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cleanFiles/bookmap_SAP_Commodity_Management_Solution_for_Oil__en-US_learning-sap-com_lsc-prod.zip (MMCP-DROPZONE) - 2025-03-17T13:06:31.000Z

Introducing to Risk Management

<div id="content"><div class="parentsection"><div class="section"><div class="kalturaVideoLessonWrapper"><div aria-label="" class="kalturaVideoLessonContainer" data-testid="video" id="1_micf3pue"></div></div></div></div><div class="parentsection"><div class="section"><div tabindex="0"><h3>Lesson Summary</h3></div><div class="formalblock"><p tabindex="0">In this video you've learned:</p></div><ul style="list-style-type:disc"><li tabindex="0"><strong>Integrated Risk Management:</strong> Combine physical and financial transactions to provide a holistic view of commodity management and exposure analysis.</li><li tabindex="0"><strong>Comprehensive Risk Analytics:</strong> Calculate positions, mark-to-market values, and P&amp;L to support informed hedging decisions and risk mitigation.</li><li tabindex="0"><strong>Hedging Instruments Support:</strong> Utilize commodity futures, options, swaps, and forwards within SAP Commodity Risk Management for effective hedging.</li><li tabindex="0"><strong>Unified Reporting Architecture:</strong> Offer integrated views of physical and financial exposures using HANA database capabilities for better decision-making.</li><li tabindex="0"><strong>Margin and Cost Management:</strong> Manage margin requirements and secondary costs within risk management for complete financial oversight and accuracy.</li></ul></div></div></div>

Risk Management Overview

SAP Commodity Management Solution for Oil & Gas and Metals & Mining

SAPIndustry_Day_4_Part_1_.mp4

So this is like the holistic view of how the risk management integrates into the whole commodity management solution, what we have, right? So if you see one side, you have all your commodity procurement or sales, trades coming in from these. This is the spot where you create your physical deals. For example, if you have a deal capture solution or even you are doing with a material MSAPN, MM or SD with purchase contracts, orders, or even for that matter, if you have TSW integrated between, in between. So all these physical side of the trades is then integrated with the risk management solution. So for every commodity management implementation or specifically when it comes to, to risk management, every unit, business unit who manages the risk management part of it would have specific risk strategy or a risk policy, right? So you have different business units or, you know, profit centers or, for example, if I could give you an example from oil and gas. So you have refineries and, you know, you have specific business centers which are allowed to trade, which are not allowed to trade. You need to do hedging for certain business units and what we call as book structures, basically, which we would see in further slides. So those kinds of terminologies are very common into the risk world. So, you know, for example, you have a gasoline book or if I have to give you a metal example, you can have, you know, a base metal group or, you know, aluminum group and so on and so forth, right? So all allies group. So these are just examples, but then you have that kind of hierarchy as which is called as a book structure created into risk management. So when you do your risk analytics, you know exactly, okay, my gasoline book is exposed to, you know, 10,000 gallons of. of Arbob or whatever. And or in a similar fashion, my aluminum group is exposed to, you know, 10,000 tons of exposure quantity, which is due delivery in August or September. So that's how you then know what kind of hedges you need to carry out so as to mitigate that particular exposure. So everything is then, you know, as I was saying, integrated into risk management. And we have this risk analytics engine where it calculates your position. It does mark to market based on the market prices available. It also gives you trade as P&L and also helps you do your day-over-day MTM or, you know, end-of-days. month over month. So all those possibilities are possible within the risk analytics engine. So no matter what stage of the contract you are in, so for example, you have created a purchase contract, created the order, it's due for delivery, and, you know, or some of the contracts must be a provisional invoiced or, you know, finally invoiced. So all this is, everything is integrated into risk analytics, even your stock or inventory management. So those kinds of risk attributes are also integrated. So you get to know your up-to-date position or exposure information every time you run these reports. And so this was a physical side of it. The same is then is the case when it comes to financial transactions, right? So because you have now all the exposures coming in from the physical side, but now you need to hedge them. Otherwise, you know, you are exposed to this or you would have a liability or, you know, you would incur a loss based on what the market situation is during your schedule delivery. So you basically then take hedging positions by going into by trading such hedging instruments. For example, commodity futures or options, you know, or commodity OTC swaps or forwards, which are all supported into SAP commodity risk management solution. And we will talk through this in tomorrow's session. So all this is again integrated into risk analytics, right? So at the end of the day, if I have to know, okay, this is my physical position, this is my financial position as a risk trader. a risk admin, I would be in a better position to know my position and be able to take more appropriate hedging decisions going forward. So that, and we, the risk analytics also have separate set of, you know, reporting queries or engines, which are based on a database, right? So you can have your physical side of the reporting done because obviously there are two separate groups, most likely in most of the organizations. And there are two separate groups who would be interested in only knowing physical exposure. There is one group which would be knowing only financial exposures. And then there is, you know, the risk admin which would go through both these positions together. So we do provide union views for all these trades. So you would see physical and financial in one single reporting architecture. And it would give you a better idea on how well you have hedged your exposure or what else additional steps you need to carry out. So again, it does not even just calculate. your positions, right? It also does your valuation. So, for example, every end of the day, when the settlement prices are available in the system, the system will calculate a market -to-market or, you know, unrealized gains and loss for you for both financial and physical deals. And it will give you what was the MTM, what was the P&L calculated based, the prices available. It will also show you what was the contract value and what was the value based of the market prices and will show you a P&L value to calculate. We will go through in detail the risk reporting attributes because we have a day reserved only for risk reporting. But yeah, so there are various key figures you can look into and because HANA database is so flexible in terms of reporting and creating your own reports. So it's not that difficult to create your own key figures and based on what customer requirements are. And finally, you know, at the end of the day, it's not just about risk reporting, but you would also need to account for all these changes, right? In terms of financial derivatives, the system is able to calculate and post the market values. And if a position is closing out, you can even post realize gains and losses. And, you know, risk management also supports margin management. So all your daily variation margins, closing, close out, close out margins. and, you know, even for that matter, initial margin if you account for that as well. So that is also managed and is part of standard functionality. Risk management also supports your secondary cost, integration of secondary costs. So it's not about just your contract value or market value, right? There are so many costs associated with your physical deals or even for that matter, financial deals. For example, they charge your execution fees, trade fees, exchange fees. So all those sorts of fees on the financial side and the costs on the physical side, those can be also integrated into risk management. Of course, the posting of such flows are standard SDM concepts. So we will not go into that. But in terms of risk analytics point of view, all these. factors are captured and integrated.