Merck 2014 Annual Report Download - page 127

122 GROUP MANAGEMENT REPORT → Report on Risks and Opportunities
REPORT ON RISKS AND OPPORTUNITIES
Risks and opportunities are inherent to entrepreneurial activity.
The Group has put systems and processes in place to identify risks
at an early stage and to counteract them by taking appropriate
action. At Merck KGaA, Darmstadt, Germany, opportunity man-
agement is an integral component of internal decision-making
processes such as short- and medium-term operational planning
and intra-year business plans.
RISK AND OPPORTUNITY MANAGEMENT
Merck KGaA, Darmstadt, Germany, is part of a complex, global
business world and is therefore exposed to a multitude of external
and internal influences. Every business decision is therefore based
on the associated risks and opportunities.
In our internal risk reporting, risks are defined as possible fu-
ture events or developments that could lead to a negative deviation
from our forecast (financial) targets. In parallel, opportunities are
defined as possible events or developments that imply a positive
deviation from our planned (financial) targets. Identified future
events and expected developments are taken into account in inter-
nal planning provided that it can be assumed that their occurrence
is likely in the planning period. The risks and opportunities pre-
sented in the following risk and opportunities report are those
possible future events that could respectively lead to a negative or
positive deviation from the topics covered by planning.
Risk management process
The objective of our risk management activities is to recognize,
assess and manage risks early on and to implement appropriate
measures to minimize them. The responsibilities, objectives and
process of risk management are described in our internal risk
management guideline. The business heads, managing directors of
Merck KGaA, Darmstadt, Germany, subsidiaries, and the heads of
Group functions are specified as employees with responsibility for
risks. The group of consolidated companies for risk reporting
purposes is the same as the group of consolidated companies for
the consolidated financial statements. Every six months, the risk
owners assess their risk status and report their risk portfolio to
Risk Management. The Group uses special risk management soft-
ware in the context of these activities.
If risk-mitigating measures can be taken, their impact on risk
is also assessed. The residual risk after the implementation of
mitigation measures is presented in the internal risk report as net
risk. The planned timeframe for implementation and the assumed
mitigation effect are tracked by Group Risk Management.
Group Controlling & Risk Management forms the organizational
framework for risk management and reports directly to the Group
Chief Financial Officer. Group Risk Management uses the infor-
mation reported to determine the current risk portfolio for the
Group, presenting this in a report to the Executive Board, the
Supervisory Board and the Finance Committee with detailed
explanations twice per year. Furthermore, significant changes in
the assessment of the risks already known and new significant
risks can be reported at any time and are communicated to the
corporate bodies on an ad hoc basis.
For the standard process, a lower limit for reporting risks is set
at a value of €5 million and for the ad hoc process at a value of
€25 million. Risks below these limits are steered independently
within the business sectors. The relevant timeframe for internal
risk reporting is five years. The effects of risks described in this
Report on Risks and Opportunities are presented as annual values.
The assessment of the risks presented relates to December 31,
2014. There were no relevant changes after the end of the report-
ing period that would have necessitated an amended presentation
of the risk situation of the Group.
Within the scope of audits, Group Internal Auditing regularly
reviews the performance of risk management processes within the
units and, at the same time, the communication of relevant risks
from the operating units to Group Risk Management.
Opportunity management process
The risk management system described concentrates on business
risks, and not on opportunities at the same time. The Group’s
opportunity management process is integrated into our internal
controlling processes and carried out in the operating units on
the basis of the Group strategy. The divisions analyze and assess
potential market opportunities as part of strategy and planning
processes. In this connection, investment opportunities are exam-
ined and prioritized in terms of their potential value proposition
to
the Group in order to ensure an effective allocation of resources.
The company selectively invests in growth markets to leverage the
opportunities of dynamic development and customer proximity at
a local level.
If the occurrence of the identified opportunities is rated as
likely, they are incorporated into the business plans and the short-
term forecasts. Trends going beyond this or events that could lead
to a positive development of the net assets, financial position and
results of operations are presented in the following report as
opportunities. These could have a positive effect on the Group’s
medium-term prospects and lead to a positive deviation from
forecasts.