Group Risk Management. Application of Risk Management in Daimler AG


Term Paper, 2021

24 Pages, Grade: 1,0


Excerpt

Table of contents

I List of Tables

II List of Figures

1 Introduction

2 Basic presentation of Risk Management
2.1 Definition of risks and Risk Management
2.2 Procedural elements of Risk Management
2.3 Operational and strategic orientation of the instruments

3 Application of Risk Management at Daimler AG
3.1 Description of the object of investigation
3.2 Need for Risk Management at a company level
3.3 Organisational structures and methods
3.4 Application of a critical appraisal
3.4 Further development of risk and opportunity communication

4 Results

III Bibliography

I List of Tables

Table 1: Daimler AG: Overview of the divisions 2019

Table 2: Daimler AG: Assessment of the probability of occurrence/possible extent

Table 3: Company-specific risks and opportunities

Table 4: Further development of Table 3

Table 5: Overview of strengths and weaknesses in the Daimler Group

Table 6: ITM-Checklist (1/2)

Table 7:: ITM-Checklist (2/2)

II List of Figures

Figure 1: Opportunities and Risks + Strengths and Weaknesses

1 Introduction

Globally active companies place Risk Management at the centre of their efforts in the face of an increasingly complex environment, ever-increasing competitive pressure and the unpredictability of economic processes. Risk Management is becoming more and more important; it confronts companies with an increasingly difficult task, as risks seem to elude predictability and are nowadays increasingly difficult to assess. Every action on the part of management is now associated with risk. The potential danger cannot be circumvented; instead, an analysis of identifiable risks should be carried out and management should be set up to deal with them. This seems indispensable to ensure that the company has a long-term chance of survival in the global market, which is in a state of constant change.1

This paper aims to present Risk Management with its systematic approach and to explain it using Daimler AG as an example. At the end of this paper, the question of how Daimler AG deals with risks of various kinds and what criticism can be derived from this should be answered.

First of all, Chapter 2 will present the basics for the creation of a theoretical foundation. Specific definitions will be introduced and the processes of Risk Management about its operational and strategic objectives will be disclosed.

Chapter 3 also uses a practical example to demonstrate implementation at Daimler AG, which provides an analytical view and a final view of the sum of the findings. At the same time, the typical characteristics of the automotive industry are shown and the resulting risks for Daimler AG are worked out. Finally, an approach to improve the communication of risk management is presented. This approach enables a more advanced presentation of opportunities and risks in combination with allocated strengths and weaknesses.

At the end of the work, we find a conclusion with the demands that will result from these elaborated findings.

2 Basic presentation of Risk Management

2.1 Definition of risks and Risk Management

The technical literature does not provide a clear definition, but the risk is generally understood to be the possibility of incurring a risk of loss during the business.2 A risk thus has the potential to cause damage that cannot be more closely predefined in terms of size and consequences.3 Under such imponderables, how can imminent damage be objectively assessed? Monetary parameters are generally suitable for attempts to assess the damage, but image damage and loss of customers must also be taken into account, as well as the loss of employees and other negative effects.4,5

Internal or external triggers can be held responsible for the occurrence of a risk. Such internal triggers can be found within corporate structures.6 The company itself is thus the starting point for the potential problem. As classic triggers of risks, missing know-how and wrong decisions in the management can be identified. Risks which affect the company from outside and which are initially not subject to any possibility of influence are counted as external risks. If the economic situation is miserable at the time, such external risks as well as adverse political decisions become more pronounced. In general, internal risks seem to be more likely to be identified and predicted in advance, while external risks may occur much more unexpectedly.7

Every entrepreneurial action in itself involves risk and leads to a risk of whatever kind. A Risk Management system is incorporated into the corporate structure to systematically identify these risks and to be able to continuously identify, assess and control them. It is to be seen as a pool of principles, measures, processes, instruments and institutions, all of which together aim to contain or eliminate risks to guarantee both the existence of the company and its success.8

2.2 Procedural elements of Risk Management

Key components of Risk Management are based on processes for identification, evaluation, management and control, which are found in action as a constantly closed-loop - this is what constitutes operational Risk Management in a risk-conscious company.9 The strategic risk orientation determines which measures are required at the operating level in named processes, i.e. according to which the best possible identification, assessment, management and control of such risks can be tackled by the company.10

The identification process aims to identify existing as well as conceivable risks that would arise in the pursuit of corporate objectives. Not only the quantity but also the information content and quality are of interest. The most difficult part of the Risk Management process is the initial gathering of information itself, if only because identification can be carried out from several possible perspectives.11

