SAP Exposure Management 2.0

In this article I try to show the new Exposure Management module – 2.0, which has been introduced in EHP4 by SAP. Please note that I have not done any actual implementation for any customer on this new Exposure management module 2.0. Whatever I am putting here is based on my notes, workings etc. during my learning. Please also note that Exposure Management 1.0 will still be available even after applying EHP4. Detailed write-up on Exposure Management 1 can be seen on the ‘GRC Expert’ article written by me. The link is GRC Article

I shall try to give a fee new features of the Exposure Management module 2.0. After this through a series of videos, I try to show the process of a foreign exchange risk. After that there are two videos showing the ‘Automatic matching’ feature in the new exposure management. This is particularly useful as this will automatically adjust (provided the set up is done correctly) new incoming firm commitments against the forecasts. For example if you have forecasted your purchase and hedged these, then a new PO coming in as a firm commitment will automatically reduce the forecast position and increase the firm commitment position.

Features of Exposure Management 2.0
  • It can be used to manage your business’s risks due to:
• Foreign Exchange Risk
• Interest Rate Risk
• Commodity Price Risk
  • Raw Exposures can be subdivided into ‘Sub Raw Exposures’;
  • You can split one exposure into many positions depending on nature of Risks (Foreign Exchange, Commodity Price);
  • You can split one commodity exposure into multiple commodities to create commodity exposure positions based on multiple commodity IDs (For eg: Brass an alloy can be split into Copper, Zinc and aluminum positions and hedge these positions individually. This might be necessary as Brass may not be traded in say London Metal Exchange);
  • Both automatic matching and manual matching is possible based on user defined parameters (helps in automatically adjusting exposure – for example when a PO is issued against a forecasted purchase of a quarter, a new PO can be configured to automatically reduce the forecasted exposure by the PO amount and the PO will be shown as a new Firm commitment exposure);
  • Instead of entering an exact date, you can enter a period in which the exposure expires (useful in case of Forecasted exposures);
  • You can derive fields into exposures which were not entered during the entry of the Raw Exposure using Derivation strategies (helps in automatically deriving additional characteristics for an exposure say the cost center or any other criteria using a derivation logic);
  • In Risk analyzers you can view the risk key figures on ‘Physical (operational) Exposures’ and ‘Papers (Hedging Instruments)’ in a results database;
  • You can generate a P/L report in risk analyzers on operational exposures/physicals;
  • You can analyze exposure positions using NPV or value at Risk (VaR). NPV can be calculated using discounted and non-discounted methods;
  • A BAdI is available to capture ‘Raw Exposures’ from operational systems such as SD and MM into the TRM solution

Process Diagram
Based on my understanding, I give below a process diagram for Commodity Exposure Management  with the introduction of Exposure Management 2.0, a new product category for commodities, commodities as a position which can be analyzed in the market risk analyzer.
Commodities process flow new
You can click on the image for an enlarged image

Process of a Foreign Exchange Risk using Exposure Management 2.0
Some of the videos are available in HD. Such videos can be viewed in full screen without loss of clarity.
1. Create Raw Exposure
Raw Exposure Creation
2. Release Raw Exposure
3. Transfer Released Exposure to Hedge Plan
4. FX Contract Creation
5. Create Hedge Relationship
6. Subsequent Incoming PO (Purchase Order) against the Forecasted Exposure
7. Transfer the PO Exposure (Firm Commitment) to Hedge Management
8. Additional Increase in PO and its effects

Automatic Matching of Exposures
1. Automatic matching
2. Manual matching
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8 Responses to SAP Exposure Management 2.0

  1. Vivek says:

    Hi Gopakumar
    Ur videos were nice, I would like to ask if you have something also on the automatic creation of exposures from PO/SO etc. and if you have any documentation on that.

    Further, iam looking to have some kind of a desing document considering various scenarios like PO changes, invoice change etc. into the exposure mgt and further hedge mgt. is it possible for you to share any knowledge on this

    thanks
    v

  2. Hi Vivek

    As you may be aware, design documents are client specific and cannot be put on public domain.

