MGMT 8605M Week 2 Exposure Inventory Example

Six Exposures on One Page, One Defined Until a Stranger Could Size It: An Exposure Inventory for a Midwest Freight Carrier That Expands Diesel Cost Into Factor, Channel, Unit, Horizon and Direction and Sets Cyber Outage Apart as Uncertainty

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Walden University

MGMT 8605M: Financial Risk Management and Decision Making for Organizations

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Month Day, Year

Six Exposures on One Page, One Defined Until a Stranger Could Size It: An Exposure Inventory for a Midwest Freight Carrier That Expands Diesel Cost Into Factor, Channel, Unit, Horizon and Direction and Sets Cyber Outage Apart as Uncertainty

The Inventory

Calloway Freight is a composite truckload carrier based in Des Moines, Iowa, running 210 tractors on regional lanes across the Midwest. Its fiscal year runs October through September. The inventory below lists six exposures the controller identified, with a column recording whether a public data series exists that could be used to size each one.

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Five rows stop at a description. The sixth, diesel, is expanded below because it is the largest exposure that can be sized from a public series and because Calloway's current plan treats it as a fixed number.

Table 1

Calloway Freight Exposure Inventory, Fiscal Year 2027

Diesel Cost, Defined

The definition has five parts, each written so that someone who has never met the controller could recompute the figure.

Factor. The factor is the weekly retail price of on-highway diesel fuel in the Midwest region, published each Monday by the federal government's energy statistics agency (U.S. Energy Information Administration, 2026). Calloway's fuel card statements show its own average price tracking that series closely, within a few cents a gallon, because its drivers buy at major truck stop chains across the same region. Using a published series rather than the company's own card data means the exposure can be updated by anyone each week.

The Channel, Net of Surcharge

Channel. Calloway's tractors ran about 23 million miles in fiscal 2026 at an average of 6.5 miles per gallon, so the fleet burns about 3.5 million gallons a year. Price changes reach operating cost through those gallons. But Calloway's contracts include a fuel surcharge that adjusts weekly with the same published series above a base price, and the company's records show the surcharge has recovered about 75 percent of price increases on loaded miles. Empty miles, about 14 percent of the total, and the lag between price changes and surcharge adjustments account for most of the unrecovered share. The channel is therefore gallons burned multiplied by the price change, less what the surcharge recovers.

A Unit Anyone Can Recompute

Unit. The exposure is expressed as dollars of annual operating cost per ten-cent move in the weekly series, sustained over the fiscal year. A ten-cent move changes the gross fuel bill by about $350,000. Net of surcharge recovery at 75 percent, the effect on operating cost is about $88,000 per ten cents.

Horizon. The horizon is one fiscal year, October 2026 through September 2027, matching Calloway's budget and its bank's covenant test.

Direction. Rising prices increase cost. Falling prices reduce cost, though the surcharge also falls, so the benefit is similarly about a quarter of the gross change.

Why the Exposure Matters Now

The published series shows how far the factor has moved. Over Calloway's fiscal 2025, October 2024 through September 2025, the Midwest weekly price averaged about $3.58 a gallon and stayed between $3.39 and $3.80. In fiscal 2026 it averaged about $4.63, rising from under $3.50 in January 2026 to above $6.00 by September; the October 5, 2026 reading was $6.29. Calloway's fiscal 2027 budget assumes $3.75. If prices held at the October level, the gap of more than $2.50 a gallon would raise operating cost by roughly $2.2 million net of surcharge, more than the company's budgeted operating income.

Uncertainty on Its Own List

The cyber outage row is moved off the sized list. Knight (1921) distinguished risk, where outcomes can be assigned probabilities from experience or data, from uncertainty, where they cannot. Calloway has no history of outages and no public series bears on its systems, so any figure would be invented. The exposure is real, but it belongs on a list of uncertainties managed through preparedness, such as backup dispatch procedures, rather than in a sized register.

What the Definition Does Not Cover

The definition excludes diesel price changes outside the Midwest, which matter only for the few lanes that cross into other regions, and it treats the surcharge recovery rate as stable. Stein et al. (2001) showed that cash flow exposure for nonfinancial firms can be estimated from comparable companies when firm data are thin; Calloway could use that approach to check its own estimate.

References

Knight, F. H. (1921). Risk, uncertainty and profit. Houghton Mifflin.

Stein, J. C., Usher, S. E., LaGattuta, D., & Youngen, J. (2001). A comparables approach to measuring cashflow-at-risk for non-financial firms. Journal of Applied Corporate Finance, 13(4), 100-109. https://doi.org/10.1111/j.1745-6622.2001.tb00430.x

U.S. Energy Information Administration. (2026). Midwest No. 2 diesel retail prices, weekly [Data set]. https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMD_EPD2D_PTE_R20_DPG&f=W