Risk management principles
Risk management in Wärtsilä is a continuous process of analysing and managing all the opportunities, threats, and risks faced by the company in its efforts to achieve its goals and to ensure that the company remains a going concern. The basis for risk management is the lifecycle quality of Wärtsilä’s operations and products and the continuous, systematic, loss-prevention work at all levels of the Group based on the principle that “everybody is responsible”. In the long term this is the only way to reduce the total risk costs.
The Board of Directors and the Board of Management decide and give guidelines on strategic matters. The Businesses are responsible for achieving their set strategic goals and for mitigating and managing their risks. The risk management function is part of Group Treasury, which reports to the CFO. It reviews the business risk profile, prepares the risk management policy, co-operates with the businesses in the implementation of risk mitigation work, and develops global and local insurance schemes with insurance companies and brokers. The Audit Committee reviews and assesses the adequacy of this risk management. The risk management policy is approved by the Board of Directors.
Risk mitigation actions are decided in the normal course of business. At its meetings, the Board of Management conducts annual Management Reviews for each Business, including their risks and risk mitigation. The risk map of the Group and all Businesses is then presented within the Finance Management Review prior to the budgeting round in the autumn. The risks are identified as being either internal or external, they are quantified in euro, and their probabilities are estimated. The results of this work are summarised in Wärtsilä's Risk radar. The Group risk report is then prepared and presented to the Board of Directors.
The Business Management Teams have risk management as a separate item on their agenda. The Businesses are responsible for organising and reporting on risk management from underlying Business units and for all follow-up actions. During 2011, separate risk assessments were performed for each business, resulting in the updating of the business specific Risk radars.
The Corporate Risk Management function co-ordinates risk management activities and reporting within the Group. Internal Auditing is responsible for reviewing the risk management process on an annual basis.
The relevant risks for Wärtsilä have been classified under four categories: strategic, operational, hazard, and financial risks. Risk is defined as the outcome of the probability and the loss exposure of the occurrence. The outcome or potential loss expectancy is highest with strategic and operational risks and lowest with hazard and financial risks.