Author Archives: Teddy Nee

Is Your Money Safe? Risk Management Blindspots That Cost Investors Dearly

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Is Your Money Safe? Risk Management Blindspots That Cost Investors Dearly

Both retail and institutional investors who have survived one or more economic recessions have learned that they cannot select their money managers solely on a demonstrated stream of at or above benchmark returns and that they need to include the underlying risk of their investment portfolio in the formula that calculates expected future value. However, the risk denominator in portfolio management analytics may be underestimated or misestimated because of the following three industry problems:

1. The traditional view of risk is disaggregated

The traditional view segregates risk into market, credit and operational.

2. Regulators are approaching the industry reactively

Significant regulatory tightening ensued after the 2008 mortgage crisis.

3. Operational risks is not adequately represented

To manage market risk better, most investors are well aware of basic portfolio hygiene principles including the value of diversification, the importance of looking at volatility driven asset correlation, rebalancing, the criticality of subtracting leverage when assessing quality alpha, the value of protecting for inflation through IL bonds or inflation-hedging assets such as real estate.

 

How can investors make safer investments?

What could investors do in an environment of confusing regulatory requirements and limited transparency around operational risk? For starters, Investors can raise their awareness and employ alternatives to address the information asymmetry in the following ways:

1. Select asset managers that demonstrate commitment to operational risk management

Certainly some asset managers understand and are willing to invest in operational excellence and risk management.

2. Look for business partners that can help

Whenever there are potential gaps, new business models emerge and the industry evolves.

3. Improve your investment due-diligence process

Investors are in the best position to demand greater transparency and accountability from money managers and one way to do that is to raise the standards of due-diligence.

Do you have any opinions regarding this topic? Share your thoughts in the comments.

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Regulate This! A New Freakonomics Radio Podcast

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Regulate This! A New Freakonomics Radio Podcast

A battle is being waged between the Internet and the State, and this episode of Freakonomics Radio gives you front-row seats. It’s called “Regulate This!” (You can subscribe to the podcast at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript; it includes credits for the music you’ll hear in the episode.)

At issue is the so-called sharing economy, a range of services that facilitate peer-to-peer transactions through the Internet. Companies like Airbnb, Uber, and Lyft have seen rapid growth and eye-popping valuations, but as they expand around the world, they are increasingly butting heads with government regulators.

In this episode, you’ll hear from Nathan Blecharczyk, the co-founder and CTO of Airbnb (now valued at roughly $10 billion), and one of the youngest billionaires in the world. Blecharczyk tells Stephen Dubner the story of Airbnb’s founding, how it initially struggled to find investors, and what kind of obstacles it still faces daily. In New York City, for instance, it’s estimated that about two-thirds of its business activity is illegal. That’s a big concern for New York State Senator Liz Krueger, known as “Airbnb’s doubter-in-chief.”

Do you have any opinions about this topic? Share it in the comment.

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Freakonomics Radio

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Freakonomics Radio

In their books “Freakonomics,” “SuperFreakonomics,” and “Think Like a Freak,” Steven D. Levitt and Stephen J. Dubner explore “the hidden side of everything,” telling stories about cheating schoolteachers and eating champions while teaching us all to think a bit more creatively, rationally, and productively. The Freakonomics Radio podcast, hosted by Dubner, carries on that tradition with weekly episodes. Prepare to be enlightened, engaged, perhaps enraged, and definitely surprised.

What have you learnt from this podcast? Share in the comments if you have any opinions.

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The Story Of Alibaba

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The Story Of Alibaba

A massive Chinese company, Alibaba, is about to have what could be the biggest public offering on planet earth. You can think of Alibaba like Amazon or Ebay, except you can buy way more — you can get a used 747 airplane, or an oil tanker, or 500 million tiny screws. On the show, the company that made it possible for anyone anywhere to build almost anything they want. What that company means for China, for the rest of us and for some chickens in California.

If you have any opinions, please share with us in the comment.

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Six Best Practices Utilities Can Employ to Improve Collections Performance

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Six Best Practices Utilities Can Employ to Improve Collections Performance

Utilities face increasing pressure from stakeholders and communities to improve their financial performance and profitability by minimizing write-offs for uncollectible accounts. West Monroe Partners recently benchmarked clients to identify best practices used to improve utility collections performance. While collections performance is highly measurable, visible, and actionable, it is also influenced dramatically by local ordinances and challenges that are unique to each utility. Our benchmarking effort identified six best practices that utilities can employ to improve their collections performance. Some utilities are hesitant to change collections practices, fearing a corresponding drop in customer satisfaction. West Monroe’s benchmarking found the opposite to be true — generally, utilities that implement and strictly enforce collections policies have higher customer satisfaction.

