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Friday, November 27, 2015

The Chameleon in the Room has a 5 STAR review on

Recommended to everyone who wants to deal with business risks successfully!

Five Star Review by Andriy Sichka on November 26, 2015 Format: Paperback

I always had a feeling that knowledge of the theory is only one part. Another, much more difficult one is finding a way to apply it in practice. Reading The Chameleon in the Room resolved majority of my doubts concerned with risk management. Written by a practitioner for practitioners the book shines the light on the areas left by theories in dark, and gives clear guidance for everyday practice. I recommend this book to everyone who wants to deal with business risks successfully!

Friday, October 2, 2015

Don’t be caught unprepared by an Extreme Risk Event, like VW Group. Learn how to survive if a unique risk strikes.

Perhaps the Board and Senior Executives of VW Group did not know about the fraudulent use of emission suppressing software. Reports of this nefarious scheme may well have been censored or simply left languishing in an inbox. In a bureaucratic organisation it is common for middle managers to avoid being the messenger bearing bad news.

However it seems reasonable to surmise that the leadership at VW Group did not create a culture with a higher purpose; such as to produce safe, economical, environmentally friendly vehicles at reasonable prices. Instead the purpose and culture instilled seems to have been to make as much money as possible and beat the competition at any cost; even though the website goal statement claims otherwise.

Therefore the leadership definitely bears responsibility for this calamity; the German saying ‘a fish smells from the head down’ comes to mind.

The CEO is said to have done the ‘right thing’ by resigning but what he has really done is strapped on his Golden Parachute and walked off the stage to enjoy a comfortable retirement, leaving others to clean up the mess.

This situation could well result in thousands of hard working honest VW employees losing their jobs and pensions. The Group reported Provisions for Pensions of €29.8 billion on its December 2014 Balance Sheet. It is troubling to note that this Provision does not appear to be matched by ring-fenced assets of the same value. The grim financial prospects of the Group in the light of the current crises are covered more fully later in this article.

The Board and Senior Executives should have realised that an extreme risk event could strike the business at any time. That is assuming that they had read or heard of The Black Swan by N N Taleb. If in fact they were aware of the chameleon in the room that could destroy the business – in the form of an unimaginable risk with devastating potential – they did not prepare to deal with such an event.

Perhaps they thought that since they could not imagine what may happen to overwhelm VW Group they should simply wait for the crises to break and then thrash around, blame each other and fire people, apologise, ‘re-arrange the deckchairs on the Titanic’ and put aside a hopelessly inadequate €6.5 billion.

Unimaginable Risk Drivers must not be overlooked simply because they cannot be imagined, described or counted. They will occur in the future and they are the risks most likely to destroy real businesses.

It is estimated that VW’s fines in the USA alone could amount to €18 billion if imposed in full. On top of fines in the USA will be the cost of reengineering non-conforming vehicles and the cost of settling compensation claims, with attendant legal costs. These costs will be multiplied by the number of other jurisdictions that take action; it is reported that Germany, France, India, Australia, Norway, South Korea, Switzerland and Canada have initiated investigations that could lead to prosecutions.

It is possible that VW will find the €6.5bn in cash ‘set aside’ woefully inadequate. Note in that respect that it closed the 2014 financial year with €18.6bn in cash plus €11.2bn in Marketable Securities and Time Deposits, having generated €10.8bn in Cash Flows from Operating Activities in 2014.

Commentators such as the Financial Times speculate that VW will have to find a great deal more cash than it had or has on hand; even if it has generated as much Cash Flow from Operations this year, as it did last year.

In The Chameleon in the Room – Chapter Two – I suggest that the leaders of every real business, from the smallest to the largest, should regularly anticipate the potential maximum future loss that could result from occurrence of an extreme risk event. They should jointly consider this number regularly and discuss possible defensive measures that could be taken in order to protect the capital and ongoing-concern status of the business.

The aim of such preparation would be to arm executives with an array of possible action steps that could be tailored to any situation that may arise. This would enable the leadership team to react immediately and effectively in any extreme situation to protect jobs and investors.

In the book I describe how Corporate Probable Maximum Loss (CPML) should be calculated in order to provide focus for a discussion as to steps to take in a future crises arising from an unimaginable cause.

In order to illustrate how the CPML should be calculated and used, I go on to work through an example based on the 2013 annual report of VW Group. The detailed work of this example can be studied in the book; of course at the time of writing The Chameleon in the Room there was no indication that VW would in fact face a crisis; this is a rare case when there was ‘such a thing as a coincidence’.

