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Quantitative Risk Management in Philips

Quantitative Risk Management in Philips. Arjen Ronner Seminar Quantitative Financial Risk Management January 14, 2000. Content. 1. Governance model and Risk Management 2. Identification and quantification key success factors

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Quantitative Risk Management in Philips

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  1. Quantitative Risk Management in Philips Arjen Ronner Seminar Quantitative Financial Risk Management January 14, 2000

  2. Content 1. Governance model and Risk Management 2. Identification and quantification key success factors 3. Integral risk management hampered by agents, markets and accounting issues

  3. Product Division Product Division Product Division Product Division Product Division Product Division Product Division Elimination of the Matrix BOM/GMC The “matrix” in the sense of equal authority shared by product and geographic dimensions has disappeared Country Country Country Country Country Country Country

  4. Governance Model: Businesses • Product Divisions organized into clear and accountable Businesses • Each Business has: • a clear scope of customers, channels, products and geography • clear accountability and management structure • full control over its business systems • Co-operation not enforced, but driven by business and company interest

  5. Currency Risk Property Risk Interest Rate Risk Liability Risk Environmental Risk Directors & Officers Risk Business Risk LegalRisk Political Risk Pension Risk CreditRisk Financial Priorities

  6. Key Stages in Risk Management Execution Policy Measurement Identification

  7. TV glass base guns tube IC Test & Ass Wafer Fab. wafer IC Interdependency Risk

  8. Gradings Low Medium High Poor Fair Good Excellent

  9. Currency Risk Management

  10. Goals and approach • Goal: Investigate the existing currency and interest rate exposures, the policies and guidelines, the procedures and practices, in order to design a structure for identifying, measuring and managing these exposures. • Starting-point: the objective of currency risk management is the protection of Euro-shareholder value of the Philips Group. • In corporation with the Product Divisions a new structure has been developed. • Benchmarking via Company visits.

  11. Other companies

  12. Cash flow Philips USD USD Philips HKD HKD

  13. Approach Consistency Shareholder value protection Transparency Measurement of total group exposure Structure One policy throughout the whole company Efficiency Optimal netting of exposures

  14. Bottlenecks • lack of information  loan data base • stable cash flow  P&L effects • changing Treasury management • hesitation towards hedging • changing accounting standards

  15. Philips Group Group Equity Operating assets Debt minus Cash PD / Business responsibility: Corp. Treasury responsibility: Cash Flow per currency Cash Flow per currency from assets from liabilities Derived from OCF-model Derived from Funding-database Matching required CF from assets is leading CF from liabilities has to follow CCY Risks for the Philips Group

  16. Accounting implications • Cash flow  P&L • Global  Local

  17. Is this the future High Excess Property Only High Excess Casualty Only Annual Limits Annual Limits Combined Excess Integrated Program Multi Years Combined Combined Combined Aggregate Aggregate Aggregate Retention Retention Retention Year 1 Year 2 Year 3 GL/Prod Auto Ocean Political Property Currency D&O Marine Risk Risks

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