Siemens 2015 Annual Report Download - page 28

Combined Management Report
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approach, addressing risks and opportunities remaining after
the execution of existing control measures. In order to provide
a comprehensive view on our business activities, risks and
opportunities 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 report -
ing process that aims to escalate critical issues in a timely man-
ner. Relevant risks and opportunities are prioritized in terms of
impact and likelihood, considering different perspectives, in-
cluding business objectives, reputation and regulatory matters.
The bottom-up identification and prioritization process is sup-
ported by workshops with the respective managements of the
Industrial Business, SFS, regions and Corporate Units. This top-
down element ensures that potential new risks and opportuni-
ties are discussed at management level and are included in the
subsequent reporting process, if found to be relevant. Reported
risks and opportunities are analyzed regarding potential cumu-
lative effects and are aggregated within and for each of the
organizations mentioned above.
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.
Our general response strategies with respect to risks are avoid-
ance, 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 re-
sponse measures corresponding to the chosen response strat-
egy. These response measures have to be specifically tailored to
allow for effective risk management. Accordingly, we have de-
veloped a variety of response measures with different charac-
teristics. 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 comprehen-
sive 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 main-
tain 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 fluctuation in economic activity and cus-
tomer demand by closely monitoring the macroeconomic con-
ditions and developments in relevant industries, and by adjust-
ing capacity and implementing cost-reduction measures in a
timely and consistent manner, if deemed necessary.
A.8.2.3 RISK MANAGEMENT ORGANIZATION
AND RESPONSIBILITIES
To oversee the ERM process and to further drive the integration
and harmonization of existing control activities to align with
legal and operational requirements, the Managing Board estab -
lished a Risk Management and Internal Control Organization,
headed by the Chief Risk & Internal Control Officer, and a Corpo-
rate Risk and Internal Control Committee (CRIC). The CRIC ob-
tains risk and opportunity information from the Risk Commit-
tees established at the Industrial Business, SFS, and regional
organizations and from the heads of Corporate Units. In order
to allow for a meaningful discussion on Siemens group level
individual risk and opportunities of similar cause-and-effect
nature are aggregated into risk and opportunity themes. This
aggregation naturally results in a mixture of risks with a pri-
marily qualitative and primarily quantitative risk assessment.
Accordingly, a purely quantitative assessment of risk themes is
not foreseen. This information 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 mat-
ters relating to the implementation, operation and oversight of
the risk and internal control system and assists the Managing
Board for example in reporting to the Audit Committee of the
Supervisory Board. The CRIC is composed of the Chief Risk &
Internal Control Officer, as the chairperson, members of the
Managing Board and selected heads of Corporate Units.
A.8.3 Risks
Below we describe the risks that could have a material adverse
effect on our business, financial condition (including effects on
assets, liabilities and cash flows), results of operations and rep -
utation. The order in which the risks are presented in each of
the four categories reflects the currently estimated relative ex-
posure for Siemens associated with these risks and thus pro-
vides an indication of the risks’ current importance to us. Addi-
tional risks not known to us or that we currently consider
immaterial may also negatively impact our business objectives
and operations. Unless otherwise stated, the risks described
below relate to all of our segments.
A.8.3.1 STRATEGIC RISKS
Competitive markets and technology changes: The world-
wide markets for our products and solutions are highly compet-
itive in terms of pricing, product and service quality, product
development and introduction time, customer service, financing
terms, disruptive technologies and shifts in market demands.
We face strong existing competitors and also competitors from
emerging markets, which may have a better cost structure.
Some industries in which we operate are undergoing consoli-
dation, which may result in stronger competition and a change