Regular risk analyses are conducted by the following units:
- Corporate Controlling
- Environment, Health & Safety
- Global Procurement & Logistics
- Human Resources
- Legal, Taxes & Insurance
- Strategic Planning & Controlling
- Corporate Audit
The Strategic Planning & Controlling and Finance divisions are responsible for centralized risk controlling. The Strategic Planning & Controlling division provides the necessary tools and know-how, further develops the methods and is responsible for global communications. Specific individual risks pertaining to the operating divisions, corporate divisions and competence centers as well as BASF-wide risks, are permanently registered, evaluated and monitored centrally.
Risk management processThe risk management process comprises the following steps:
- Identification of opportunities and risks
The identification of opportunities and risks is a bottom-up process that uses a variety of tools, ranging from expert interviews to team-based approaches. These are complemented by market, competitive and environmental analyses as well as statistical evaluations. The above are based on internal and external risk information sources; macroeconomic scenarios that evaluate important factors, such as industry growth rates; as well as our company-wide risk catalog, which acts as a checklist to manage the identification process.
- Assessment and quantification
Where possible, opportunities and risks are quantified as to their probability of occurrence and impact on profitability. The business plan serves as the reference base. In addition, we quantify the dependence of each business sector on macroeconomic factors, such as the development of key customer industries, exchange rates and raw material prices.
Opportunities and risks as well as the dependence on macroeconomic factors are aggregated on the division and group level to determine the spectrum of possible effects on profit and the probability distribution. Correlations between the individual events and factors as well as effects caused by the transfer of products within the Verbund are taken into account.
- Control and measures
The management of opportunities and risks, including the necessary countermeasures, takes place on the divisional level. For certain BASF-wide risks these actions are taken at the BASF-Group level. The details are governed by our risk management handbook, upon which divisional specific regulations are based.
The Board of Executive Directors receives regular reports on the risk situation of the BASF Group, and additionally when certain risk thresholds are reached. The divisions, competence centers and regional divisions are responsible for operational risk management. Strategic opportunities and risks are quantitatively assessed in the product and regional strategies and are updated at least once a year as part of the strategic planning and controlling process. The assessments are immediately adjusted following significant changes to the opportunity and risk exposure. Our risk management process is constantly being developed and is reviewed by Corporate Audit and as part of the external audit of the annual financial statements.
STRATEGIC PLANNING & CONTROLLING UNIT
- Implementing risk management standards
- Worldwide communication with the operating units, divisions, competence centers and regional divisions
- Coordinating the company-wide collection and evaluation of relevant risks
- Proving know-how and necessary tools