Such perspectives can be approached from the level of the process, the business areas, the environment, the applications or the IT structure of the company. The company has a bottom-up and a top-down approach to choose from. The main risks should be immediately identifiable from the bird's eye view of the business strategy and the top-down approach, while further down it may not be possible to identify the risks due to a lack of overview. In contrast, the bottom-up approach is more accurate, whereas the top-down approach requires a very considerable effort. This starts with the analytical methods, such as questionnaires and error analysis, and extends to the creative approaches, which include brainstorming and the Delphi technique. Anything and everything below can be used to identify new risks to the company's existing risk inventory.12,13

Once the risks have been identified, the next plausible step in the process is their assessment, primarily based on an expected value.14

The aim is therefore to assess the probability that the risk potential will occur. The focus is not only on the probability but also on the extent of the expected damage. The risk assessment uses the formula 'probability of occurrence x extent of damage', according to which a ranking can be established concerning the hazard potential of the risks contained - also known as a risk portfolio or risk map.15 Well-functioning Risk Management must aim for a better balance between opportunity and risk, it is said.16

Measures to manage and control risks are responsible for maintaining this ideal balance, which is achieved by reducing the probability of occurrence or the extent of damage, or ultimately conceivably both. If advantageous, economic activities can be changed or even abandoned altogether if this makes the risk more appropriate to the company and its risk culture. There is an incalculable number of possibilities for reducing risk in the company, either organisationally or purely technical, which are further increased by new technologies. The company's interest is not limited to risk reduction, but can also take into account a business-like acceptance of existing risks to make profits. The shifting of these unavoidable or essential risks is also the subject of Risk Management and risk control. The containment and transfer of risks are achieved utilizing 'general terms and conditions', insurance, leasing or outsourcing to others, whereby the responsibility changes or contractual provisions are made to transfer liability to someone else. Examples of this are exclusions of liability towards customers in the general terms and conditions or in contracts of insurance companies, which in their clauses exclude certain situations or make them subject to conditions.

2.3 Operational and strategic orientation of the instruments

The strategic orientation of Risk Management deals with the objectives of a company's risk policy and its risk culture. The risk culture describes the acceptance and importance of Risk Management rules in a company. It is necessary to recognise a collective force in the behaviour of each actor involved, from the simple employee to the managing director, to identify and understand risks and to discuss them in conversation - they must not be a taboo - to then discuss methods of how things should be done better with new methods in the future.17

Risk policy is an integral part of a company's strategy and should be seen by every employee as an obligation within the company's philosophy. This is the prerequisite before operational Risk Management (as described in chapter 2.2) can be established. Only the strategic dimension prepares the basis on which the following operational analyses and evaluations can be based. For a smoothly running management process, operational Risk Management is required, which must be integrated into the structure of the company as a continuum in the sense of a control loop.18,19

3 Application of Risk Management at Daimler AG

3.1 Description of the object of investigation

Daimler AG is a listed German manufacturer of cars and commercial vehicles, which also offers mobility and financial services. As a holding company headquartered in Stuttgart, Daimler AG performs governance, strategy and control functions as well as group-wide services for the three legally independent subsidiaries Mercedes-Benz AG, Daimler Truck AG and Daimler Mobility AG, which are responsible for the operational business. The Group's best-known brand is Mercedes-Benz.20 For the 2019 financial year, five business segments of the company can be identified from the annual report, which are presented in Table 1.

Table 1: Daimler AG: Overview of the divisions 201921

Abbildung in dieser Leseprobe nicht enthalten

The company has set itself the goal of further growth in its core business. Electric driving is a priority in all business areas. The same applies to automated and autonomous driving and mobility services with a focus on customer benefit and profitability. Besides, digitalisation is being driven forward. All activities are focused on achieving financial targets.22

Before the Risk Management of Daimler AG is discussed and then critically reviewed in the course of the work, the risks and opportunities presented to Daimler AG in the Annual Report are summarized. These include risks that have a "significant impact on the earnings, financial position and net assets of the Daimler Group".23 The information is presented in the segments of the Group valid since January 1, 2020, which are shown in Table 1. It is divided into three parts: Business environment and industry risks and opportunities, company-specific risks and opportunities, financial risks and opportunities.24

In the first part, the Group describes the economic risks and opportunities that constitute the framework for the risks and opportunities listed in the following categories and is included as premises in the quantification of these risks and opportunities.

