BMW 2003 Annual Report Download - page 45

001 BMW Group in figures
004 Report of the Supervisory Board
008 Supervisory Board
011 Board of Management
012 Group Management Report
12 A Review of the Financial Year
29 Outlook
30 Financial Analysis
44 Risk Management
047 BMW Stock
050 Corporate Governance
054 Group Financial Statements
118 BMW AG Principal Subsidiaries
120 BMW Group10-year Comparison
122 BMW Group Locations
124 Glossary, Index
44
Risk management in the BMW Group
Great importance is attached to risk management
within the BMW Group. As an enterprise with world-
wide operations, the BMW Group faces a variety of
risks. Business risks are only consciously entered
into when it is considered that they can lead to a
growth in the value of the business and when the
potential outcome can be controlled by the Group.
The Board of Management and Supervisory Board
are regularly informed about risks which could have
a significant impact on business development.
In order to identify, evaluate and document the
main risks which could pose a major threat, the
BMW Group uses a comprehensive risk manage-
ment system which is characterised by the following
processes:
–Business decisions are reached after considera-
tion of in-depth project analyses which present
potential risks and opportunities in detail. In addition,
as part of the long-term planning strategy and short-
term forecasting procedures, the risks and oppor-
tunities attached to specific business activities are
evaluated and are used as the basis for setting tar-
gets and implementing appropriate risk-mitigation
measures.
– The Group reporting system keeps all decision-
makers fully informed and up-to-date about per-
formance against targets and highlights changes
affecting the market and competitors. By monitoring
critical success factors on a continual basis, vari-
ances are identified at an early stage, thus allowing
appropriate counter-measures to be implemented.
–Overall risk management is supervised by the
corporate group controlling department and is re-
viewed by external auditors and the Group’s internal
audit department for appropriateness and effec-
tiveness. A network of risk managers, appointed
throughout the Group, regularly carries out risk re-
views, identifying and analysing all significant risks.
The results of the reviews are summarised in a
separate risk report which is then presented to the
Board of Management.
–By regularly exchanging experiences with other
enterprises, the BMW Group is constantly ensuring
that innovative ideas and approaches flow into the
risk management system of the BMW Group and
that operational risk management is continually
being developed.
Risks which could threaten the existence of the
Group or which could have a significant negative
impact on the assets and liabilities, financial position
and results of operations of the Group, have not
been identified. However, risks can never be entirely
ruled out.
In the course of business operations, the BMW
Group is exposed to various types of risk:
Risks relating to general economic factors
–Strong growth on all major international markets
by the BMW Group and future expansion mean that
global key data such as changes in currency parities
and the development of the financial markets are
very significant. The US dollar has a relatively strong
impact on reported revenues and, of all the curren-
cies with which the BMW Group does business,
represents the main source of risk. Exchange rate
fluctuations of the British pound and the Japanese
yen in relation to the euro can also impact earnings
significantly. Based on forecasts of the BMW Group,
these three currencies account for some 80 % of
the foreign currency exposure of the BMW Group.
Currency risk is mitigated, amongst other measures,
by manufacturing products outside the euro zone,
purchasing material and equipment around the
world and hedging currency exposures on the finan-
cial markets. Hedging transactions are entered into
only with financial partners of first-class standing.
The nature and scope of such measures are set out
in guidelines applicable throughout the BMW Group.
– Economic fluctuations represent risk factors for
future development. The BMW Group anticipates
these risks by monitoring the market in detail and
using early warning indicators. Risk is spread due to
the worldwide activities of the BMW Group.