Saab 2015 Annual Report Download - page 49

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.
Development and introduction of new systems and products
Saab invests heavily in the research and development of its own prod-
ucts and systems as well as acquisitions of technology. Its own systems
mainly include radar and sensor systems, command and control
systems, tactical weapons, and electronic warfare systems. Certain
technologies are developed in partnership with other companies.
One major investment in this area is Saab’s collaboration with Boeing to
bid for the US Air Force’s new jet trainer as part of the so-called T-X
programme. One example of an acquired technology is the technology
obtained through the acquisition of Saab Kockums in 2014. Invest-
ments in new systems and products are made aer a strategic and nan-
cial analysis and assessment of future business opportunities. e risk
in developing and introducing new systems and products is that they
do not live up to the market’s demands and therefore do not generate
the expected return when the investment decision was made or that
the products were timed wrong in relation to demand. Due to long
development cycles, changes in the market can mean that demand no
longer exists or looks dierent when products are ready to be oered
to the market.
Management of development and introduction of new systems
and products
In 2015, Saab standardised its oering by packaging products in the
product database, which was launched in 2013. e database is linked
to Saab’s Customer Relationship Management (CRM) system and
provides sales support for the global marketing organisation. Good
packaging also reduces design costs. During the year, Saab further
improved eciencies in product development through modularisation.
With a modular design, new models can be developed continuously
and cost eciently, and new customer requirements can be met more
quickly and at lower cost. One example is that Saab develops sensor
systems where modularisation allows the same technology and corner-
stones to be used in several dierent products.
To reduce risk in the development of new products, it is critical to
identify a rst customer early on. In 2015, Saab tightened its require-
ment that a rst customer be clearly identied prior to any decision to
invest in development. Development costs are capitalised in accordance
with established accounting principles which are described in note 17.
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.
Long-term customer contracts
Management of long-term customer contracts entails risks. Saab’s
operations involve complex development projects on the leading edge
of technology where the competitive environment is complex. Our
success depends on the ability to oer cost-ecient high technology
solutions and in some cases on participation in the customer-country’s
economy through various forms of industrial co-operation.
e risk in managing long-term customer contracts is that Saab will
be unsuccessful in implementing or delivering in accordance with the
customer’s requirements, as a result of which the commitment is not
fullled or the costs run signicantly higher.
Management of long-term customer contracts
e majority of all long-term customer projects involve signicant
development work, which is associated with risk. Before a contract is
signed with a customer to supply a product, solution or service, it is
always preceded by a thorough analysis of the conditions and risks
associated with delivery based on Saab’s internal quality assurance
process – Win Business. is includes a comprehensive analysis of the
risks in the project and requirements for managing the identied risks.
In 2015, Saab further improved the process. Continuous reviews are
performed at various stages of each project, including design reviews,
project reviews and decision reviews. An important element is to iden-
tify and assess risks and the measures taken to mitigate the risks with
the help of a uniform risk assessment process. e Group applies the
percentage of completion method to recognise revenue from long-term
customer contracts. An estimation of total costs, including estimation
of technical and commercial risks, is critical to revenue recognition.
Changed estimations can impact the income statement, provisions for
project losses and inventories. is process was strengthened in 2015 by
stronger linking of Win Business to Saab’s internal control process
for nancial reporting. e company now systematically reviews the
various parts of each project and veries that all decisions in the process
have been made in the right way, that the material has been prepared in
accordance with requirements and that the assessment of the business
opportunities is accurate.
In 2015, Saab entered into three major projects: Gripen to Brazil,
the sale of an ariborne surveillance system to the United Arab Emirates
and a contract from FMV to build two Type A26 submarines. When
combined with major orders received in earlier years, this produced a
record-high order backlog dominated by major projects. It is essential
therefore that Saab focus on implementing these major projects accord-
ing to schedule and according to the customer’s requirements.
Environmental risks and liabilities
Saab has worked diligently to reduce its environmental and climate
impacts. e company works actively with research and development
collaborations on sustainable solutions to reduce such impacts and to
phase out hazardous chemicals. e most signicant environmental
risks are the improper management of hazardous chemicals, res in
buildings and plants, and soil contamination. For more information
on environmental issues, risks and liabilities, see note 45.
SAAB ANNUAL REPORT 2015 – 45