For example, the Group expected economic growth to remain constant in 2020. Opportunities and risks resulting from political influences, such as trade wars, elections, etc. are explained in detail. The increasing risks facing the automotive industry were also comprehensively formulated in the section "General market risks and opportunities". Daimler considers the introduction of new products by competitors to be critical in this context. To identify these risks at an early stage, continuous monitoring of competitors is carried out. Depending on the nature of the risks, product-specific and, if necessary, regionally different measures are taken to support weaker markets.25

The company then addresses the legal and political challenges in detail. According to Daimler, the "negative headlines on diesel propulsion and the implementation of driving bans for diesel vehicles" threaten to create customer uncertainty, leading to permanent shifts in the propulsion portfolio (less diesel, more petrol). Thus, further cost-intensive development and production measures would be necessary to achieve the CO2 fleet targets applicable from 2020.26

In the "Company-specific risks and opportunities" section, the Group discusses, among other things, production and technology risks and opportunities, information technology risks and opportunities and personnel risks and opportunities. In the final section, Daimler AG discusses exchange rate risks and opportunities, interest rate risks and opportunities and credit risks. Other areas of financial risks and opportunities are also listed in detail.27

In summary, it can be concluded from the annual report that the Daimler Group is exposed to an enormous number of opportunities and risks from a wide range of areas and of varying relevance. The company describes in detail what these are and is already taking initial measures to realise opportunities or minimise risks. This chapter explains how the opportunities and risks are dealt with in detail within the Group.

3.2 Need for Risk Management at a company level

The concept of modern Risk Management began in the insurance policies of large companies in the USA. The alarmed insurance industry responded to the efforts of companies to reduce the costs of their insurance policies by demanding that policyholders act to actively reduce risks through precautionary measures.28

The legislator then felt obliged to encourage companies to contribute to the reduction of their risks themselves, even independently of insurance premiums. To introduce a systematic approach, the law on control and transparency in companies (KonTraG) was adopted.29

In this context and because of further requirements, the duties of corporate management concerning their diligence in dealing with risks have been expanded and made transparent through the obligatory inclusion of corporate risks in the management report.30

Intensified competitive pressure, the increase in the flow of information, the constant shortening of product life cycles and the onset of globalisation, which was immediately expanding, all contributed to convincing company management of the need for effective Risk Management systems to be able to work in the long term and sustainably. Daimler AG is exposed to an enormous number of risks which cannot be separated from its business activities. These risks arise from its involvement in the global activities of its divisions and the constant intensification of competition in the automotive industry.31

[...]


1 Ct. Meierbeck, 2010, p. 1

2 Ct. Bitz, 2000, p. 13

3 Ct. Diederichs, 2017, p. 8 f.

4 Ct. Hampton, 2015, p. 11 f.

5 Ct. Baier, et al., 2010, p. 71 f.

6 Ct. Dörner, et al., 2000, p. 574

7 Ct. Diederichs, 2017, pp. 89, 230 ff.

8 Ct. ibid., p. 56 f.

9 Ct. Diederichs, 2017, p. 15

10 Ct. Weber, et al., 1999, p. 16 f.

11 Ct. Gleißner & Romeike, 2005, p. 26 ff.

12 Ct. Ct. Hampton, 2015, p. 87

13 Ct. Diederichs, 2017, pp. 67, 85 ff.

14 Ct. Gleißner & Romeike, 2005, p. 26 ff.

15 Ct. Diederichs, 2017, p. 137 f.

16 Ct. Gleißner & Romeike, 2005, p. 29 ff.

17 Ct. Hampton, 2009, pp. 6, 232

18 Ct. Hampton, 2009, pp. 6, 232

19 Ct. Gleißner & Romeike, 2005, p. 24

20 Ct. Daimler AG, 2020, p. 64 f.

21 ibid., p. 3

22 Ct. Daimler AG, 2020, p. 52 f.

23 Quoted after Daimler AG, 2020, p. 137

24 Ct. Daimler AG, 2020, p. 137 f.

25 Ct. ibid.

26 Ct. Daimler AG, 2020, p. 137 f.

27 Ct. ibid

28 Ct. Bitz, 2000, p. 16

29 Ct. KonTraG (1998), 1998, p. 786

30 Ct. KonTraG (1998), 1998, p. 786

31 Ct. Daimler AG, 2020, p. 92 ff.. 139 ff.

Excerpt out of 24 pages

Details

Title
Group Risk Management. Application of Risk Management in Daimler AG
College
The FOM University of Applied Sciences, Hamburg
Course
Risk Management
Grade
1,0
Author
Year
2021
Pages
24
Catalog Number
V1007020
ISBN (eBook)
9783346391780
ISBN (Book)
9783346391797
Language
English
Tags
Risikomanagement, Group Risk Management, Daimler, Risk Management, Developing a new Business, Assignment, Hausarbeit, MBA Master
Quote paper
Felix-Sebastian Ament (Author), 2021, Group Risk Management. Application of Risk Management in Daimler AG, Munich, GRIN Verlag, https://www.grin.com/document/1007020

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