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Posts Tagged ‘energy purchase strategy’

2 Oct 27 2009 @ 4:15pm by Matt Smith in Risk Strategy

Clichés that apply to energy risk management

A stitch in time saves nine – we dive straight in with a classic cliché, and perfect energy consulting risk management lingo: a good hedging strategy ultimately protects. Saving stitches is what it’s all about.

Getting all your ducks in a row – whether you are hedging or simply managing your energy usage, data collection and verification are key. Having correct data is the first step to implementing any type of strategy – from bill verification to budgeting or risk management.

Don’t put all your eggs in one basket – a good risk strategy involves layering in, not jumping into a market 100%. You never know what is going to happen in the future, although identifying and mitigating some of that risk is vital. It is also against cliché law to count your eggs before they are hatched.

Diff'rent strokes

Diff'rent Strokes

odd

Diff'rent Folks

Different strokes for different folks – admittedly this may immediately make you think of Gary Coleman, but is nevertheless a key point in energy consulting. Defining a client’s risk tolerance is the first step to risk management. Understanding a client’s risk capacity and financial adequacy to take on market risk is vital. Without establishing a risk strategy, you do not know whether your client’s goals are to beat their budget or beat the market – two very different things.

Closing the barn door after the horse has bolted is a classic occurrence when clients ignore advice and believe they know better. While we never profess to be able to call the bottom of the market, if we recommend taking coverage and you don’t, please do not complain when prices run higher. Of course we won’t say ‘we told you so’, but please be aware that our inner voices are screaming it in our heads.

Every dog has its day – yes it does. Complacency is a terrible thing. What’s it good for? Absolutely nothing. Even the most beaten-down commodity has its price level at which to entice bargain hunters. We will try to stop you falling prey to one of the oldest tricks in the book. Say it again.

A bird in the hand is worth two in the bush – once again, perfect risk management lingo. Hedging out some of your uncertainty at a price you are comfortable with should leave you feeling safe and cozy and free to focus on value-adding pursuits for your firm. It’s all about having birds in a hand to save stitching nine of them (or something like that).

You can pick your friends, you can pick your nose, but you can’t pick your friend’s nose – am still trying to work the angle of this one for energy consulting.  But take heed, it is wonderful advice nonetheless.