The changing face of risk management

The principle of risk management has evolved, from what was an obscure function of finance to an approach now widely used for ensuring organisational resilience.

Traditional risk management tactics are still widely in use - incorporating all the usual suspects such as brand risk, business continuity and crisis management, but the growth of the sector can be closely aligned to a progressive outlook on the very concept of what risk is. In 2010 we see uncertainty being turned on its head, and used as a business advantage. Risk is now hedged and leveraged in ways that increase brand reach, maximise marketing spend and PR exposure. Whereas a decade ago risk was an element to be minimised, it is now, with the advent of risk transfer, a veritable strength within a goal-driven context.

By transferring risk to companies such as Airton Risk Management the financial burden is shouldered by the third party for a fraction of the potential payout, therefore turning the large variable exposure into an acceptable fixed cost and thereby opening up many marketing opportunities that previously did not exist.

Conditional rebates

“Buy a flatscreen television and if England wins the World Cup, you get your money back.” If the retailer is going to sell 2,000 TVs at £1,000 each, then that is a £2m risk exposure. Let’s say Fabio Capello and the boys are 5-1 giving a 16.67% probability to win the World Cup. Airton Risk Management simply takes 16.67% of the promotion value -giving a stake of £333,400, for which the retailer can hedge the multimillion risk.

It’s a simple business which can be applied to any consumer product allowing companies to offer headline-grabbing, spectacular, topical and PR-friendly offers to the market.

Sponsorship

Annual global sponsorship is estimated at $45bn (£29.11bn), of which 88% is spent on sports. Top sponsorship opportunities appear to be recession-proof and benefits to the sponsors are clear. But below this level smaller companies are losing out and there is pressure to make spend worthwhile. This is where companies such as Airton Risk can add significant value and differentiation.

Firstly, there is the opportunity to hedge success-based contingency and bonus payouts, which allows companies to enter into agreements that were otherwise potentially cost-prohibitive. Utilising products such as conditional rebates, sports prediction games and consumer participation events assist in bringing a sponsorship above the perception threshold in the minds of the target audience. This is a critical benefit when the need to justify marketing spend is key and simple brand exposure is no longer sufficient to justify large sponsorship commitments.

Consumer participation

Consumer participation events with a major prize are becoming commonplace in a bid to win customer loyalty and incite brand affiliation - win £250,000 if you hit the crossbar from a dropkick on the rugby pitch; drive home in a new car if you hit a hole in one; score a goal from the halfway line and claim £10,000.

These types of promotions are soaring in popularity. Their growth is due, in much part, to the fact that the huge prizes are underwritten by risk management companies.

Games and jackpots

From prediction bracket games for large scale tournaments such as the World Cup to a million dollar dice roll, the imagination is the limit for marketing and product teams. Whether the games constitute new revenue streams, competitions, a TV programme with a large jackpot, or a clever internet branding tool, through hedging the costs, risk management services have enabled a whole new spectrum of operations.

Formerly ‘prudence’ financial tools, hedging and risk management have evolved into an efficient and effective marketing tool and opened up myriad opportunities that were previously cost-prohibitive. Risk just got interesting.