Reebok 2014 Annual Report Download - page 161

Group Management Report – Financial Review
157
2014
Risk and Opportunity Report
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03.5
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adidas Group
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2014 Annual Report
When assessing risks, we consider two perspectives: the gross risk and the net risk. While the gross
risk reflects the inherent (‘worst-case’) risk before any mitigating action, the net risk reflects the
residual (‘expected’) risk after all mitigating action. On the one hand, this approach allows for a good
understanding of the impact of mitigating action taken, and on the other hand it provides the basis
for scenario analysis. Our assessment of risks presented in this report only reflects the net risk
perspective. We measure the actual financial impact of high-level risks that materialised against
the original assessment on a yearly basis. In this way, we ensure continuous monitoring of the
accuracy of risk evaluations across the Group, which enables us to continuously improve evaluation
methodology based on our findings.
In assessing the potential effect from opportunities, each opportunity is appraised with respect
to viability, commerciality and potential risks. This approach is applied to longer-term strategic
prospects but also to shorter-term tactical and opportunistic initiatives at both the Group and, more
extensively, the market and brand level. In contrast to the risk evaluation, only the net perspective
exists for assessing opportunities.
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Risk and opportunity handling: Risks and opportunities are treated in accordance with the
Group’s risk and opportunity management principles as described in the Group Risk Management
Policy. Risk Owners are in charge of developing and implementing appropriate risk-mitigating
action and exploiting opportunities within their area of responsibility. In addition, the Risk Owners
need to determine a general risk handling strategy for the identified risks, which is either risk
avoidance, risk reduction with the objective to minimise (financial) impact and/or likelihood, risk
transfer to a third party or risk acceptance. The decision on the implementation of the respective
risk handling strategy also takes into account the costs in relation to the effectiveness of any
planned mitigating action if applicable. The Group Risk Management department works closely
with the Risk Owners to monitor the continuous progress of planned mitigating action and assess
the viability of already implemented mitigating action.
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Risk and opportunity monitoring and reporting: Our integrated risk and opportunity
management system aims to increase the transparency of Group risks and opportunities. As both
risks and opportunities are subject to constant change, Risk Owners not only monitor developments
but also the adequacy and effectiveness of the current risk handling strategy on an ongoing basis.
Regular risk reporting consists of a two-step reporting stream supported and facilitated by a globally
used Group-wide IT solution that was implemented in 2011. Firstly, on a quarterly basis, Risk Owners
are required to report to Group Risk Management risks with a possible gross impact rating of at least
moderate or a net impact rating of at least minor, both regardless of the likelihood of materialising.
Risk owners are also required to report all opportunities with an impact rating of at least minor.
Secondly, Group Risk Management aggregates the reported risks and opportunities and, also on
a quarterly basis, provides the adidas AG Executive Board with a consolidated Group-wide report
based on the Risk Owners’ input, which highlights substantial individual risks and opportunities as
well as, on an aggregated level, key areas of risk and opportunity.
Material changes in previously reported risks and/or newly identified risks with a potential net impact
of at least moderate, and any issues identified which due to their material nature require immediate
reporting to the Executive Board, are also reported outside the regular quarterly reporting stream
on an ad hoc basis.