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Risk is everywhere. We couldn’t live our lives without it. Whether it’s getting in your car to drive to work or managing billions in client assets, we confront risk daily, whether we realize it or not. What we all try to avoid however, is gambling. What’s the difference? Both imply a proverbial roll of the dice, but there is a critical distinction that must be made. While both risk and gambling are rooted in uncertainty, how we manage that uncertainty will dictate the range of outcomes we can expect. Unmanaged uncertainty is a gamble. Managed uncertainty is risk. When you choose to manage risk with a deliberate process, it becomes a calculated risk, and calculated risks are assets because they can be expected to generate meaningful benefit over time.
With that guiding principle in mind, Risk Is an Asset is a playbook for how to transform commodity price risk into a strategic corporate advantage.
Penello and Furman’s new book offers a comprehensive look at the approach that sets them apart—Process Risk Management (PRM). PRM provides objective, market-based estimates of budgetary risk measured as a cost for consumers and revenues for producers. By measuring risk in budgetary terms, PRM helps each firm to maintain focus on its own success and avoid the trap of trying to outguess the market.
“This book was written to help you identify which metrics are important for your business and explain how you should risk them and how to manage that risk,” says Penello. “PRM is the holistic process of assessment, response, review, and reassessment of commodity price risk.”
Risk is an Asset examines risk strategically, examines how to quantify risk, and explores strategies for managing that risk. Then it goes in detail on tactical aspects of hedging, instrument selection and timing. Separate chapters are dedicated to consumers, producers and processors. The work of true innovators, any business leader who isn’t adopting the revolutionary risk management process created by Penello and Furman is leaving their firm and themselves vulnerable to the next market upheaval.
Penello and Furman’s unique and overlapping stories are a cross-section of rapid-fire decision making needed for successful commodity trading and the edge that can only be gleaned from data-driven analytics performed by two of the most experienced financial professionals in the space. For those pursuing a hedge program, this book is a guide to stop fumbling in the darkness, providing a beacon of light to show what can happen with the right processes in place.
"“Wayne and Andy articulate and capture the philosophy on risk management that I have used successfully throughout my career. I found it even more valuable that they explained not only how to hedge but why to hedge and why it works. This book is a must-read for anyone with commodity price exposure in their business.”"