FAS 133 and other factors spark a flurry of “asset expansion” among risk management software vendors.

Treasurers are increasingly adamant that they want a single, integrated system to handle all of their risks. The impetus for this change is multifold (see here). However, both system vendors and treasurers agree that FAS 133 has a lot to do with convincing risk managers and accountants that they need to handle risk management and its accounting-entry consequences in a single platform.

In recent weeks, FXpress, Reval and Kiodex announced plans to expand their asset classes and offer a soup-to-nuts system for risk management. This is great news for treasurers looking for a solution that allows them to view risk, manage it, and account for it centrally, yet one which comes with a less-than-a-million-dollar price tag. “Right now,” notes Dino Ewing, CFO of Reval, “there’s not that much in between that and spreadsheets.”

What’s new and what’s not?

FXpress launched the integration flurry with its unveiling of a commodity module, as well as plans for interest rate, investment and ultimately, an equity-risk module in 2003.

Reval, which has handled FX and interest rates as well as related FAS 133 accounting via its newly named HedgeRX™ hedge-management solution, now covers metals, energy and commodities as part of its most recent release.

Kiodex, a web-services energy risk management/accounting platform (see IT, 2/25/02), is expanding to cover FX first. “We plan to introduce more asset classes aggressively in 2003,” reports Co-Founder and President, Raj Mahajan.

These recent converts to the integration mantra follow in the footsteps of others such as Open Link on the high end, and INSSINC on the affordable side. “We have always chosen the integrated route,” explains Elie Zabal, president and CEO of INSSINC. Yet Mr. Zabal and others agree that this flare-up in asset-class expansion signals a change: The market is coming around to understanding that handling risk in one system is key, whether or not execution continues to occur in separate functions.

Says Kiodex’s Mr. Mahajan: “Our vision has been to generate a report for chief financial officers that breaks down the corporation’s exposure to price risk by asset class.” Such a holistic view is critical, if companies want to avoid “nasty” surprises (e.g., Ford’s $1 billion write down). “The first step is identifying the exposure across asset classes” he says. “Next, treasury should be able to quantify/analyze the risk and produce a single report which makes risk transparent while allowing treasury to mitigate exposures, taking into account correlations among asset classes.”

Granted, many companies handle financial and non-financial risks in separate departments. Yet an integrated system makes sense precisely because of this ongoing separation of duties, as companies come under increased pressure to comply with regulatory requirements, and ensure internal compliance with hedging/trading policies. “FAS 133 brought this issue front and center,” notes Mr. Zabal. “Whether you are hedging corn or electricity, the policies, controls and accounting trail should be the same.”

Remote access, centralized data

Reval and Kiodex offer an added twist—an ASP model (available from INSSINC as well). The upshot is quicker implementation and an ideal platform for capturing live data dynamically, and allowing multiple, remote access points. Certainly, client/server systems can accommodate this, but implementation can takes months, compared to days with the newer technologies.

Such rapid implementation and lower price tags have a “price” too—less control over the IT environment. Interestingly, Reval reports that clients who have been offered the intranet option have opted for the outsourced solution 100 percent of the time. The reason, says Mr. Ewing, is cost and maintenance.

ASP or not, the integrated model opens doors. Customers want a single solution and vendors need to be able to offer one, Mr. Zabal says, if they are to make sales. FXpress, Reval and Kiodex all report that existing users have asked them to round out their offerings. The key is to offer an integrated solution at an affordable price that can be quickly implemented. Often, the latter is more important. “Would technology save us some time and money?” comments one treasurer, “Yes, but in the immediate term,” he says, “I cannot afford to lose staff time to lengthy and painful implementations.”

Which end is first?

One issue for treasurers to consider is whether the system’s origins matter. Both Reval (originally financial) and Kiodex (originally commodity) agree it’s fair to say that moving from commodity to financial risk is an easier route, since commodity markets and instruments are typically more complex. Does this give systems with commodity origins an edge?

Other issues treasurers may wish to consider as they evaluate newly integrated solutions include:
(1) Can one system truly handle all asset classes effectively (and affordably)?
(2) Does the underlying platform (ASP vs. client server) matter, and if so, how?
(3) How about the global support structure of smaller or newer vendors?