Risk management system
FPC’s risk management process is governed by the Company’s Risk Management Policy as approved by its Board of Directors.
FPC is governed by the following fundamental risk management principles:
- holistic approach to risk management
- continuity of the risk management process
- involvement of all employees in risk management as part of their duties
- the risk management framework covers all FPC’s activities
- the risk management process is based on uniform principles and approaches
- division of roles among the risk management actors
- making management decisions with due regard to risks
- balanced criteria for making decisions on risk handling – striking the right balance between potential losses and opportunities, as well as between risk management costs and potential damages if the risk occurs.
FPC’s risk management framework aims to address the following tasks:
- identification, analysis, assessment, selection, preparation, and implementation of risk mitigation plans considering the cost vs benefit balance
- integration of the risk management process into FPC’s management and operational processes and regulation of interactions between the risk management process participants
- ensuring integrity, reliability, and effectiveness of risk management at FPC
- development and maintenance of a uniform, methodology-based approach to risk management across FPC
- allocation of risk management responsibilities among FPC’s personnel and inclusion of these in corporate regulations
- development of FPC employees’ skills to ensure successful performance of risk management roles and responsibilities
- allocation of required and sufficient resources to support risk management
- creation and maintenance of effective communication channels to support engaging internal and external stakeholders in risk management
- development of risk management reporting mechanisms, ensuring the completeness, reliability, and timeliness of reporting
- continuous improvement of the risk management infrastructure and process.
Central decision-making bodies for risk management at FPC are its Board of Directors and the General Director. The Company has the Audit and Risk Committee and the Risk Management Committee to prepare recommendations for management decision making.
The Risk Management Unit coordinates and improves risk management processes and enhances internal controls.
The Company took the following steps to improve its risk management framework in 2018:
- as recommended by the Audit and Risk Committee, the Board of Directors meeting reviewed the set-up of the risk management system and approved the new version of the Risk Management Policy
- a risk management framework was built in FPC’s branches, and the Company continued to roll out the framework across its subsidiaries.
JSC FPC’s Key Risk Map was reviewed by the Board of Directors and referred back for further development
Plans for 2019 include further improvements to risk management at FPC and aligning it with a project to improve and further develop the integrated risk management framework at the parent company – Russian Railways.
Key risk factors
Key risks factors associated with FPC’s operations are:
- lower GDP growth
- higher CPI growth
- significant fluctuations in inventory and fuel and energy prices
- increased competition (adjustments to pricing policy and dumping by FPC’s competitors, expansion of air transport infrastructure)
- lower or no price indexation
- changes in the economic and political environment in Russia
- deteriorating social and demographic situation in urban and rural areas
- lower household purchasing power and real disposable income
- FX rate fluctuations
- increased governmental support for air transport.
Risk mitigation approaches
FPC uses six risk mitigation approaches:
- Risk avoidance – changing strategic, tactical, or operational goals.
- Risk acceptance (conscious risk retention) – risk monitoring without any active treatment of such risks, where the risks are at an acceptable level or where risk treatment is impossible or makes no economic sense. This approach is also used where all risk mitigation methods available are economically unviable compared to the potential damage of the risk occurrence.
- Removing the risk source – addressing the source of risk through actions that mitigate its adverse effects.
- Mitigating the possibility (likelihood) of risk occurrence (reducing the likelihood of risk occurrence) – actions to reduce the likelihood of risk occurring.
- Mitigating risk consequences (reducing the severity of risk consequences) – loss minimisation through appropriate actions.
- Risk sharing with another party (parties) – reducing the risk likelihood and/or impacts through risk transfer or any other partial risk reallocation. Conventional risk sharing methods are as follows: insurance, liability sharing, outsourcing, and hedging.
FPC’s risk management structure
Our risk management structure involves 13 key actors with a mandate to manage risks.
|FPC’s Board of Directors|| |
|FPC’s Audit Commission|| |
|The Audit and Risk Committee of FPC’s Board of Directors|| |
|The Strategic Planning Committee of FPC’s Board of Directors|| |
|The Human Resources, Remuneration, and Corporate Governance Committee of FPC’s Board of Directors|| |
|FPC’s General Director|| |
|FPC’s committees|| |
|FPC’s Financial Risk Management Commission|| |
|FPC’s Deputy General Director responsible for the risk management system|| |
|FPC’s Risk Management Team|| |
|FPC’s Control and Audit Centre|| |
|Internal Audit Unit|| |
|FPC’s structural units (risk owners)|| |