Risk management
Identifying and mitigating risks is a key part of any manager’s job. At Novo Nordisk a formal risk identification process encourages everyone to keep an eye on both immediate risks and those emerging on the horizon.
Strategic risk management is high on the agenda of the Board of Directors and Executive Management. The aim is not to avoid risks, but to ensure that key risks are proactively managed. This allows Novo Nordisk to better allocate resources and to target future growth opportunities. An analytical and systematic approach to risk management makes the assumptions behind decisions more transparent. It allows management to discuss risks and choose whether to accept, transfer, share or eliminate the individual risk in order to align Novo Nordisk’s consolidated risk profile with the readiness of Executive Management and the Board of Directors to take risks. Clearly, the appetite to take calculated risks will be higher in early discovery phases, while in other areas such as quality and patient safety the tolerance of risks will be close to zero.
Novo Nordisk defines risks as ‘events or developments which could reduce our ability to meet our overall objectives’. This broad definition includes all types of risk, both financial and non-financial, ranging from discovery and development, through manufacturing, sales and support functions that might impede the long-term objectives set out in the company’s Vision and reflected in its business plans.
Novo Nordisk is operating in an industry that is impacted by consolidation, cost containment and intensified competition. Articulating risks can improve decision-making, and Novo Nordisk has developed an integrated and systematic risk reporting approach, which is aligned with existing reporting and recurs on a quarterly basis. It is designed to ensure that key business risks are identified, assessed and reported to Novo Nordisk’s Executive Management and Board of Directors.
Once a year Novo Nordisk undertakes a strategic planning process involving in-depth identification and evaluation of long-term growth opportunities. Through this process, risk factors and mitigations are identified and factored into the individual units’ business plans. This disciplined questioning of the context for identified risks and assessment of which objectives may be threatened enables Novo Nordisk to be more attentive to factors that help or hinder long-term value creation.
Assessing risks
In all assessment of risks two factors are considered: the likelihood of the event and its potential impact on the business. Impacts are quantified and assessed in terms of potential financial loss and reputational damage. The risks are assessed at both gross level and net level. The gross level is the assessment of the risk with the assumption that no mitigating actions have been implemented. The net risk level is the residual risk when taking into account the mitigating actions and their anticipated effect.
Impact in terms of reputational damage is included because Novo Nordisk sees its repu tation as one of its most valuable assets. A good reputation, based on solid performance and the business principles laid down in the Novo Nordisk Way of Management, helps the company to attract talented people, investments and collaboration partners – and opens doors to customers and regulators. Consequently, any significant damage to its reputation impairs Novo Nordisk’s ability to meet its business goals in the longer term.
Novo Nordisk applies a comprehensive and systematic method for assessing the reputational impact of potential risks. It aims to make more fact-based assessments of the likelihood and impact of a risk from a reputation perspective. As such, the tool serves as a common starting point for management’s discussion on specific risks.
See a list of current key risks.
Risk management set-up
Executive Management has established a dedicated Risk Management Board of senior executives representing all key business activities and selected support functions. Chaired by the chief financial officer, it reports to Executive Management and the Board of Directors. The Risk Management Board meets at least four times a year.
It sets the strategic direction and challenges for risk management, and analyses the risk and control information generated by the individual business areas. This process helps to reduce blind spots and consider potential cross-functional impacts. In quarterly reports to Executive Management and the Board of Directors, risks are assessed and quantified in terms of potential financial impact and reputational damage. For each risk the potential impact is specified, as are mitigating actions.
The Risk Office is the secretariat of the Risk Management Board. It drives and consolidates risk reporting from discovery and development, through manufacturing and logistics, to marketing and sales. In addition, risks related to support functions such as regulatory, business development, finance, legal & IT and people & organisation are included. This is done in consultation with relevant Novo Nordisk committees, boards and management groups.
Novo Nordisk’s risk management structure
