In our first article on our e-Commerce initiative, we concluded that in many organizations the fast growth of e-Commerce activities has led to an increased need for integration with the existing treasury framework. In this article we will focus more on how to organize your risk management around e-Commerce in the Treasury organization.
As described in our previous article, the e-commerce flows, often disconnected from the treasury framework, bring along a new and increased group of risks to the company due to the nature and volume of these activities. One of the functions of the treasury framework is to monitor and mitigate financial risks that are created in the course of business. In this perspective it is time to align the new activities within the existing framework.
Within the corporate risk matrix, we will find various fields of risks touched upon by e-commerce, as there are:
Below figure, reflecting Zanders’ view on corporate and enterprise risk management shows the possible areas of impact affected by e-commerce activities. It gives a clear view on the wider impact of e-commerce throughout the overall risk matrix.
Figure 1: Scope of Financial Risk Management
The above-mentioned risk categories should preferably be monitored, mitigated and controlled at a central level. The existing treasury control framework being the heart of the financial operations looks like the applicable place for this. This framework could be reflected in the below treasury activities and treasury enablers.
Figure 2: Treasury Activities and Enablers
By embedding the e-commerce activities and applicable risks to the above framework we can immediately make a translation to a practical approach for controls on your e-commerce activities, for example:
The combination and integration of the e-commerce activities will create a solid and multi-level layer of defense. Regular training of all staff involved on the various aspects of risk & compliance is a strict requirement to maintain a solid first and second line of defense in the company. Altogether this means a continuous circle of activities within a multidisciplinary team environment. Commercial opportunities should be weighed against financial and non-financial risks by appropriate representatives in the company.
In order to apply the right governance, one still often ends up with the classical risk management approach found in the COSO/ERM model. This model is rightfully based on the organization’s goals, assuming they are the correct reflection of the various and divergent interests of the stakeholders.
However, this model has also received criticism over time for, amongst others, the following reasons:
Taking in account the operational character as well as the rapid evolving environment of e-Commerce, one would prefer a more practical, environmental and dynamic approach. Such an approach can be found in a more risk-based approach of the so-called Diamond Model (MAB, 2019), a more practical approach of governance that fits well into e-commerce. The four presented governance-processes of Steer, Control, Justify and Feedback offer good tools for managing short-term goals in a fast-changing e-Commerce environment:
With the continuous evaluation and monitoring one will be able to manage, monitor and adjust the e-commerce strategy as integrated part of the financial operations of the company in today’s fast changing environment. Treasury and Commerce will act fully aligned in supporting the mission & objectives of the company in a risk-controlled way. Also, to the key (external) stakeholders, nowadays increasingly underwriting the necessity of e-commerce, the integrated risk strategy will bring a necessary level of comfort.
E-commerce has become an inclusive part of our business models, this calls for a review and update of the applicable risk, compliance and governance matrixes. Given the dynamic and fast-changing environment, there is a demand for a practical and risk-based approach. Integrating e-commerce into the company’s treasury & risk framework seems like a logic next step in the ongoing journey of the Treasurer.
2022 © Zanders. All Rights Reserved. KvK 30112147. Cookie Policy | Privacy Policy | Terms of Service
Managed by Sluijmer Multimedia and hosted by True.