Siemens 2014 Annual Report Download - page 229

247 D. Consolidated Financial Statements
337 E. Additional Information
213 C. Overall assessment of the economic position
214 C. Subsequent events
215 C. Sustainability and citizenship
225 C. Report on expected developments and
associated material opportunities and risks
242 C. Compensation Report and legal disclosures
242 C. Siemens AG (Discussion on basis
of German Commercial Code)

Overall, the actual development for Siemens and its Segments
may vary, positively or negatively, from our expectations due to
the risks and opportunities described below. See C.. RISKS
as well as C.. OPPORTUNITIES. This report on expected devel-
opments should be read in conjunction with E. NOTES AND
FORWARD-LOOKING STATEMENTS.
C.. Risk management
C... BASIC PRINCIPLES OF THE RISK
MANAGEMENT
Our risk management policy stems from a philosophy of pursu-
ing sustainable growth and creating economic value while
avoiding and managing inappropriate risks. As risk manage-
ment is an integral part of how we plan and execute our busi-
ness strategies, our risk management policy is set by the Man-
aging Board. Our organizational and accountability structure as
of September ,  requires each of the respective manage-
ments of our Sectors, SFS, SRE, regions and Corporate Units to
implement risk management programs that are tailored to their
specific industries and responsibilities, while being consistent
with the overall policy established by the Managing Board.
C... ENTERPRISE RISK MANAGEMENT PROCESS
We have implemented and coordinated a set of risk manage-
ment and control systems which support us in the early recog-
nition of developments jeopardizing the continuity of our busi-
ness. The most important of these systems include our
enterprise-wide processes for strategic planning and manage-
ment reporting. Strategic planning is intended to support us in
considering potential risks well in advance of major business
decisions, while management reporting is intended to enable
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
approach 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 our internal control
system. It considers a company’s strategy, 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 ma-
terially 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 after
the execution of existing control measures. In order to provide
a comprehensive view on our business activities, risks and op-
portunities are identified in a structured way combining ele-
ments 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 timely
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 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 acceptance
of the relevant risk. Our general response strategies with
respect to opportunities are partial or complete realization of
the relevant opportunity. In a second step, responsibility for a
risk or opportunity also involves the development, initiation
and monitoring of appropriate response measures correspond-
ing to the chosen response strategy. These response measures
have to be specifically tailored to allow for effective risk man-
agement. Accordingly, we have developed a variety of response
measures with different characteristics: For example, we miti-
gate the risk of fluctuations in currency and interest rates by
engaging in hedging activities. Regarding our long-term proj-
ects, systematic and comprehensive project management with
standardized project milestones, including provisional accep-
tances during project execution, and complemented by clearly