We define “risk” as “the possibility of losses due to the occurrence of anticipated or unanticipated situations,” and also as “the possibility of not achieving the expected return on business activities.” We have set the following three items as the goals of our risk management activities.
- Stabilize Performance：Minimize discrepancies between the plan and actual results and secure stable profits
- Strengthen Financial Base：Maintain Risk-weighted Assets within the buffer (shareholders’ equity)
- Maintain Corporate Reputation：Fulfill CSR requirements and preserve corporate reputation
We categorize our business activities into investments and commercial transactions and manage risk after identifying both common and category specific risk factors.
We, by studying advanced methods and processes, have created an effective risk management framework that anticipates changes in the external environment. Our goal is to implement the best practice in risk management while maintaining the flexibility to adapt to changes in the business environment. The business environment is continually altering, and new business models that we could never have imagined are emerging on a daily basis. To respond to such situations in a timely and effective manner, we continue to evolve our risk management activities under the leadership of senior management.
Risk Management Framework
Maintain Risk-weighted Assets within our buffer / Maximize Risk-adjusted Return
Deliberate and monitor important projects through Business Unit Investment Committee and Company Investment Committee
Risk Management System for Investments
Decision-making process for investments
Once an investment has been made the decision to withdraw becomes difficult, and in the event of withdrawal, losses
tend to be larger.
Therefore, we have adopted a unified framework that covers everything from the entry into the investment to the exit and that takes into account changes in the portfolio as a whole, as well as the nature of the risks involved in each individual investment opportunity, while reviewing the process for assessing and following up investment projects as appropriate.
When assessing investment projects, the investment theme is clarified at the initial stage of the process, and is verified as a key point of due diligence. In addition, by applying a discount rate appropriate to each business risk, we are able to calculate an “appropriate price” for the investment, and evaluate the opportunity from both quantitative and qualitative aspects.
With regard to the decision-making process for investments, the Business Unit Investment Committee or the Company Investment Committee meets at each stage of consideration and implementation, depending on the scale and importance of the project.
From an early stage, these committees conduct in-depth discussions regarding the strategic positioning of the project, the background to and the reasoning behind the selection of the project, and the various factors that may affect the success of the investment.
Execution support and monitoring of investments
With regard to post-investment execution support, issues are clarified before the decision to invest is made, and a system has been established to work on resolving smoothly any issues that emerge after the investment has been made. For especially important projects, in addition to the “100-day plan*” execution support system, which provides integrated support functions, a “Focused Follow Up” system has been established that consists of plans to improve performance, and following up of project execution, provided by the Company Investment Committee.
In FY 2018, we introduced a new “Full Potential Plan” investment monitoring system that is intended to improve the quality of the investment portfolio. Investment targets are evaluated mainly using quantitative indicators, and categorized into “Satisfactory,” “Not Satisfactory,” and “Not Good.”
After confirming the positioning within the investment portfolio, a further strengths and weaknesses review of business potential is performed. Depending on the outcome of the review, specific measures may be taken to maximize the value of the business in accordance with the growth strategy of “Increase Value of Existing Business,” but withdrawal will be encouraged for businesses with limited room for growth.
* Activities, performed mainly in the first 100 days immediately after the investment has been executed, to construct and develop management infrastructure aimed at drawing up a medium-term plan that seeks to maximize business value, including management of the investment, and which management and financial indicators should be used as targets