CFOs: The catalyst for integrating strategy, risk and finance
Australian resources companies have always had to contend with fluctuating commodity prices. However, the volatility of today’s markets – combined with the introduction of mineral and carbon taxes – is introducing unprecedented levels of uncertainty and therefore risk.
In June 2012 alone, the Reserve Bank’s Index of Commodity Prices fell 1.7% in Australian dollar terms. Over the past year, it dropped 9.9% in Australian dollar terms. The industry doesn’t know if this is a blip or a long-term trend, though the implications can already be seen.
Whose responsibility is it to consider this kind of macroeconomic or market risk during the business planning or capital allocation process? How can awareness of these risks trickle down through an organisation and become embedded in decision-making processes, equipping management teams with the tools they need to respond effectively to changing market conditions? How can finance teams see how their models might be affected by risks like falling market prices, and know the organisation’s tolerance for potential variations?
Because risks such as changing commodity prices are hard to predict, there is no easy answer to these questions, especially given the fast-changing and highly interconnected nature of today’s global economy. However, as we discuss in this article, Deloitte believes that Chief Financial Officers (CFOs) can play a critical role in helping their organisations make better, more risk-aware decisions, by working to formalise connections between the strategy, risk and finance functions.