Mercedes 2006 Annual Report Download - page 83

Risk management system
Within the framework of their global activities and as a result of
increasingly intense competition, DaimlerChrysler’s divisions are
exposed to a large number of risks, which are inextricably linked
with their business activities. Effective management and control
instruments are combined into a uniform risk management
system, meeting the requirements of applicable law and subject
to continuous improvement, which is employed for the early
detection, evaluation and management of risks. The risk manage-
ment system is integrated into the value-based management
and planning system. It is an integral part of the overall planning,
control and reporting process in all relevant legal entities and
central functions, and aims to systematically identify, assess,
control and document risks. Taking defined risk categories into
account, risks are identified by the management of the divisions
and operating units, the key associated companies and the
central departments, and are assessed regarding their probability
of occurrence and possible extent of damage. Assessment of
the possible extent of damage usually takes place in terms of the
risks’ effect on operating profit. The communication and reporting
of relevant risks is controlled by value limits set by management.
The responsible persons also have the task of developing, and
initiating as required, measures to avoid, reduce and hedge risks.
Major risks and the countermeasures taken are monitored within
the framework of a regular controlling process. As well as the
regular reporting, there is also an internal reporting obligation
within the Group for risks arising unexpectedly. The Group’s
central Risk Management department regularly reports on the
identified risks to the Board of Management and the Supervisory
Board. The risk management system enables the Board of
Management to identify key risks at an early stage and to initiate
suitable countermeasures. By carrying out targeted audits,
the Corporate Audit department monitors compliance with the
statutory framework and with the Group’s internal guidelines
as defined in the Risk Management Manual, and, if required,
initiates appropriate action. In addition, the external auditors
test the system for the early detection of risks that is integrated
into the risk management system in terms of its fundamental
suitability for the early recognition of developments that could
jeopardize the continued existence of the company.
Economic risks
The world economy continued along a distinctly expansionary
path in 2006. In spite of high raw-material prices (and further price
rises for some materials), increased interest rates and a rather
tense geopolitical situation, particularly in the Middle East, growth
of 3.9% was achieved in 2006, which was once again well above
the long-term average. However, the peak of this global economic
cycle was already passed during the first quarter of 2006. Factors
that increasingly dampened growth as the year progressed were
the rise in cost of capital, the ongoing burden of high or
increased raw-material prices, the correction of excessive real-
estate prices in some parts of the world, and more restrictive
fiscal policies. The smooth return of the global economy to its
long-term growth trend that is predicted for the year 2007 by
many economists and also by DaimlerChrysler mainly depends
upon how these factors develop in the future and whether their
dampening effects might be stronger than currently expected.
DaimlerChrysler’s financial position, cash flows and profitability
are therefore still exposed to considerable economic risks. Due to
the great importance for the global economy of developments
in the United States, an isolated severe slowdown of economic
expansion there would have negative consequences for the
rest of the world.
Management Report | Risk Report | 67
Risk Report