How we work
The thousands of projects carried out are the Group's main revenue source, and thus directly affect the Group's result. The focus is therefore increasingly on managing both risks and opportunities continually throughout the execution phase, and as close to the projects, the clients and the markets as possible.
In its business, Skanska faces risks of various kinds:
The Skanska Senior Executive Team (SET) is ultimately responsible for strategic, financial, legal and operational risks and are supported by Group functions. Responsibility for risks and opportunities is delegated throughout the line organization. Each business unit is organized to adequately manage its business specific risks and opportunities. To strengthen the units in this area, continuous skills development and exchange of experiences takes place.
A different risk profile to other industries
The risk profile of the construction and project development business differs from other industries. In construction operations with a longer order backlog, the capital tied up, fixed costs and operating margins are lower. Risks and opportunities exist in the thousands of projects that are executed every year, which are generally unique as regards design, function or location.
Presence in different markets and a variety of types of projects and contracts as well as client categories provide risk diversification. As there are few opportunities for repetition, there is little standardization of the construction work which therefore is highly dependent on the skills of our employees.
Risk management focuses on projects
Skanska applies the percentage-of-completion method, i.e. using a forecast of final project results, income is recognized successively during the course of the project based on the degree of completion.
This requires that the size of project revenue and project expenses can be reliably determined. The prerequisite for this is that the Group has efficient, coordinated systems for cost estimating, forecasting and revenue/expense reporting.
The system also requires a consistent judgment (forecast) of the final outcome of the project, including analysis of divergences compared with earlier assessment. This critical judgment is performed at least once per quarter. However, actual future outcome may deviate from the estimated outcome.
Approval procedures for Skanska's projects
Skanska uses Group-wide procedures for identifying and managing risks and opportunities.
- For construction and infrastructure projects, the Skanska Tender Approval Procedure (STAP) is used.
- For residential and commercial development projects, business tailored procedures are used.
The Group function, the Skanska Risk Team (SRT), supports SET by examining and analyzing tender, investment and divestment requests subject to top management approval (approximately, 500 projects per year). In addition, projects above a certain size are subject to the approval of the Board of Directors.
Each business unit conducts risk and opportunity assessments and identifies means for managing them.