I have examined the 2014 annual report of VW Group and comment as follows on its financial prospects in light of the company-specific Black Swan Event that has occurred:

• Volkswagen AG Credit Ratings will determine its cost of borrowing and the availability of any short term and/or long term loans it may need to borrow in order to meet demands to pay fines, compensation and the cost of reengineering vehicles.

• Currently its credit ratings are listed as: Standard & Poor’s: Short Term: A-1, Long term: A, Outlook: Stable and Moody’s: Short term: Prime-1, Long term: A2, Outlook: Negative

• If VW’s credit ratings are downgraded its cost of debt will rise and obtaining funds via borrowing will become more difficult.

• Volkswagen AG’s share or stock price dropped from 213.45 on July 2nd to 96.50 on October 1, 2015.

• The drop in value of VW’s shares indicates that raising cash by issuing fresh stock is unlikely to be a popular option.

• The Financial Times article of September 30, 2015 titled Seven Reasons Volkswagen is worse than Enron goes further stating: “The stock collapse is only the beginning. Potentially irreparable reputational damage, a crisis of confidence and massive legal liabilities could do the company in.”

• VW’s assets as at December 31, 2014 included Intangible Assets of €59.9bn, which represented 27% of Noncurrent Assets and 17% of Total Assets. Intangible Assets in turn included €23.6bn in Goodwill, which is 39% of the Intangible total.

• Allocation of Goodwill by operating segment is stated as; Porsche €18.8bn, Scania Vehicles €2.9bn and others €1.9bn

• Arguably the serious nature of the transgression admitted by VW, which also touches its other brands, will have seriously diminished the value of this Goodwill. Although the Porsche Brand does not appear to have been involved in the wrongdoing so may hold its value.

• It is usual for conglomerates such as VW that face an urgent need for cash to sell assets. The sale or spin-off of Porsche may be a survival tactic to be employed.

• Current and Noncurrent Financial Liabilities that include Bonds, Commercial paper and notes, and Liabilities to banks amounted to €44.4bn at the end of 2014, which was 20% of Noncurrent Assets and 28% of Noncurrent Assets excluding Goodwill.

• Financial Liabilities of this kind may well be contracted on the basis that a Material Adverse Change in the circumstances of the Debtor (VW) would provide the creditor (bank, investor or bond-holder) grounds to demand immediate repayment or provision of collateral to secure repayment of the debt. Similarly VW may be party to margining agreements that would require increased cash collateral to be provided if its credit rating were to be downgraded.

According to its website Volkswagen Group;

“Operates 119 production plants in 20 European countries and a further 11 countries in the Americas, Asia and Africa. Every weekday, 592,586 employees worldwide produce nearly 41,000 vehicles, and work in vehicle-related services or other fields of business. The Volkswagen Group sells its vehicles in 153 countries.”

The Financial Times article referenced above comments that “Volkswagen’s (fraud) has endangered the health of millions. The high levels of nitrogen oxides and fine particulates that the cars’ on-board software hid from regulators are hazardous and detrimental to health, particularly of children and those suffering from respiratory disease.”

This fraud, which is fundamentally due to poor leadership, has also put at risk tens of thousands of jobs.

Tuesday, September 22, 2015

Why write “The Chameleon in the Room”? How does it differ from other Risk Books?

My purpose in writing this book was to fill the gap that I perceive exists in the technical literature relating to enterprise risk management. To my mind Banks and Financial Institutions are well served by academia, since they have invested heavily in sponsoring research, but that research has focussed on producing data driven and probability orientated solutions.

Such solutions are by their nature backward looking since the only data that exists arose in the past and deduced probabilities are extrapolations based on data. Therefore those solutions only have limited reliability (a) in relation to risk drivers that occurred in the past and (b) in relation to large portfolios of risky transactions.

Some time ago this realisation led me to focus on a holistic future-oriented risk assessment and management approach, which is the foundation of this book.

The current and increasingly rapid rate of change in the global business environment has rendered data driven risk control methods inadequate. Therefore those responsible for the leadership, operation and survival of real businesses - and credit executives managing narrow B2B customer and supplier portfolios - cannot usefully employ probability based approaches.

Common business risks are well understood and can be anticipated, so owners or executives having read my book Global Credit Management – an Executive Summary, for example, will undoubtedly put in place measures to ensure the durability of their business should common risks arise.

However research and experience over the past 30 years has established that in most cases when businesses failed the cause was either:
A – An unimaginable risk driven by a unique occurrence, or
B - Due to the actions of incompetent or fraudulent management.

