Case study

Risk is defined as an event with the potential to cause unexpected losses in business operations, or cause damage to the Mercedes Groups assets and trust, etc. as laid out in the Risk Management Basic Policy. The companys fundamental approach is to identify and consider the various risks that occur in the course of business operations, ensure management safety, and increase corporate value by exposing itself to risk only within an appropriate and controlled range.

To implement the Risk Management Basic Policy in a concrete manner and conduct the administrative operations of the Integrated Risk Management Committee, in April 2021 we established the Enterprise Risk Management Group in the Investment and Credit Department. To address risks faced by the group as a whole, we are establishing and reinforcing consolidated risk management systems by working closely with each department and group company. Regarding the management of financial risks, the company regularly measures its risk assets and endeavors to ensure that risk assets are balanced by the risk buffer on a consolidated basis. Risk assets are calculated by multiplying risk asset principle based on each account on the balance sheet by the risk weight indicated by the maximum expected loss ratio, while the risk buffer is defined and calculated as the groups total financial corporate strength. We are striving to maintain a sound and stable financial position by continuing to increase the risk buffer based on profit for the year attributable to owners of the parent. In addition, we conduct country risk management to prevent an excessive accumulation of risk by evaluating the total amount of risk assets and keeping this total beneath the upper limit determined for each country. In the fiscal year ended March 31, 2021, we again maintained risk assets within the scope of the risk buffer. We also introduced Risk adjusted Value Added (RVA) as a measure of risk profitability with the aim of securing returns commensurate with risks.

Required:-

Q1. Identify and elaborate on the different risk management strategies undertaken by the Mercedes Ltd? (20 marks)