Opportunity and risk management

Risk control as a component of risk management

Opportunity and risk management is a key component of any successful business activity. Our aim is to identify both opportunities and risks at an early stage and to manage them such as to achieve a sustained increase in enterprise value. Our Group-wide opportunity and risk control system facilitates this. We systematically survey our managers all over the world to find out how they rate future scenarios, and we evaluate this information. An integrated approval process ensures that the results flow into management control processes and that opportunities and risks are systematically communicated.

A.66 Opportunity and risk management process

The most important steps in the process are as follows:

1. Identify and assess: Opportunities and risks are defined as potential deviations from projected earnings. Managers in all divisions and regions provide an estimate of our opportunities and risks on a quarterly basis and document relevant actions. They use scenarios to assess best, expected and worst cases. Each risk is assigned to one or more managers, who assess it, monitor it, specify possible procedures going forward and then file a report. The same applies to opportunities. The results are compiled in a database.
2. Aggregate and report: The competent control units collect the results, evaluate them and review them for plausibility. If individual financial effects overlap, they are noted in our database and accounted for in the subsequent aggregation. After being approved by the department head, all results are passed on to the next level in the hierarchy. The aggregate and report step is complete when Corporate Controlling reports to the Group Board of Management on the significant opportunities and risks as well as any overall impact each division might experience.
3. Overall strategy: The Group Board of Management determines which fundamental opportunities and risks the divisions are exposed to and how these can be managed successfully. The reports made by Corporate Controlling provide a regular basis of information for the overall management of opportunities and risks.
4. Operating measures: As part of the strategy, the divisions determine the measures to be used to take advantage of opportunities and manage risks. They use cost-benefit analyses to assess whether opportunities should be taken and whether risks can be avoided, mitigated or transferred to third parties.
5. Control: For key opportunities and risks, early warning indicators have been defined that are monitored constantly by those responsible. Corporate Internal Audit is tasked with ensuring that the Board of Management’s specifications are adhered to. It also reviews the quality of the entire opportunity and risk management operation. The control units regularly analyse all parts of the process as well as the reports from internal audit and the independent auditors with the goal of identifying potential for improvement, and they make adjustments where necessary.