Incompetence and fraud are risk drivers that are well understood and managed through internal/external audits and, in the case of buyers and suppliers, by thorough analysis and careful on-going monitoring by credit risk executives.

However unimaginable risk drivers have thus far been overlooked simply because they cannot be imagined, described or counted.

Nevertheless they will occur in the future and they are the risks most likely to kill real businesses.

Examples of such risks are Black Swan Event Risk, Liquidity Risk, Operational Risk, Correlation-Concentration Risk and Ignored External Change Risk; hence my decision to focus attention in The Chameleon on these risks.

Assessment and management of common business risks is covered at a high level in the final chapter in order to round off the subject.

I am not an academic so I have written a practical work, with each challenge outlined and a practical example of a possible solution provided.

The book is available in Paperback and Kindle eBook versions worldwide through all Amazon websites, CreateSpace eStore ( and eStoreT3P (

Ron Wells

Tuesday, August 25, 2015

Capitalism has Spawned Three Classes of Risk Taker

Real Businesses build infrastructure or provide goods and services that enhance the quality of life for people; while providing employment. Their success and often their very survival depends on effective risk management.

Financial Institutions only make money. Their survival and success largely depends on employing other people’s money to make money. While they bear very little risk themselves they allocate most of any profit to themselves; the people whose money they employ bear any losses.

Consultants and Lawyers make a lot of money for themselves by advising others to make decisions (take risks) but take very little risk themselves.

It is Real Businesses that are the builders, the decision makers, the risk takers, the growth makers. Successful Real Businesses benefit societies globally.

Risk is the Context of Life - The Chameleon in the Room
Decision Making is Risk Taking because Outcomes are Unpredictable

The Chameleon in the Room explains risk assessment and management in Real Businesses.

Click this link for more information.

Friday, July 10, 2015

Chameleon in the Room: Embrace Business Risk - Assure Survival & Growth

An innovative new risk book is now available in paperback on, and other Europe based Amazon websites.

It is also available as a Kindle version on all Amazon websites worldwide; including India, Mexico, Brazil, Australia, Japan and Canada.

The paperback and pdf versions are available for sale through the eStoreT3P website; payments are processed by PayPal.

The Chameleon in the Room is unusual as it provides tools specifically designed to manage risks that are often ignored by executives; the same risks that have surprised and fatally wounded many giant enterprises, and countless SMEs.

The 108 pages are full of practical strategies and tactics for the management of the risks that injure real businesses. Real businesses are those that produce, trade, consume or distribute physical commodities, machinery, parts and equipment or consumer products and services.

Please click on this link to read the contents pages and a sample extract from the second chapter:

Particularly addressed are the concerns and responsibilities of quoted company Executive Directors, Non-Executive Directors and ‘C-Suite’ Executives; as well as Owners and Directors of SME businesses and start-up Entrepreneurs.

Additionally Credit Executives may wish to assess their customers in the light of the 'unexpected and highly consequential' and ‘unimaginable’ risks, and associated management practices illustrated in this book.

In the face of rapid change and globalisation, data driven risk management methods alone are no longer adequate. Therefore this text presents alternative ways to cope with the diabolical array of risks that threaten non-financial businesses; including some seldom written about to date for example:
• Black Swan Events,
• Liquidity Risk,
• External Operational Risk,
• Concentration and Correlation Risk, and
• Lack of Flexibility Risk.

Related reference numbers are: ISBN: 9780957627949 / ASIN: B0118E0T84

Friday, June 5, 2015

Redesigning Work, Employment & the Social Contract - a presentation by Heather McGowan

Published on June 4, 2015
Heather McGowan - Academic Entrepreneur and Innovation Strategist

In this 23 minute talk presented in Australia recently, Ms McGowan provides an easy to follow view of the future of work, careers and the skills that will be in demand. It is both amusing and thought provoking. Certainly it is a ‘must see’ video that can be viewed on YouTube via this link:


BarrettWells Credit Resources is a trading name of T3P LIMITED

Tuesday, March 24, 2015

Stellar Book Review of Credit Risk Management - The Novel in The Asset Magazine

In the March 2015 edition of The Asset the Assistant Editor, Christoph Kober, reviews Credit Risk Management – The Novel (Part One).

Here is a short extract:

“In The Novel, Wells presents technical concepts in a manner that is enlightening to anyone interested in how oil majors and traders fuel the world economy. In the sometimes covert world of commodities, the book reveals how large oil majors can do business even with nefarious traders and national oil companies with erratic payment patterns.

