Revisited: A Focused Approach to Risk Management
by Maciej Müldner, Treasurer, Skanska Poland
In mid-2009, Maciej Müldner, Treasurer of Skanska Poland outlined how treasury approached risk management in the light of the crisis. Just over a year on, this article summarises Skanska’s strategy, its effectiveness and how the business has developed.
Skanska globally combines both centralised and decentralised elements in its financial management strategy. Skanska Financial Services provides a central in-house bank, but there is also a treasury function for each business unit. In some cases, such as in Poland, this comprises a team of 12 individuals, while in other countries, the treasury function may be smaller. Treasury in Poland needs to support between 100-300 projects each season, each one of which operates as a separate entity. Around seven members of the team provide daily financial operational support to these projects and the remainder are involved in cash management.
We conduct transactions across a range of financial instruments, including traditional hedging, capital financing, leasing, project finance etc. and perform all associated activities with the exception of accounting. To enable this, we use several modules of a TMS (treasury management system) globally which is integrated with our general ledger. This is used across the business, supporting all our main business lines including hedging, cash management (which also comprises a payments factory), documentary credits (such as guarantees), which are important in the construction sector, and insurance lines.
Skanska Financial Services provides a central in-house bank, but there is also a treasury function for each business unit.
This organisation has proved very effective throughout the crisis. We are well-equipped with the skills and technology we have in place, and as we look forward, we are positioning ourselves to manage business expansion. For example, we are considering ramping up our staffing, such as recruiting graduates to whom we can provide an attractive career path, as well as ensuring that we have the right skills and experience in place as the company grows over time.
Approach to risk management
For many years, we have adopted a consistent set of risk management processes globally, termed ‘Operational Risk Assessment’ which is central to the way we work. For each business opportunity, we perform a detailed risk assessment, which includes technical issues, such as human resources, health and safety and environmental impact, but also financial risks. This comprises a detailed, step-by-step process to assess requirements in terms of hedging, cash flow, guarantees, insurance and counterparty risk. The Operational Risk Assessment approach has now been in place for more than eight years, so it is deeply entrenched in our working practices and project teams have the necessary expertise to conduct the necessary risk analysis. Having assessed a project’s financial risks, treasury then helps the project team to find ways of mitigating them. Ultimately, the project manager is accountable for all aspects of the project, including finance, and treasury provides a vital support function.
Since September 2008, there has been an even greater focus on risk management across the Skanska group. We have revisited high-risk projects to assess whether they are subject to any additional risks beyond those we had originally determined. In fact, the outcome of this process was positive as the Operational Risk Assessment model was found to be robust.