Siemens 2010 Annual Report Download - page 185

113 Report on post-balance sheet date events
114 Report on expected developments and associated
material opportunities and risks
128 Information required pursuant to § () and
§ () HGB and explanatory report
133 Information required pursuant to § () and
§ () no.  HGB and explanatory report
135 Compensation and declaration pursuant to §a HGB
135 Additional information for supplemental
financial measures
138 Siemens AG (Discussion on basis of HGB)
147 Consolidated Financial Statements
261 Additional information

Risks and opportunities are generally reported on a quarterly
basis. This regular reporting process is complemented by an
ad-hoc reporting process that aims to escalate critical issues in
a timely manner. Relevant risks and opportunities are priori-
tized in terms of impact and likelihood, considering quantita-
tive and / or qualitative perspectives. The bottom-up identifica-
tion and prioritization process is supported by workshops with
the respective management of the Sector, Cross-Sector Busi-
ness, Regional Cluster and Corporate Unit organizations. This
top-down element ensures that potential new risks and op-
portunities are discussed at the management level and are in-
cluded in the subsequent reporting process, if found to be
relevant. Reported risks and opportunities are analyzed regard-
ing potential cumulative effects and are aggregated at Sector,
Cross-Sector Business, Regional Cluster and Corporate level.
Responsibilities are assigned for all relevant risks and opportu-
nities with the hierarchical level of responsibility depending on
the significance of the respective risk or opportunity. In a first
step, assuming responsibility for a specific risk or opportunity
involves deciding upon one of our general response strategies,
or a combination of them. Our general response strategies
with respect to risks are avoidance, transfer, reduction or ac-
ceptance of the relevant risk. Our general response strategies
with respect to opportunities are non-realization, transfer and
partial or complete realization of the relevant opportunity. In a
second step, responsibility for a risk or opportunity also in-
volves the development, initiation and monitoring of appropri-
ate response measures corresponding to the chosen response
strategy. These response measures have to be specifically tai-
lored to allow for effective risk management. Accordingly, we
have developed a variety of response measures with different
characteristics: For example, we mitigate the risk of fluctua-
tions in currency and interest rates by engaging in hedging
activities. Regarding our long-term projects, systematic and
comprehensive project management with standardized project
milestones, including provisional acceptances during project
execution, and complemented by clearly defined approval
processes assists us in identifying and responding to project
risks at an early stage, even before entering the bidding phase.
Furthermore, we maintain appropriate insurance levels for
potential cases of damage and liability risks in order to reduce
our exposure to such risks and to avoid or minimize potential
losses. Among others, we address the risk of fluctuations in
economic activity and customer demand by closely monitoring
the macroeconomic conditions and developments in relevant
industries, and by adjusting capacity and implementing cost
reduction measures in a timely and consistent manner, if
deemed necessary.
To oversee the ERM process and to further drive the integra-
tion and harmonization of existing control activities in align-
ment with legal and operational requirements, the Managing
Board established a Corporate Risk and Internal Control Depart-
ment, headed by the Chief Risk & Internal Control Officer, and
a Corporate Risk and Internal Control Committee (CRIC). The
CRIC obtains risk and opportunity information from the Risk
Committees established at Sector, Cross-Sector Business and
Regional Cluster level as well as from the Heads of Corporate
Units, which then forms the basis for the evaluation of the
company-wide risk and opportunity situation. The CRIC reports
to and supports the Managing Board on matters relating to the
implementation, operation and oversight of the risk and inter-
nal control system and assists the Managing Board in reporting
to the Audit Committee of the Supervisory Board. The CRIC is
composed of the Chief Risk & Internal Control Officer, as the
chairperson, and members of senior management such as the
Sector and Cross-Sector Business CEOs, the CFO of Siemens,
and selected Heads of Corporate Units.
Below we describe the risks that could have a material adverse
effect on our business, our financial condition and results of
operations, the price of our shares and American depository
shares (ADS), and our reputation. The order in which the risks
are presented in each of the four categories reflects the cur-
rently estimated relative exposure for Siemens associated with
these risks and thus provides an indication of the risks’ current
importance to us. Nevertheless, risks currently considered to
entail a lower risk exposure could potentially result in a higher
negative impact on Siemens than risks currently considered to
entail a higher risk exposure. Additional risks not known to us
or that we currently consider immaterial may also impair our
business operations. We do not expect to incur any risks that
alone or in combination would appear to jeopardize the conti-
nuity of our business.
RISKS
Strategic risks
We operate in highly competitive markets, which are sub-
ject to price pressures and rapid changes: The worldwide
markets for our products and solutions are highly competitive
in terms of pricing, product and service quality, development
and introduction time, customer service and financing terms.
In many of our businesses, we face downward price pressure
and we are or could be exposed to market downturns or slower
growth, which may increase in times of declining investment
activities and consumer demand. We face strong competitors,
some of which are larger and may have greater resources in a