Practical advice wrapped in lively accounts of how large commodity deals are brokered make the book a helpful guide not only to credit professionals but treasurers and financial directors as well.

But The Novel also has room for fiction. James “Jim” E Cricket, the head of the team of “creditphiles” at ShamOil, fancies more than just collateral when dealing with risky buyers. World peace is what he really strives for. Jim nearly brokers the smooth fall of the Berlin Wall and the end of Apartheid in a matter of just a few months.

The Novel recounts some of the most dramatic geopolitical events at the end of the 20th century – which of course proved to be watershed moments for the commodities industries as well. Fast forward two decades and geopolitical hotspots throughout the world again keep businesses on their toes. Although set in the 1990s, the solutions presented by Wells were in fact developed more recently, he says, and their applicability today adds to the book’s relevance.

Wells aims to reach an entirely different group of readers with The Novel – students and graduates undecided where to work. “Younger people looking for a career in finance are drawn to investment banking because of the money it offers. I have always found that working in business is much more exciting because real stuff moves as a result of your actions as a credit specialist. There are very few finance programmes that give students exposure to credit risk management in their courses. I hope The Novel can add to this education and show that managing customer and supplier risk in a real business is an exciting career opportunity.”

Credit Risk Management – The Novel, Part One (2013) is published by T3P LIMITED and available for purchase at Amazon.
ISBN: 978-0-9576279-2-5, 104 pages

To read the whole Book Review click:

To subscribe to The Asset click:

Sunday, March 15, 2015

A Global Shortage of Required Skills Threatens Prosperity in the lead up to and post 2030

A study by Rainer Strack presented in an amusing TED Talk indicates that by 2030, many of the world's largest economies will have more jobs than adult citizens to do those jobs.

What is worse there will be a global shortage of people with the skills to fill those jobs. In order to view this 12 minute talk click this link:

Using the example of Germany, Strack illustrates that despite the global population ballooning to about 8.5 billion by 2030 the working age populations in major producing countries will have shrunk. The situation in Germany is illustrated here, bearing in mind that the demographic profile utilised exists so the 2030 position is accurately predicted; ignoring immigration/emigration and any unfortunate calamity that may occur.

The same exercise applied to other major producing nations indicates the seriousness of the situation:

Of course the skill distribution amongst the working age population versus the needs of these economies in 2030 is more important than simple numbers.

In this talk Strack describes the Skills Mismatch that will surface despite the use of robots and other artificial intelligence in the manufacturing and service sectors. He points to the motor manufacturing industry as an area that has adopted technology to more or less replace people on the production line but has spawned associated jobs, such that more or less the same numbers of people are now involved in the process. However those new jobs require very different skill sets.

This leads to the conclusion that the global community needs to take urgent steps to ensure a suitably equipped workforce is available to maintain global GDP at adequate levels in the future. The reduction in workforce coupled with a probable skills mismatch threatens the prosperity of future generations if action is not initiated without delay.

Thursday, March 5, 2015

Real Businesses - The Success Paradox

Inventories grow
Receivables thrive
Payables vegetate
Liquidity withers

Frozen Working Capital
Inventory minus Payables
Plus Receivables
Sucks up cash
Locks it out of reach
It is a Greedy Beast

Business growth is Success
But it feeds the Greedy Beast
Beware the spectre of Liquidity Risk
The bedfellow of Bankruptcy

Reduce inventory days
Increase payable terms
Shrink receivable days
Release oodles of loot
Rein in the Greedy Brute

Tuesday, January 13, 2015

Credit Management Magazine has Reviewed ‘Credit Risk Management – The Novel’

“This is the first narrative non-fiction novel to feature the true to life experiences of a team of professionals managing business-to-business credit risk, day-to-day. This is a ‘difficult to put down’ book, not one to gather dust on your shelf, or occasionally use for reference. There are a number of case studies that might pass you by, but will probably become relevant and applicable at some stage of your career.

Hard to imagine though it may be this is a credit management book featuring action. There are real life questions for the credit team to deal with. The team solves day-today problems in practical ways and discusses general issues as they add value constructively. There are interesting twists and turns, characters are developed, fascinating places are visited, and little known facts emerge. James and his colleague Jenny manage the credit risk for a global enterprise, and at the same time share their experience and knowledge to fellow team members and the reader. Great fun”

Credit Management Magazine is the journal of the CHARTERED INSTITUTE OF CREDIT MANAGEMENT
The Recognised Standard in Credit Management
December 2014
To read page 10 of the December issue, click here
© Chartered Institute of Credit Management