Philips 2009 Annual Report Download - page 106

6.3 Risk categories and factors
Financial risksCompliance risks
• Legal
• Regulatory
• Ethics
• Supplier
• Treasury
• Accounting and
reporting
• Pensions
• Tax
Strategic risks Operational risks
Corporate Governance
Philips Business Control Framework
Philips General Business Principles
• Governance
• Major initiatives
• Mergers, acquisitions
and divesture
• Market dynamics
• Communication &
investor relations
• Sales & marketing
• Value chain
• People
• Information
technology
• Business disruption
• Physical assets
Taking risks is an inherent part of entrepreneurial
behavior. A structured risk management process
encourages management to take risks in a controlled
manner. In order to provide a comprehensive view of
Philips business activities, risks are identified in a
structured way combining elements of a top-down and
bottom-up approach. Risks are reported on a regular
basis as part of the ‘Business Performance Management’
process. All relevant risks and opportunities are
prioritized in terms of impact and likelihood, considering
quantitative and/or qualitative aspects. The bottom-up
identification and prioritization process is supported by
workshops with the respective management at Sector and
Corporate Function level. This top-down element
ensures that potential new risks and opportunities are
discussed on management level and are included in the
subsequent reporting process, if found to be applicable.
Reported risks and opportunities are analyzed regarding
potential cumulative effects and are aggregated on Sector,
Cross-Sector/Region and Corporate level. Philips has a
structured risk management process to address different
risk categories: Strategic, Operational, Compliance and
Financial risks.
Strategic risks are threats and opportunities that influence
Philips’ strategic ambitions. Operational risks include
adverse unexpected developments resulting from internal
processes, people and systems, or from external events
that are linked to the actual running of each business
(examples are solution and product creation, and supply
chain management). Compliance risks cover
unanticipated failures to enact, or comply with,
appropriate policies and procedures. Within the area of
Financial risks, Philips identifies risks related to Treasury,
Accounting and reporting, Pensions and Tax.
Philips describes the risk factors within each risk category
in order of Philips’ current view of expected significance,
to give stakeholders an insight into which risks it considers
more prominent than others at present. Describing risk
factors in their order of expected significance within each
risk category does not mean that a lower listed risk factor
may not have a material and adverse impact on Philips’
business, strategic objectives, revenues, income, assets,
liquidity or capital resources. Furthermore, a risk factor
described after other risk factors may ultimately prove to
have more significant adverse consequences than those
other risk factors. Over time Philips may change its view
as to the relative significance of each risk factor. Philips
does not classify the risk categories themselves in order of
importance.
6 Risk management 6.3 - 6.3
106 Philips Annual Report 2009