Siemens 2013 Annual Report Download - page 233

253 D. Consolidated Financial Statements
357 E. Additional Information
245 C. Compensation Report, Corporate Governance
statement pursuant to Section a of the
German Commercial Code, Takeover-relevant
information and explanatory report
246 C. Siemens AG ( Discussion on basis of
German Commercial Code)
250 C. Notes and forward-looking statements

us to monitor such risks more closely as our business pro-
gresses. Our internal auditors regularly review the adequacy
and effectiveness of our risk management system. Accordingly,
if deficits are detected, it is possible to adopt appropriate mea-
sures for their elimination. This coordination of processes and
procedures is intended to help ensure that the Managing Board
and the Supervisory Board are fully informed about significant
risks in a timely manner.
Risk management at Siemens is based on a comprehensive, in-
teractive and management-oriented Enterprise Risk Manage-
ment (ERM) approach that is integrated into the organization
and that addresses both risks and opportunities. Our ERM ap-
proach is based on the worldwide accepted Enterprise Risk
Management – Integrated Framework () developed by the
Committee of Sponsoring Organizations of the Treadway Com-
mission (COSO). The framework connects the ERM process
with our financial reporting process and is closely integrated
in our internal control system. It considers a company ’s strate-
gy, the efficiency and effectiveness of its business operations,
the reliability of its financial reporting as well as compliance
with relevant laws and regulations to be equally important.
The ERM process aims for early identification and evaluation
of, and response regarding, risks and opportunities that could
materially affect the achievement of our strategic, operational,
financial and compliance objectives. Our ERM is based on a net
risk approach, covering risks and opportunities remaining af-
ter the execution of existing control measures. In order to pro-
vide a comprehensive view on our business activities, risks
and opportunities are identified in a structured way combining
elements of both top-down and bottom-up approaches. 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 time-
ly manner. Relevant risks and opportunities are prioritized in
terms of impact and likelihood, considering different perspec-
tives, including business objectives, reputation and regulatory
matters. The bottom-up identification and prioritization pro-
cess is supported by workshops with the respective manage-
ment of the Sector, SFS, SRE, regional and Corporate Unit orga-
nizations. This top-down element ensures that potential new
risks and opportunities are discussed at the management level
and are included in the subsequent reporting process, if found
to be relevant. Reported risks and opportunities are analyzed
regarding potential cumulative effects and are aggregated at
Sector, SFS, SRE, regional 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 opportu-
nity involves deciding upon one of our general response strat-
egies, or a combination of them. Our general response strate-
gies with respect to risks are avoidance, transfer, reduction or
acceptance of the relevant risk. Our general response strate-
gies with respect to opportunities are partial or complete reali-
zation of the relevant opportunity. In a second step, responsi-
bility for a risk or opportunity also involves the development,
initiation and monitoring of appropriate response measures
corresponding to the chosen response strategy. These re-
sponse measures have to be specifically tailored 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 fluctuations 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 comple-
mented by clearly defined approval processes assists us in iden-
tifying 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 ad-
dress the risk of fluctuations in economic activity and customer
demand by closely monitoring the macroeconomic conditions
and developments in relevant industries, and by adjusting ca-
pacity and implementing cost-reduction measures in a timely
and consistent manner, if deemed necessary.
C... RISK MANAGEMENT ORGANIZATION
AND RESPONSIBILITIES
To oversee the ERM process and to further drive the integra-
tion and harmonization of existing control activities to align
with legal and operational requirements, the Managing Board
established a Corporate Risk and Internal Control Department,
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 the Sector, SFS, SRE and regional
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 implementa-
tion, operation and oversight of the risk and internal control
system and assists the Managing Board in reporting to the
Audit Committee of the Supervisory Board. The CRIC is com-
posed of the Chief Risk & Internal Control Officer, as the chair-
person, and members of senior management such as the
Sector and SFS CEOs, the CFO of Siemens, and selected Heads
of Corporate Units.