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Read the risk report in the integrated report here
The management of risk is critically important to the ongoing success of the group. The Aveng Group regards risk as the impact of uncertainty on objectives which could be related to projects and project execution, health and safety, environmental, economic, commercial, and talent management amongst others.
The Aveng Group have adopted a structured approach to risk management, using consistent approaches to the assessment and treatment of all types of risk, at all levels and for all activities in our company to achieve our strategic vision and improve our competitive position.
The effective management of risk is closely interwoven into the group’s business strategy and forms an integral part of all our business processes to ensure that we identify risks and manage them in a consistent and proactive manner.
The principles of risk management followed by the group address uncertainty and its causes, are part of decision-making, add benefit and value, are transparent and form an all-inclusive process that is re-evaluated and updated on a regular basis to make sure that the process is dynamic, iterative and responsive to change. The group uses systematic processes to both learn from our successes and failures. In this way the organisation continues its drive towards operational excellence and organisational learning and growth.
Responsibility for the management of risk rests with line management in the Aveng Group, all Aveng Operating Companies, their Divisions and the Projects. The ultimate level of risk control will be balanced with our continued encouragement of innovation.
The Aveng risk management process provides for both a top down and bottom-up approach:
By understanding and managing risk we can add value, be better informed and be more decisive whilst providing a greater certainty and security for all our employees, customers and stakeholders.
To ensure that consistent approach is taken throughout the group, the Aveng Risk Management Framework provides the overall template for the Group risk management process. Operational line management are accountable for managing risks at the appropriate level in conjunction with key staff specifically tasked with these duties to assist them.
Strategic risks are those that could cause severe financial loss, fundamentally undermine the competitive position of the group, affect its reputation or impact adversely on the market sectors in which The Aveng Group operates. Strategic risks are internal and external risks faced by the operations or the group.
Business risks are those that may have an impact or consequence on the business objectives of each individual division, business unit and operating group and are categorised into those which the group can control and external factors outside of its control. The latter includes country, exchange rate and commodity price risks which the group endeavours to mitigate by maintaining a strategic balance between business sectors, markets, currencies, countries and products. The process is dynamic and strives to provide a balance between realising opportunities for gain whilst minimising adverse impacts.
Project risk process comprises five key areas. This includes the decision to tender, tender risk review, project start-up, project execution and finally project close-out.
The risks associated with projects are potentially the biggest risks faced by the group. In the current market, the construction risk profile has increased dramatically with many large customers attempting to pass significant additional risk onto the contractor with no commensurate increase in risk contingency or return. As a result of the market pressures, the risk profile that contractors are expected to take on are much more onerous than was the case two to three years ago. The tougher contracting environment has led to increased analysis to establish whether any specific tender is aligned with the prevailing strategic focus of the group. Accordingly the process used in this area is rigorous and provides for many hold and witness points to ensure that only projects that are appropriate to the group are tendered. The risks associated with these projects are considered on a project by project basis and a specific report, risk register, cash flow and other documents are required to ensure that he conditions surrounding each individual project have been properly evaluated and that appropriate control measures instituted.
The system has been upgraded with the introduction of new risk software to be a continuous learning system (also applicable to business risk) to ensure that any positive and negative impacts or learning’s that occurred on any project are available and translated into the future project risk analysis. Following this analysis consideration is given to ensure that the risk contingencies are adequate and that the returns expected are commensurate with the risk assumed. The Project Risk Framework contains a commercial best practice module containing contract terms and conditions. In addition a separate Commercial Framework has been implemented. The objective of these documents is to assist in maintaining an acceptable commercial risk profile on all contracts.
The group has a Board Risk Committee whose charter is to assist the Board to review the risk management policy and plan on an annual basis and recommend same to the Board for approval, monitor the implementation of the risk management framework, disseminate the risk management plan and ensure that the risk management plan is integrated into the daily activities of the business. The members of this committee, based upon the input of management, express its opinion to the Board on the effectiveness of risk management systems and processes, make recommendations to the Board regarding levels of risk tolerance and appetite, and ensure that continuous risk monitoring by management takes place.
In addition Management has established a Tender Risk Committee for the purposes of considering significant tenders for approval prior to submission. The Tender Risk Committee is governed by a separate charter to the Board Risk Committee.
The primary purposes of the Tender Risk Committee are to review risk aspects of the tenders that present significant potential risk to the group, to approve capital expenditure required for major projects; and to give guidance to the operating groups and business units on strategic matters relating to the submission of a particular bid or contract negotiation.