Philips 2012 Annual Report Download - page 87

7 Risk management 7.2 - 7.2
Annual Report 2012 87
7.2 Risk categories and factors
Operational
• Transformation program
• Innovation process
• Supply chain
• IT
• People
• Product liability
• Reputation
Compliance
• Legal
• Market practices
• Regulatory
• General business principle
• Internal controls
• Data privacy /
Product security
Financial
• Treasury
• Tax
• Pensions
• Accounting and reporting
• Macroeconomic changes
• Changes in industry/market
• Growth emerging markets
• Joint ventures
• Acquisitions
• Intellectual property rights
Strategic
Risks / Opportunities
Corporate Governance
Philips Business Control Framework
Philips General Business Principles
Taking risks is an inherent part of entrepreneurial
behavior. A structured risk management process allows
management to take risks in a controlled manner. In order
to provide a comprehensive view of Philips’ business
activities, risks and opportunities 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,
Market and Corporate Function level. The top-down
element allows potential new risks and opportunities to
be discussed at management level and included in the
subsequent reporting process, if found to be applicable.
Reported risks and opportunities are analyzed for
potential cumulative effects and are aggregated at Sector,
Market and Corporate level. Philips has a structured risk
management process to address different risk categories:
Strategic, Operational, Compliance and Financial risks.
Strategic risks and opportunities may affect 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 implement, or comply with,
appropriate laws, regulations, policies and procedures.
Within the area of Financial risks, Philips identifies risks
related to Treasury, Accounting and reporting, Pensions
and Tax. Philips does not classify these risk categories in
order of importance.
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 and
opportunities it considers more prominent than others at
present. The risk overview highlights the main risks and
opportunities known to Philips, which could hinder it in
achieving its strategic and financial business objectives.
The risk overview may, however, not include all the risks
that may ultimately affect Philips. 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, capital resources or achievement of Philips’
Accelerate! mid-term 2013 goals. 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.