Operational risks are short-term and specific. In our business, this relates to our projects. Consequently their implementation is both a risk and success factor. The risk profile differs between construction and development projects.
Operational risk in Construction operations
Predicting and managing operational risks is critical for results. The risks vary greatly depending on the type of contract and the compensation model. The degree of risk is proportionate to the size of the project and also depends on how well risk management is performed. In addition, the choice of technology, method and suppliers plays a part in operational risk – as do, in certain cases, the ground and weather conditions.
Analysis of competence
To proceed to the tender phase, a project must be checked against the Skanska Heat Map, which identifies core competencies in the various units. This analysis determines whether the unit has the correct workforce and knowledge of the local market and whether the contract form and customer profile provide the prerequisites for a positive end result. The local business units are also supported by the Company's global expertise. It includes the R&D department's review of High Risk Structures which is a procedure to prevent structural failures. The Skanska Heat Map is revised annually by the local business units and is subject to final approval by the Group Leadership Team.
Operational risk within Project Development
In development projects Skanska has a dual role as both builder and property developer. This means that Skanska is responsible for all stages – from buying land and obtaining building permits to development, design, building, leasing and selling, and finally also for guarantees for the finished product. There is also a market risk, since demand is affected by developments in the external environment and macroeconomic shifts.
Large and complex projects are approved and continuously monitored by the Group Leadership Team. To support this, several Group functions are active, such as the Skanska Risk Team and Controlling. The organizational structure in the business units mirrors the structure in the Group.
The Group function, the Skanska Risk Team (SRT), supports GLT by examining and analyzing tenders, 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. Some projects are referred back for improvements and increasingly few are rejected outright. In 2016, less than 1 percent of the proposals were not approved to proceed.
The life cycle perspective means that projects are followed-up on and repeatedly supported throughout the project by, among others, Controlling. During project implementation, a common methodology is applied covering start-up, execution and close-out.
Example of methodology for projects
The profit scorecard provides a systematic way of optimizing the possible opportunities – for example, when choosing technical solutions, materials and suppliers in the implementation of contracted projects. Project planning includes analyzing macroeconomic factors and risks in connection with investment, leasing and divestment.