HOCHTIEF Annual report 2008 - Management Report

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Risk Report

Group-wide early warning system for active risk control
Solid financial structure
Conservative financing models leveraged
No identifiable risks to HOCHTIEF's continued existence

Risk management at HOCHTIEF

Risk management at HOCHTIEF takes in all organizational processes involved in advance detection of risks as well as in identifying and initiating suitable action to counter them. A risk is defined as any contingency with a potential negative impact on the attainment of qualitative or quantitative business goals, and in particular on earnings.

HOCHTIEF deploys integrated planning, control and monitoring systems and fine-tunes them on an ongoing basis to ensure that risks are detected at a sufficiently early stage, assessed and appropriately managed.

Risk management is a key success factor for HOCHTIEF and as such forms an integral component of our management system. To promote risk awareness throughout the workforce, we nurture a continuously evolving risk culture at all levels. This risk culture is sustained by organizational processes, IT systems and open communication.

HOCHTIEF Group early warning system

A Group-wide directive lays down standard procedures for risk management. The divisions supplement this directive with organizational instructions geared to their specific circumstances.

Risk inventories and forecasts are compiled at all operating locations three times a year and the resulting information is aggregated to Group level. This approach involves managers at all tiers of the corporate hierarchy, ensuring that risk awareness is all-pervasive – from project managers all the way through to divisional heads and holding company executives.

All risks are assigned an impact, probability, category and time-scale and are linked to action to be taken. In complement to this quantitatively focused reporting, HOCHTIEF also attaches utmost importance to open discussion of risks by management. A key element of our early warning system is therefore a dedicated Risk Management Steering Committee made up of divisional and corporate center representatives. This panel looks at reported risks from the differing perspectives of the divisions and the holding company, allowing all material risks to be evaluated in an integrated framework. The Steering Committee also coordinates and adopts binding countermeasures.

HOCHTIEF compiles the Steering Committee's findings in a risk situation analysis. This details all major risks in tabular form. The commented analysis forms an integral part of reporting and is finalized by the Executive Board.

In addition to the Risk Management Steering Committee, the Investment Committee is also a key part of our early warning system. As a rule, investments and equity stakes must be approved by the Investment Committee. The Committee ensures that all investment projects are assessed using uniform and recognized principles. Along with strict profitability standards, operational, financing and country risks are also material factors used by the Committee to make decisions.

Opportunities are inventoried simultaneously with risks Group-wide and are included in planning and forecasting reports submitted to the Executive Board. Opportunities are individually quantified and additionally weighted by probability of occurrence. There is no offsetting of risks and opportunities.