Honeywell
Introduction
Honeywell is a Multibillion dollar company, operating in 95 countries and is a pioneer in the field of control system and industrial appliances. With revenue over $7.3 Billion and income above $400 Million (December 1996), the company was exposed to several types of risk as it operated in a global territory.
Previously, the company had a much compartmentalised approach to risk management, with individual departments managing individual risks pertaining to them. For instance, currency risks were hedged using futures contracts and under the supervision of the Financial Risk Management Unit while traditional (hazard) risks were insured by its treasury – Insurance Risk Management Unit. However, this individualistic approach did not serve the intent of the company well and hence in consultation with insurance specialists Marsh Inc., auditor Deloitte & Touché and insurance Underwriter AIG, a new cost efficient method for managing Honeywell’s risk was created. Thus, Integrated Risk Management Program was born that combined protection against Honeywell’s currency risk and other traditionally insurable risks. Decision to be made
A decision has to be taken on the adoption of the new Enterprise Risk Management Program considering its cost implication and savings offered in perspective of adequate coverage of all risks. This decision could well lead on to establishing long term Risk policy for Honeywell as well as whether this integration approach would be suitable for Honeywell. This case identifies the benefits of integrating risks and shows how such an approach might be valuable. Honeywell has diverse variety and variant degree of risks. Given this, how should its risk be managed?
Current Situation
Honeywell’s Treasury Unit
Honeywell’s Treasury encompassed the following units
• Capital Markets Unit which managed Capital Structure and Liquidity Risks
• Cash Management Unit
• Financial Risk Management Unit which managed Currency Risk, Interest
Honeywell is a Multibillion dollar company, operating in 95 countries and is a pioneer in the field of control system and industrial appliances. With revenue over $7.3 Billion and income above $400 Million (December 1996), the company was exposed to several types of risk as it operated in a global territory.
Previously, the company had a much compartmentalised approach to risk management, with individual departments managing individual risks pertaining to them. For instance, currency risks were hedged using futures contracts and under the supervision of the Financial Risk Management Unit while traditional (hazard) risks were insured by its treasury – Insurance Risk Management Unit. However, this individualistic approach did not serve the intent of the company well and hence in consultation with insurance specialists Marsh Inc., auditor Deloitte & Touché and insurance Underwriter AIG, a new cost efficient method for managing Honeywell’s risk was created. Thus, Integrated Risk Management Program was born that combined protection against Honeywell’s currency risk and other traditionally insurable risks. Decision to be made
A decision has to be taken on the adoption of the new Enterprise Risk Management Program considering its cost implication and savings offered in perspective of adequate coverage of all risks. This decision could well lead on to establishing long term Risk policy for Honeywell as well as whether this integration approach would be suitable for Honeywell. This case identifies the benefits of integrating risks and shows how such an approach might be valuable. Honeywell has diverse variety and variant degree of risks. Given this, how should its risk be managed?
Current Situation
Honeywell’s Treasury Unit
Honeywell’s Treasury encompassed the following units
• Capital Markets Unit which managed Capital Structure and Liquidity Risks
• Cash Management Unit
• Financial Risk Management Unit which managed Currency Risk, Interest