    As I have mentioned, I have not done any actual implementation on Exposure Management 2. However, based on exposure management 1, I can say that the main reasons why an exposure management implementation fails or remains unused by the treasury department after some time is due to:

    1. failure to have a good programme to pull the expsoure details (including PO,SO,Downpayment requests etc) from other modules like MM/SD etc and the subsequent automatic adjustment in exposure management for any changes in these (PO/SO value change, date change etc)

    2. failure to have a good report which can be used by the treasury department to analyze the changes in exposures and make the appropriate hedging decisions. If the treasury department cannot have a very lucid report, then they tend to start ignoring and go back to their ‘excel’ ways. To a large extent good report can be made using SAP standards by having the correct grouping and then using different layouts.

    3. Identifying the characterstics required for good reporting. Also in this area characteerstic to identify whether an expsoure goes under ‘cash flow’ hedge or ‘fair value’ hedge may be neccessary and grouping done accordingly.

    The program extracting expsoures among other things should be able to:

    1. identify if there is already an exposure in the exposure managment module and then based on the type of change make neccessary changes to the already versioned exposure or create a new exposure. For example; if a SO billing plan line item value is reduced, then the program should change the versioned exposure amount to the new reduced amount. Or if the billing plan line item is deleted, then the program should make the versioned exposure value to 0 (as you cannot delete an already versioned exposure). similarly if the value date is changed to another period (period from the exposure managment angle), then the earlier versioned exposure value should be made to 0 and a new exposure with the new value date inserted in the exposure management module. You will need to analyze and give appropriate logics to cover different scenarios.

    2. automatically assign additional characterstics required for proper analysis based on a set of logic (exposure managment 2 has this ‘derivation’ facility inbuilt)

    3. Further, the change of a forecast (which is always a cash flow hedge) to a PO/SO (which can be either cash flow or fair value hedge) should automatically reduce the forecast and insert the new PO/SO as a new exposure (in Exposure managment 2, this is available through the ‘automatic matching’ function)

    In addition you should set the policies correctly and use the filters to ensure that the exposures go into the correct policies.

    As i mentioned earlier, a characterstic to identify if an expsoure is a fair value or a cash flow hedge may be required and the grouping done accordingly. This would ensure that subsequenet changes to the group goes correctly to the exposure item of that group in hedge management automatically.

    I am sorry if I have not been of much help.

    Best Regards

    Gopa Kumar

  3. Kumar says:

    Hi,
    I have created (FX based) PO, that does not show up when I try to transfer PO to hedge management.

    Please help.
    Kumar

  4. vamsi says:

    Hi Gopakumar
    I was trying to create an hedge relationship using the commdity future hedge instrument (Product Type 70D) and i am getting the error – “It is not possible to determine the end date of the hedging transaction XXXXXXX”, where XXXXXXX the transaction id of the commodity future.

    I didn’t find where I could maintain the end date the commodity future and I haven’t found any detailed description of the error message. I was wondering if you know anyting about this. Any inputs would be of great help.

    Thanks
    Vamsi

  5. Vijaya Kumar Malyavantham says:

    Hi Gopa Kumar,

    I see that you have very good knowledge in SAP TRM from your blog.

    I need your help in extracting the hedge plan data to SAP BI, I have gone through several sap notes where it is mentioned to use the extractor 0CFM_DELTA_POSITIONS.
    I have followed the customization or setting process in SPRO to fetch BI data for DELTA, but still I am not getting the Hedge Plan data to BI.

    I would request your help providing me some document or any source.

    Thanks a lot in advance,
    Regards,
    Vijay Malyavantham

  6. DEEPAK says:

    Hello Gopa Kumar,
    I am creating raw exposure manually in FTREX1. Is there some standard upload program for uploading exposures instead of creating manual exposures in FTREX1.

    I require your help in this.

    Deepak

  7. Chafik says:

    Hello Gopa Kumar,

    Are you available for some days as expert on TRM for implementation of Hedging management in January or february ?

    Thanks in advance for your feedback.

    Best regards,

    Chafik

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