OBJECTIVES OF THE RISK MANAGEMENT SYSTEM
Our risk management system aims, first and foremost, to record, analyze and evaluate risks systematically and in a uniform process throughout the Group. In doing so, we benefit from a high level of risk transparency, on the basis of which we can select and implement effective countermeasures. We document all specific risks of our business to the extent that these are identifiable and specific to an adequate degree. General risks that cannot be assessed concerning their probability of occurrence are not taken into account in quantitative terms. These include natural disasters, for instance.
RISK MANAGEMENT SYSTEM: METHODS AND PROCESSES
The Dürr risk management system is geared to the specific features of our business model. It was introduced in its present form in 2008 and has since been continually adjusted to meet new requirements. In tandem with the entrenchment of the system within the operating business and decision-making processes, we have also intensified the risk awareness of our employees and management bodies – through communication and by dealing openly with risks.
Risk management process
The central risk management team at Dürr AG initiates the nine-stage process every six months. The risk inventory conducted by the operating units constitutes a key element of this standard risk cycle. In the process, individual risks are identified, evaluated and consolidated, i.e. classified into 15 specific risk fields. The risk fields cover all management, core and support processes as well as external risk areas. The evaluation of individual risks is the task of the risk managers of the operating units and of Dürr AG; guidance is provided by the risk management manual as well as risk structure spreadsheets. The evaluation process consists of three steps: first of all, the potential damage or loss is calculated, i.e. the maximum effect a risk can have on Group EBIT within the next 24 months. Next, we assess the likelihood of specific risk scenarios turning into reality. In a third step, the effectiveness of possible countermeasures is examined and evaluated with a risk-reducing factor.
The bottom line is the net risk potential, i.e. the net EBIT risk that remains after taking account of the probability of occurrence and the effectiveness of the countermeasures. The lower the probability of occurrence and the higher the effectiveness of the countermeasures, the more the net EBIT risk is reduced.
The net risks (net EBIT risks) of the 15 risk fields are calculated from the sum total of net EBIT risks of all allocated individual risks. Depending on the extent of the net risk, each risk field is assigned to one of the following categories:
- Very low (≤ € 5 million)
- Low (> € 5 million to ≤ € 20 million)
- Medium (> € 20 million to ≤ € 40 million)
- High (> € 40 million)
The net risks of the risk fields are totaled to produce the Group’s entire potential risk exposure. Portfolio and correlation effects are not taken into account in this regard.
Overall risk situation
In accordance with the valuation standards described above, the Group’s overall risk potential came to approx. € 180 million at the end of 2016 (2015: € 175 million). This includes the net risk potential of 267 individual risks evaluated. In light of the volume of business and the general economic situation, we consider the overall risk potential appropriate. We classify our overall risk situation as easily manageable at present. No risks are currently discernible that might endanger the Group’s continued existence as a going concern, either separately or by interaction with other risks.