Saab 2010 Annual Report Download - page 60

OPERATING RISKS
A number of signicant areas have been identied with respect to
operating risks, which are important in assessing the Group’s results
and nancial position.
Develop and introduce new systems and products
e Group invests heavily in the research and development of its
own products and systems as well as acquisitions of technology. Its
biggest systems are the export version of Gripen, missile systems and
electronic warfare systems. One example of acquired technology is
the world-leading radar technology obtained through the acquisi-
tion of Ericsson Microwave Systems AB in . Investments in new
systems and products are made aer a strategic and nancial analysis
and assessment of future business opportunities.
e risk in developing and introducing new systems is that Saab
could be unsuccessful in its product launches and not achieve the levels
of business required to make these products protable.
Managing development and introduction of new systems and products
e Group takes an active approach to product management. A high
degree of modularisation in project management allows Saab to
reuse product solutions in its oerings. In , the introduction
of a new product management process was completed and various
measures were launched to further improve eciencies in develop-
ment processes, e.g., centres of excellence were established for vari-
ous aspects of Saab’s development work. As a result, all development
in the same area is being consolidated in a single location.
Certain development costs are capitalised in accordance with
established accounting principles. Amortisation of capitalised devel-
opment costs is scheduled over the estimated production volume or
an estimated period of use, though not more than ve to ten years. If
the estimated period of use is shorter than ve years, the costs are
amortised over the shorter period. Future business opportunities are
periodically reassessed, which can lead to impairment losses. Capi-
talised development costs are shown in Note .
Long-term customer projects
As one of the world’s leading high-technology companies, Saab’s
operations entail complex development projects on the leading edge
of technology. e competitive situation is complex, and success
depends on the ability to oer cost-eective high technology solu-
tions, though also in some cases on participation in the customer-
country’s economy through various forms of industrial co-operation.
Managing long-term customer projects
A majority of all long-term customer projects contains signicant
development work, which is associated with risks. Before a contract is
entered into with a customer to supply a product, solution or service,
a thorough analysis is always done of the conditions and risks associ-
ated with the delivery using an established project management proc-
ess. Periodic reviews are subsequently made of the project during its
implementation stage using the same process. An important aspect is
to identify and assess risks, then take the measures needed to mitigate
them with the help of a risk assessment method.
e Group applies the percentage-of-completion method to rec-
ognise revenue from long-term customer projects. An estimation of
total costs is critical to revenue recognition and provisions for loss
contracts as well as valuating inventories. e outcome of technical
and commercial risks may aect income.
Work was begun in  to further improve the risk management
process for long-term customer projects, which will be updated in .
Environmental risks and liabilities
e most important environmental risks involve hazardous chemi-
cals, building and plant res, and soil contamination.
Managing environmental risks and liabilities
A number of dierent chemical products used in Saab’s operations
are classied as harmful to humans and the environment. e opera-
tions in Tannefors and Malmslätt, in Linköping, and the operations
in Karlskoga are subject to Sweden’s so-called Seveso law, which is
designed to reduce risks in connection with the large-scale use of
chemicals and includes measures to prevent and limit the conse-
quences of serious chemical accidents. e Malmslätt plant was shut
down at mid-year .
Against this backdrop, we have introduced strict routines for risk
assessment, supervision and control of chemicals. Strict routines are
also applied to purchases of chemical products. Health and environ-
mental information on chemical products is available in the Group’s
chemical data system.
Saab works actively to assess and minimise re risks in its opera-
tions. Since a re in a production facility can cause extensive envi-
ronmental damage to the local area, eective re prevention is an
important part of the eorts to reduce environmental risks.
We analyse our operations and properties to assess Saab’s risk
exposure resulting from soil contamination. When a contaminated
area is identied, liability is determined and an overall risk assess-
ment is made. Information on contaminated areas is documented as
it is received. An insurance solution was created in  to manage
soil contamination cases. In , costs for remediation measures
were less than MSEK .
Overall risk assessments are made to determine how operations
are aected by climate change.
Liquidation of leasing operations
Saab decided in  to discontinue the manufacture of turboprop
aircra.
Like other manufacturers, Saab had a business model that
included lease nancing in connection with aircra sales on the
market. e risk in the portfolio is that Saab is unable to lease out the
SAAB ANNUAL REPORT 2010 57
ADMINISTRATION REPORT > RISKS AND RISK MANAGEMENT