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BMW Risk Management
- 1. Datum : 04-06-2016 Page no: 1 BMW annual report 2014 Risk Management Präsentiert von : Palnivelrajan Manokaran
- 2. Problem Purchase Related Risk action plan Risk management - why risk management system in BMW? Page no: 2
- 3. Task covered Risk action plan – Purchasing related risk How risk has been evaluated ? Overview of relevant risk Page no: 3 Overview of Risk Management Conclusion Why risk management in BMW
- 4. Why risk management in BMW Page no: 4 BMW Group, owner of the BMW, Mini and Rolls-Royce brands, has been based in Munich since its founding in 1916. In recent years, China has become BMW’s fastest-growing market, accounting for 14 per cent of BMW’s global sales volume Despite rising sales revenues, BMW was conscious that its profits were often severely eroded by changes in exchange rates.
- 5. Overview of Risk Management in BMW Page no: 5 To identify, record and actively manage internal and external risks which pose a threat to the attainment of corporate targets How does it work in BMW? Why should we do Risk Management ? Steps for analyzing Risk management
- 6. Overview of Risk Management in BMW Page no: 6 Risk Management Social risk Environmental risk Operation ( purchasing) Financial Risks Financial services Risk legal
- 7. HOW RISK HAS BEEN EVALUATED ? RISK Medium High Low > €500 – 2,000 million > € 2,000 million > €0 – 500 million > €50 – 400 million > € 400 million > €0 – 50 million Earning Impact Risk amount The significance of risks for the BMW Group is determined on the basis of risk amounts Impact (net of appropriate countermeasures) Likelihood of occurrence Risk measuring models Value at risk model Cash flow at risk model Amount of potential loss Probability of that amount of loss Time frame Page no: 7
- 8. Overview of relevant risk Page no: 8 Political and global economic risks High Stable Strategic and sector risks Medium Increased Risk amount Changes compared to prior year Extensive scenario analyses (> €50 – 400 million) Cash flow risk approach method ( > € 400 million ) Risks relating to operations Medium Stable Production and technology (> €50 – 400 million) High Stable Purchasing ( > € 400 million ) High Stable Sales and Marketing ( > € 400 million ) High Stable Pension obligations ( > € 400 million ) Medium Stable Information, data protection and IT ( > € 400 million ) Relevant risk Electrical power train in BMW I Series
- 9. Mercedes-Benz’s VS BMW Page no: 9 http://www.bloomberg.com/news/articles/2016-01-11/bmw-sales-growth-in-2015-decelerated-to-slowest-pace-since- 2009 1.85 1.86 1.87 1.88 1.89 1.9 1.91 Sales SALES VOLUME IN MILLION BMW BENZ'S "We will need to be prepared for market volatility in China in the short term," Ian Robertson, BMW’s sales chief, said at the North American International Auto Show in Detroit in Jan 2016 Risks relating to operations is high
- 10. Leading automobile Groups worldwide in 2014 Page no: 10
- 11. Overview of relevant risk Page no: 9 Risk amount Changes compared to prior year Financial risks High Stable Foreign currencies ( > € 400 million ) High Stable Raw Material ( > € 400 million ) Low Stable Liquidity (> €0 – 50 million) Relevant risk Risks relating to the provision of financial services High Stable Credit risk ( > € 400 million ) High Stable Residual value ( > € 400 million ) Medium Stable Interest rate changes (> €50 – 400 million) Medium Stable Liquidity / operational risks (> €50 – 400 million) Legal risks (> €0 – 50 million) Low Increased
- 12. Risk action plan – Purchasing related risk Purchasing risk HighRisk amount StableChanges compared to prior year Source : BMW annual report 2014, Page no : 72 insufficient availability of raw materials in Asia. BMW Group Sustainability Standard is a three stage sustainability and risk management approach BMW Group-specific sustainability risk filter A sustainability questionnaire A sustainability audit Page no: 12 Addressing the claim that 10% of parts are not immediately available in the central warehouse in Dingolfing, Germany, BMW’s Manfred Grunert , Group Corporate and Governmental Affairs said via e-mail to Bloomberg Business Week today issue in 2013.