Best Practice #1 – Collect and Maintain Good Customer Data

To enhance collections performance, you first need to know your customers and debtors. At account setup, utilities should positively identify customers by requiring a social security number or driver’s license number. With this information, utilities can review past payment behavior (if available), or perform soft credit checks.

Best Practice #2 – Practice Premises-Based Billing

It is difficult to verify tenant demographics, and tenants’ transient nature increases utilities’ risk of not collecting payment. To address this risk, some utilities capture both tenant and property owner data, and will bill property owners or landlords in the event of tenant non-payment, especially in high tenant populations (e.g., college towns).

Best Practice #3 – Employ Customized, Risk-Based Processes

Aggressively treating all past-due accounts in a similar fashion is expensive, unrealistic, and could impact public-perception of utilities. To combat this, and to maximize effectiveness of treatment, utilities should use analytics to segment customers into low, medium, and high-risk pools.

Best Practice #4 – Make it Easy to Pay

By sending timely bills, with actual meter reads, and presenting bill information in an engaging and clear layout, utilities can improve on-time payment. When necessary, estimated bills should leverage customer history, seasonal usage patterns, and weather trends to mimic the actual amount due as closely as possible.

Best Practice #5 – Leverage State Laws and Local Ordinances

Multiple utilities surveyed cited issues of political pressure when attempting to perform collections activities. Survey results indicate that utilities which have a published delinquency policy, including fees, timelines, and cutoff practices, face the least political pressure.

Best Practice #6 – Make Utilities Accessible

While our firm typically works with utilities to improve business performance and enhance customer experience, we also strongly believe that utilities provide a commodity service that everyone deserves access to. Fortunately, this is something utilities can incorporate into their collections strategy.

What do you think about this topic? If you have any opinions, please share with us in the comment. You may also contact us for a discussion.

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Is Your Supply Chain Ready for the Holidays?

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Is Your Supply Chain Ready for the Holidays?

Doug Pasquale, senior vice president of supply chain solutions for Ingram Micro Mobility, shared with Apparel magazine his insights on supply-chain strategies ahead of the crucial holiday season.

1. What are your top three best practices for pre-holiday logistics planning?
First and foremost, have a dedicated holiday supply chain strategy put in place at least six months before the holidays. It’s always a good idea to begin planning immediately following the previous year’s season and engage manufacturers and logistics partners as soon as possible.

2. Holiday supply chain disruptions are inevitable – whether it’s a natural disaster or a sudden shift in consumer demand. In your opinion, how much stock should retailers put in demand forecasting and planning?
There will always be situations that arise causing disruptions in a supply chain — you cannot plan for every possible scenario. I am a big advocate for sophisticated demand forecasting and planning, but retailers should also bear in mind they don’t have a crystal ball.

3. What advice could you give apparel retailers at the holidays based on your experience working with mobile device retailers?
The mobile device retail industry isn’t as removed from the apparel industry as it might seem at first. Both industries are at the mercy of quickly changing consumer demand, and overseas production is common. However, the mobile device industry tends to move at a faster pace – while most retailers change their stock of clothes by season, mobile device retailers are flooded with new technology weekly.

4. With only 26 days between Black Friday and Christmas this year, how does this affect supply chain planning and strategy?
The peak season always puts a crunch on supply chain planning and strategy, but when faced with less time to orchestrate all the activity happening between manufacturers, suppliers and logistics providers, a shortened season leaves little room for error. Even one or two fewer selling days during the peak season can have a potentially negative financial impact in retail if not prepared, so it’s imperative for retailers to open early, clear lines of communication with manufacturers and logistics providers for demand forecasting, inventory needs and delivery dates. Timely communication and information flow is absolutely critical.

5. Where should retailers be on their planning trajectory at this point in the year, and what should the next step be?
Ideally, retailers should have begun their peak season supply chain preparations back in January when cycles were set for the remainder of the year. That is the time to start forecasting demand and working with manufacturers to strategize product portfolio, market demand, stocking, and returns preparation. By this point in the season, retailers should be fine-tuning any adjustments to that strategy and should be well under way with executing it. Retailers currently should be firming up delivery schedules and finalizing promotional packaging designs, special deals, and production schedules to ensure they are ready for the coming busy peak season.

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Five New Supply Chain Risks and Regulations

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Five New Supply Chain Risks and Regulations

Supply chain risk is a major issue, and new sources continue to pop up. Adverse weather, natural disasters and factory fires have historically grabbed the attention of CPOs, but there are other risks procurement leaders must be aware of that are just as hazardous. The world of procurement is constantly changing, and supply chain managers must be on top of their game. Here are 5 new threats that you might not be ready for:

1. Financial Fraud

Financial fraud can come in the form of collusion, poor monitoring of employee expenses, or misconduct from the vendor, including falsified labor and inflated bills. Did you know that less than one-third of executives are utilising data-analytics tools that can detect fraud or vendor waste?

