Construct risk management policy Illustrative RMP

Company decides on the following:

Strategy/
objective of
company

Instruments to Risk appetite

use for of the
hedging company

Exposure
management
The vision for managing financial risk is to become agile to drive business
performance
Leverage strategic imperatives Harness cutting-edge tech Responsive, insightful and efficient

Responsive
Shift from forecast execution and compilation to
analyzing results and generating insights • Proactively respond to changing market
Data
dynamics, business needs and regulatory
visualization requirements
Measure and manage financial and nonfinancial • Utilize business performance data to inform
metrics using integrated tools business actions
Robotics

Align data, processes and supporting systems to drive Artificial

streamlined reporting Insightful
intelligence
• Provide relevant, practical analysis to help the
Cloud enterprise grow and win the market
Support strategic business partnering with a living • Anticipate business trends to shape the strategic
computing
business plan and rolling forecast direction of the organization
Predictive
Leverage scenario modeling to enable faster and more analytics
informed decision-making Efficient

Digital • Provide accurate, timely and actionable

information to stakeholders
Design an efficient FP&A organization to operate • Deliver insights that align to projected outcomes
effectively and measure the impact of actions
Thank You