Saab 2012 Annual Report Download - page 57

SAAB ANNUAL REPORT 2012 53
ADMINISTRATION REPORT > RISK AND RISK MANAGEMENT
The Group’s obligations are calculated on an actuarial basis each
year, after which a comparison is drawn with the fund’s assets.
Decits according to such calculations may require Saab to con-
tribute additional funds. The Saab Pension Fund’s objective is a real
annual return of at least 4per cent on invested capital. The fund
invests in interest-bearing securities, equities and hedge funds.
Accounting principles regarding pension liabilities changes as
of 2013, meaning that the value of pension liabilities will be more
volatile compared to previously applied accounting principles up
until 2012. See Note 1 for additional information.
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
The Group invests heavily in the research and development of its
own products and systems as well as acquisitions of technology.
Its own products are mainly the export version of Gripen, radar
systems, command and control systems, missile systems, UAV
systems and electronic warfare systems. One example of ac-
quired technology is the world-leading radar technology obtained
through the acquisition of Ericsson Microwave Systems AB in
2006. Investments in new systems and products are made after
a strategic and nancial analysis and assessment of future busi-
ness opportunities. Risks applied to develop and introduce new
systems and products involve that the self-developed products
does not full high customer requirements, and thus not give the
previously estimated return when the decision was made.
Management of development and introduction
of new systems and products
During 2012, implementation continued of the various measures
launched in 2011 to further improve efciencies in development
processes, including the continued establishment of Centres
of Excellence within Saab for different aspects of development
work. This means that we coordinate and sometimes consoli-
date critical technology needed for different product areas in one
location. Product roadmaps (i.e. a plan for further development of
the product) is now being established for the full life-cycle of the
product. This gives a better possibility to internally govern product
development. In 2012, a portfolio management process was also
developed. It is a management tool on an overall level to make
decisions on which investments to prioritise, both in a market and
prot perspective.
Certain development costs are capitalised in accordance with
established accounting principles. Amortisation of capitalised
development costs is scheduled over the estimated production
volume or an estimated period of use, though not more ten years.
If the estimated period of use is shorter than ve years, the costs
are amortised over the shorter period. Future business opportuni-
ties are periodically reassessed, which can lead to impairment
losses. Capitalised development costs are shown in Note 16.
Long-term customer projects
Management of long-term customer projects involves risks.
Saab’s operations entail complex development projects on the
leading edge of technology where the competitive situation is
complex. Success depends on the ability to offer cost-effective
high technology solutions, though also in some cases on par-
ticipation in the customer-country’s economy through various
forms of industrial cooperation. The risk in managing long-term
customer projects is that Saab will be unsuccessful in meeting
customer requirements, as a result of which the commitment is
not fullled and costs being signicantlly higher.
Management of long-term customer projects
A majority of all long-term customer projects contains signicant
development work, which is associated with risks. Every contract
with a customer to supply a product, solution or service is always
preceded by a thorough analysis of the conditions and risks asso-
ciated with the delivery, based on an internal process established
within Saab for customer contracts. Adaptation of the processes
have been made to support the new market area organisation as
of 1 January, 2013.
Regular project reviews are subsequently conducted during
the implementation stage using the same process. An important
aspect is to identify risks and assess them along with measures
taken in order to mitigate the risks with the help of our uniform
risk assessment process.
The Group applies the percentage of completion method to
recognise revenue from long-term customer projects. An estima-
tion of total costs is critical to revenue recognition and provisions
for loss contracts as well as the valuation of inventories. The
outcome of technical and commercial risks may affect income.
A review of the project management process was conducted in
2010, and we are working continuously to improve this process
FINANCIAL RISKS
RISK
Foreign currency risk
Interest rate risk
Renancing risk
Credit and counterparty risks
Commodity risk Pension obligations
MANAGEMENT
Management of nancial risks is governed by the Group Treasury Policy
established by the Board of Directors.
Learn more about nancial risks in
Note 41. See above