2. Cybersecurity Threats

Many companies have lax procedures in protecting critical data, leaving businesses vulnerable to attacks that could harm customers, operational processes and brands. Even if you have security measures in place, the suppliers you work with may not.

3. Supply Chain Management Regulations

New rules and regulations continue to pop up in the supply chain, and companies need to be ready to disclose information about their sourcing and supply chain practices. For example, the Transparency on Trafficking and Slavery Act requires companies to file annual reports with the SEC, disclosing efforts to address specific human rights risks in the supply chain.

4. The Talent Gap

Baby boomers are retiring and there are few up and coming procurement gurus to take their place. CPOs are scrambling to find a solution to this problem, as the implications of this issue are likely to last for at least a decade.

5. Rising food costs

Droughts are worsening across the United States, increasing food prices and ultimately raising the cost structure for many firms. Overall food prices are expected to increase by 2.5-3.5 percent this year, with fruit up 3.5-4.5 percent and vegetables up 2-3 percent.

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Code red: Big data risk management requires a safety net

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Code red: Big data risk management requires a safety net

When I advise leaders on a strategy that includes data science, I ask them to consider the probability that their great idea won’t bear fruit. It’s a tough space for visionary leaders to enter — their optimism is what makes them great visionaries. That said, most data science ventures don’t turn out, and most leaders aren’t in touch with the reality that the odds are against them. Having a fallback plan makes good sense, and having a fallback plan for your fallback plan makes great sense.

For instance, when I rolled out an upgraded loyalty platform for a large financial transaction processing company in 2010, we built four plans that successively addressed the failed execution of its predecessor plan. Fortunately, we never had to pull the trigger on even the first fallback plan; however, we were fully prepared for any and all scenarios. It’s a prudent approach that I recommend for you as well, because data science is a risky endeavor.

The colors of cautious management

The best leaders have a backup plan for their backup plan. In fact, when running a strategy that incorporates big data analytics, I suggest you have a series of colored plans: green, yellow, red, and blood red (or black).

  • Green is your plan of record.
  • Yellow is a contingent plan.
  • Red doesn’t meet your minimum expectations, but it doesn’t set you strategically backward either.
  • Blood red is your worst case scenario.

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Teaching the ins and outs of financial management

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Teaching the ins and outs of financial management

Standard Chartered volunteers share know-how with children at 7 schools

Almost 450 employees from Standard Chartered Bank (Thai) recently put their skills to good use by going out into the community to help ensure that Thailand’s next generation does not fall into the painful trap of financial mismanagement.

They choose their holiday date, July 1, to conduct 35 sessions in seven schools in Bangkok, Ang Thong and Saraburi, reaching out to 1,380 students in total in just one day.

Standard Chartered’s staff members were truly able to bring the bank’s ideal to life by devoting the day to helping Thai children gain a better understanding of financial education.

Financial education and inclusion are important issues for Standard Chartered. The bank believes it is important to ensure that people have good financial education, so that they will be able to use financial services actively and responsibly.

Moreover, financial education is a crucial building block of economic citizenship and a means to protect Thais from overextending themselves financially, which in turn will promote stability in the Kingdom’s financial system.

This major exercise was organised by the bank to mark Standard Chartered’s 120th anniversary in Thailand.

Giving back to the community and supporting sustainable economic growth are the cornerstones of the bank’s approach to sustainability.

The lack of appropriate financial education limits economic opportunities for young people. Without such education, many youths are not prepared to take advantage of financial services that could help them save and plan for the future.

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County fair teaches risk management with interactive game

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County fair teaches risk management with interactive game

Young Black Hawk County Fair-goers are receiving an early lesson in realizing what it takes to produce and bring animals to market at this year’s Commodity Carnival booth.

Chicago Mercantile Exchange Group and the National 4-H Council have partnered for the second year in order to educate young people about agricultural science and economics.

“U.S. farmers and ranchers are getting older and there are fewer people standing in line to take their place,” a 2012 article in Iowa Farmer Today, a Lee Enterprises sister publication of The Courier, reported.

Advancements in technology have spurred more diverse career paths in agriculture for future generations, but the average age of farmers has climbed up to the late 50s, according to the most recent U.S. Census of Agriculture.

The Commodity Carnival is aiming to reach out to younger generations. Last year, the interactive game educated more than 54,000 youths at 120 state and county fairs in 11 states last year.

Chris Grams, director of corporate communications at CME group, said the carnival is all about experiencing what it’s like to run a farm and the work that goes into raising animals.

“We really want (the kids) to gain an understanding that farming is a business and that farmers and ranchers do face risk in bringing food to the market,” Grams said.

The game is composed of three main steps: grow your livestock, sell your livestock and win a ribbon.

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