Risks and risk management

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 to achieve its goals and to ensure 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 on the principle that “everybody is responsible”. In the long term this is the only way to reduce the total risk costs.

The relevant risks for Wärtsilä have been classified in four sections: 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.

Risk management process

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 all 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 risk management. The risk management policy is endorsed by the Board of Directors.

Risk reporting

Wärtsilä has strengthened its risk reporting during 2009. The Board of Management in its meetings carries annual Management Reviews on each Business, including their risks and risk mitigation. The risk map of the Group and all Businesses is then presented in the Finance Management Review in the autumn before the budgeting round. The risks are quantified in euros, their probabilities are estimated and risk mitigation actions, including potential investments, are decided in the normal course of business. The Group Risk report is then 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, follow-up actions, and reporting on risk management from underlying Business units. In addition to divisional risk reporting, Wärtsilä has four cross-business risk groups (production, supply chain, quality, and liability risk groups). These forums concentrate on risk identification and mitigation from the corporate view. The groups have approximately four meetings annually.

The Corporate Risk Management function co-ordinates risk management activities and reporting within the Group.