Tesco plc Annual Report and Financial Statements 2012

Principal risks and uncertainties
Risk is an accepted part of doing business.
The real challenge for any business is to
identify the principal risks it faces and to
develop and monitor appropriate controls.
KEY
Arrows: change in net risk
assessment from 2010/11
Net risk has increased
Level of net risk is unchanged
Net risk has decreased
Principal risks
Performance risk
in the business
Risk that business units
(including the UK) underperform
against plan and against
competitors and our business
fails to meet the stated strategy
in full. Like all retailers, the
business is susceptible to
economic downturn affecting
consumer spending
Operational threats
to the business
Risk that the business fails to
maintain an optimum level
of investment in capital, revenue
or people and thus is limited
in its ability to serve customers
and grow
40 Tesco PLC Annual Report and Financial Statements 2012
Change from
2010/11 Key controls and mitigating factors
A successful risk management process balances risks and rewards
and relies on a sound judgement of their likelihood and impact. The
Board has overall responsibility for ensuring that the Group has an
appropriate approach to risk management and internal control within
the context of achieving the Group’s objectives. Our process for
identifying and managing risks is set out in more detail from page
60 of the Directors’ report on corporate governance.
The table below sets out the principal risks faced by the Group, their
movement during the year and examples of relevant key controls and
mitigating factors. The Board considers these to be the most significant
risks and, whilst they are not directly comparable, they have been
ranked in terms of relative importance to the Group at this time.
They do not comprise all risks associated with the Group. Additional
risks not presently known to management, or currently deemed to be
less material, may also have an adverse effect on the business. The
principal risks associated with operating Tesco Bank are considered
separately in the section of the table below headed ‘Tesco Bank/
Financial Services Risks’.
�� Board, Executive Committee and various operational committees meet regularly
to review performance risks
�� All business units have stretching targets based on the Steering Wheel balanced
scorecard system; performance against budgets and KPIs are monitored continually
and reported regularly to Board
�� Clear goals and objectives set for subsidiary CEOs, with high proportion of reward
based on achievement
�� Diversification strategy minimises impact of changes in economic climate
�� Operational threats reviewed regularly by Board, Executive Committee, UK Trading
Group and various operational committees
�� Governance committees, including Compliance Committees, guide and
monitor policies
�� All business units have stretching operational targets based on the Steering Wheel
balanced scorecard system; KPIs are monitored continually and reported regularly
to Board
�� Clear goals and objectives set for subsidiary CEOs, with high proportion of reward
based on achievement
�� People Matters Group regularly reviews talent planning, appointments and
new roles
�� Diversification strategy minimises impact of changes in economic climate