Enterprise Risk Management at Cargill By Team 9
Enterprise Risk Management at Cargill By Team 9: Elisha Peterson, Jun Wei Tan, Alex Radunz, and Derrick Stoffer May 3, 2017
Agenda Background of Cargill TRM versus ERM Key Risk Factors Addressing Key Risks Recommendations For Cargill Next Steps: Improving ERM at Cargill
Brief Overview of Cargill • Founded in 1865 by William Cargill • Provides food, agriculture, financial, and industrial products and services to the world • Cooperates with farmers, customers, governments, and communities Cargill’s Ultimate Goal: Feed the world in a responsible way, reduce environmental impact, and improve the communities where we live and work
Cargill Utilizes an ERM-Based Approach to Address Risk Overall Corporate Approach • Risk interdependencies and correlation – “Dynamic” approach at managing commodity risk, uses tactical and ratable strategies • Use of analytical tools: – “Value at Risk” measure of financial risk • Portfolio diversification approach – Protect margins, secure budgets, hedge against inflation, minimize volatility • Strives to create value by being proactive – Views the management of risk as opportunistic Financial Services Segment • Responsible for managing financial risks in the commodity • Requires an ERM approach
Top Risks Facing Cargill name, customer support, Reputational • Brand quality & business practices Regulatory • Federal & state laws, regulatory oversight bodies Financial • Currency markets, supply and demand, cost of raw materials Security • Data breaches, protection and maintenance, cloud services
Heat Map Assessment for Cargill 1 Severe and Common: Global supply and demand, natural disasters 2 Severe and Rare: Security breaches, agriculture policy changes 3 Mild and Common: Currency changes, credit markets 4 Mild and Rare: New administrations 2 4 1 3
Strategic Ways to Mitigate Risks Suggested Improvements 1. Seek ways to further prevent and reduce interdependent risks 2. Rely on retention as much as possible before paying the premium for insurance 3. Cover appropriate, insurable risks using portfolio theory to reduce overall costs 4. Encourage risk identification to occur at all levels of company employment Risk Management Solution Tree (Beyond Plain Risk Avoidance) Control Prevention Reduction Risk Financing Retention Transfer Non. Insurance
Next Steps for ERM Implementation 1. Continue to use derivatives and contracts to hedge their commodity risk 2. Apply better horizontal risk integration 3. Increase vertical integration and their proximity to their suppliers 4. Appoint an individual to CRO
Sources Cargill. "Cargill 2016 Annual Report. " Cargill, 2017. Web. 30 Apr. 2017. Kallman, James, and Patricia M. Arnold. "The National Underwriter Supplement. " Natl Underwriter Co, 2009. Web. 30 Apr. 2017. Leimberg, Stephan R. , Donald J. Riggin, Albert J. Howard, James Kallman, and Donald L. Schmidt. "The Tools & Techniques of Risk Management & Insurance. " Natl Underwriter Co, 2002. Web. 30 Apr. 2017.
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