- 13. Risk action plan – Purchasing related risk Risk Explanation Risk Amount Risk response / treatment Modular-based production High Preselection process High ecological Social and corporate governance standards are measured Loss of supplier or supplier failure High (Asia ) Continuously monitored during both the development and production phases Exposure to natural hazard ( Floods , Earthquakes…) High Identify at an early stage and implement appropriate countermeasures Availability of raw materials High Alternative raw materials as a substitute. Page no: 13
- 14. Conclusion Page no: 14 Early identification and penetration of risk , compressive analysis and risk measurement , the coordinated views of suitable management tools and also the montering and evaluation of measure taken. Risk is reported to the centralized risk management team from within the network Risk management has been tested regularly by internal audit Social risk Environm ental Risk Financial services Risk Financial Risks Operation ( purchasing) legal Risk Management
- 15. Vielen Dank Page no: 15
Hinweis der Redaktion
- With regard to the structure of the risk management system, the responsibility for risk reporting lies with each individual member of staff and manager – in their various roles – and not with that of any centralised unit in particular. Each and every employee and manager is required to report risks via the available reporting channels. The risk management process is applied throughout the Group and comprises the early identification and penetration of risks, comprehensive analysis and risk measurement, the coordinated use of suitable management tools and also the monitoring and evaluation of measures taken. Risks reported to the centralised risk management team from within the network are firstly presented for review to the Risk Management Steering Committee, for which Group Controlling is responsible. After review, the risks are reported to the Board of Management and to the Supervisory Board. Significant and going-concernrelated risks are classified on the basis of the potential scale of impact on the Group’s results of operations, financial position and net assets. The level of risk is quantified, taking into account the probability of occurrence and risk mitigation measures. The risk management system is tested regularly by Internal Audit. By sharing experiences with other companies on an ongoing basis, the BMW Group ensures that new insights are incorporated in the risk management system, thus ensuring continual improvement. Regular basic and further training as well as information events held throughout the BMW Group, and in particular within the risk management network, are invaluable ways of preparing people for new or additional challenges with regard to the processes in which they are involved. As a supplement to comprehensive risk management, managing the business on a sustainable basis also represents one of the Group’s core corporate principles. Any risks or opportunities related to sustainability issues are discussed by the Sustainability Committee. Strategic options and measures open to the BMW Group are put forward to the Sustainability Board, to which all members of the Board of Management belong. Risk aspects discussed at this level are integrated in the work of the group-wide risk network. The composition of the Risk Management Steering Committee on the one hand and the Sustainability Committee on the other ensures that risk and sustainability management are closely coordinated.
- With regard to the structure of the risk management system, the responsibility for risk reporting lies with each individual member of staff and manager – in their various roles – and not with that of any centralised unit in particular. Each and every employee and manager is required to report risks via the available reporting channels. The risk management process is applied throughout the Group and comprises the early identification and penetration of risks, comprehensive analysis and risk measurement, the coordinated use of suitable management tools and also the monitoring and evaluation of measures taken. Risks reported to the centralised risk management team from within the network are firstly presented for review to the Risk Management Steering Committee, for which Group Controlling is responsible. After review, the risks are reported to the Board of Management and to the Supervisory Board. Significant and going-concernrelated risks are classified on the basis of the potential scale of impact on the Group’s results of operations, financial position and net assets. The level of risk is quantified, taking into account the probability of occurrence and risk mitigation measures. The risk management system is tested regularly by Internal Audit. By sharing experiences with other companies on an ongoing basis, the BMW Group ensures that new insights are incorporated in the risk management system, thus ensuring continual improvement. Regular basic and further training as well as information events held throughout the BMW Group, and in particular within the risk management network, are invaluable ways of preparing people for new or additional challenges with regard to the processes in which they are involved. As a supplement to comprehensive risk management, managing the business on a sustainable basis also represents one of the Group’s core corporate principles. Any risks or opportunities related to sustainability issues are discussed by the Sustainability Committee. Strategic options and measures open to the BMW Group are put forward to the Sustainability Board, to which all members of the Board of Management belong. Risk aspects discussed at this level are integrated in the work of the group-wide risk network. The composition of the Risk Management Steering Committee on the one hand and the Sustainability Committee on the other ensures that risk and sustainability management are closely coordinated.
- Value at Risk is measured in three variables: the amount of potential loss, the probability of that amount of loss, and the time frame. For example, a financial firm may determine that it has a 5% one month value at risk of $100 million. This means that there is a 5% chance that the firm could lose more than $100 million in any given month. Therefore, a $100 million loss should be expected to occur once every 20 months.