Saab 2013 Annual Report Download - page 56

52 SAAB ANNUAL REPORT 2013
ADMINISTRATION REPORT > RISKS AND RISK MANAGEMENT
basis each year, aer which a comparison is drawn with the fund’s
assets. Decits according to such calculations may require Saab
to contribute additional funds. e Saab Pension Fund’s objective
is a real annual return of at least 4 per cent on invested capital.
e fund invests in interest-bearing securities, equities and hedge
funds.
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.
Developing and introducing 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 own products are mainly radar systems, command and control
systems, tactical weapons, UAV systems and electronic warfare
systems. One example of acquired technology is the radar tech-
nology obtained through the acquisition of Ericsson Microwave
Systems AB in 2006. Investments in new systems and products
are made aer a strategic and nancial analysis and assessment of
future business opportunities.
Risks associated with developing and introducing new systems
and products are the failure of self-developed products to meet
market demands, thereby failing to yield the return estimated at
the time the decision was made.
Management of development and introduction of new systems
and products
Implementation of measures to further improve the eciency of
our development processes continued during 2013. e further
developed portfolio management process was used actively on
an overall level during 2013 to take decisions on investment
prioritisation from both the market and protability perspectives.
Product roadmaps (i.e., plans for further development of product)
are now being established for the full life-cycle of all products.
is provides greater opportunities for internal governance and
prioritisation of product development. During 2013, Saab’s new
product database with more than 500 products grouped in pro-
duct areas, was launched. e product database is linked to Saab’s
CRM system and provide strong support for the new market area
organisation. Saab also continued to work in 2013 with streamli-
ning product development through modulisation, allowing new
customer demands to be met more quickly and less expensively.
Early identication of a launch customer is an essential element
to reducing the risks associated with the development of new pro-
ducts. To improve business case precision, heightened demands
now require clear identication of a launch customer at the time
the investment decision is made.
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 than ten
years. Future business opportunities 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.
Our success depends on the ability to oer cost-eective high
technology solutions, and also in some cases on participation in
the customer-country’s economy through various forms of indu-
strial co-operation.
e 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 or the costs run signi-
cantly higher.
Management of long-term customer projects
A majority of all long-term customer projects include signicant
development work, which is associated with risk. 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, the ”Winning Business” pro-
cess. is process includes a comprehensive analysis of the risks
in the project and demands for management of risks that occur.
During 2013 we have continuously worked to improve the pro-
cess. e process has been adapted to changes in Saab’s internal
governance and to new external demands. e Winning Business
process has also been adapted to the market area organisation that
was introduced in January 2013.
Regular project reviews are conducted during the project
implementation stage using various types of reviews, e.g., design
reviews, project reviews, decision reviews, etc. An important
element of this is to identify risks and assess them along with
measures taken to mitigate risks with the help of our uniform risk
assessment process. e Group applies the percentage of comple-
tion method to recognise revenue from long-term customer
projects. An estimation of total costs is critical to revenue recogni-
tion and provisions for onerous contracts as well as the valuation
of inventories. e outcome of technical and commercial risks
may aect income. We are working continuously to improve
this process and ensure its implementation. In 2013 we worked
continuously to secure the implementation of the process through
supportive education and ongoing improvements. ese process
improvements will continue in 2014, including adaptation to new
external and internal demands.
Environmental risks and liabilities
e most signicant environmental risks are the improper mana-
gement of hazardous chemicals, res in buildings and plants, and
soil contamination. For more information on environmental risks
and liabilities, see Note 48.
FINANCIAL RISKS
RISK Foreign currency risk
Interest rate risk
Renancing risk
Credit and counterparty risk
Commodity risk
Pension obligations
MANAGEMENT Management of nancial risks is governed by the Group Treasury Policy estab-
lished by the Board of Directors.
Read more about nancial risks in Note 41. See above