Financial Professionals Are Key Players in the Energy Buying Team

November 2008

• Balancing the pursuit of lower costs with the need to manage risk requires that finance professionals be part of the buying team.
• Having finance professionals involved in the energy planning process ensures that risk management decisions are made in compliance with the hedging policies and practices of the organization.

When plant managers or purchasing professionals think about buying energy, they will tend to think in terms of minimizing the cost of heating and lighting their buildings or fuelling the manufacturing process. Energy is often a significant input cost for businesses.

An alternate perspective on the impact of energy prices can come from an organization's finance leadership. Energy prices are notoriously volatile. For some organizations, the large share of operating costs that energy represents, combined with the large degree of uncertainty inherent in energy prices means that energy inputs have the potential to add significant uncertainty to operating costs and profitability. And anything that makes profitability less certain ought to attract the interest of the Chief Financial Officer.

In other articles, Aegent has discussed the importance of establishing "SMART" objectives and using a purchasing team for making natural gas purchasing decisions. Recognizing the impact that energy buying strategies can have on different departments within an organization, the need for a cross-functional energy buying team and the need for communication and understanding of hedging objectives become very clear.

Balancing the pursuit of lower costs with the need to manage risk requires that finance professionals be part of the buying team.

Most organizations have specific policies outlining the use of hedging programs and the types of hedges that are appropriate. Having finance professionals involved in the planning process ensures that risk management decisions are made in compliance with the policies and practices of the organization. Further, involvement in the hedging process ensures that senior finance staff are equipped with the background information they need to reinforce the goal of the hedging program and to properly track the performance of the hedge relative to these goals.

Aegent's articles on developing a purchasing team or establishing "SMART" objectives are:

"Lone Wolf" Behaviour - A Risky Move in Energy Buying. Read more »

Develop a "SMART" Goal for Your Energy Procurement Plan. Read more »