REG - Balfour Beatty PLC - Doc re. Annual Financial Report & Notice of AGM <Origin Href="QuoteRef">BALF.L</Origin> - Part 2
11/04/2016 21:35
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costs to rectify defective work.Execution failure on a high-profile project
could result in significant reputational damage and costs.
Supply chain Build to Last pillar: Owner:
No change to risk Lean Group management
Risk descriptionThe Group is heavily reliant on its supply chain partners for successful operational delivery, which means it is also exposed to a variety of risks in the supply chain including availability, financial stability, technical ability, quality, safety, environmental, social and ethical.Causes- Supply chain failure risk, exacerbated during, and when emerging from, tough economic conditions- Retention of subcontracted parties in buoyant markets- A subcontractor's failure to perform to an appropriate standard and quality, which could cause project delays, reducing Balfour Beatty's ability to meet contractual commitments and harming its reputation- Supply chain operating to lower standards (safety, ethics, quality, material stewardship, child labour, forced labour)- Failure to deliver targeted procurement savings- Failure to comply with Group supply agreements- Unethical treatment of the supply chain.What impact it might haveFailure of a subcontractor or supplier would result in the Group having to find a replacement or undertaking the task itself. This How it is mitigatedThe Group aims to develop long-term relationships with key subcontractors, working closely with them to understand their operations. It develops
could result in delays, additional costs or a reduction in quality owing to lack of expertise.The Group retains commercial as well as reputational responsibility for performance shortcomings by suppliers and subcontractors, whether in terms of quality, safety, environmental, social, technical or ethical standards.Mistreatment of suppliers, subcontractors and their staff, or poor ethical standards in the supply chain, could lead to significant reputational harm for Balfour Beatty. contingency plans to address subcontractor failure, and also obtains project retentions, bonds and/or letters of credit from subcontractors, where appropriate to mitigate
the impact of any insolvency.Staff are encouraged through the My Contribution programme to generate ideas for more effective procurement and resourcing efficiencies have
already been made in material and plant costs. This initiative will be further developed in 2016.Rigorous adherence to the Group's risk management framework and the
gateway review process allows for early and ongoing assessment of the appropriateness of resource allocation, including third-party dependencies.The Group undertakes
audits of key suppliers within projects to ensure they are in a position to consistently deliver against requirements.Balfour Beatty aims to work as much as possible with
preferred suppliers and subcontractors who undergo rigorous, risk-based prequalification processes and share its values. It also aims to avoid becoming over-reliant on
any one supplier or subcontractor.
Transformation programme Build to Last pillar: Owner:
Increased risk All The Board
Risk descriptionThe Build to Last transformation programme is being delivered throughout the business in order to improve operating efficiency. There is a risk that What impact it might haveFailure to meet the target of £100 million cost out and £200 million cash in.Failure to win new and retain existing business.Failure to attract and retain the best talent in the industry.There is also the risk of management losing focus on existing key deliverables and market opportunities.How it is mitigatedThe implications and required controls associated with the Build to Last programme have been well considered. A suite of mitigations are in place to ensure successful delivery including:- Build to Last champions are embedded within each business for constant dialogue and direction- senior leadership communication across the businesses is clear and frequent- employee surveys form a key part of the programme- the Build to Last delivery programme is phased over several years rather than a one-off delivery- leaders throughout the business frequently monitor the delivery and impacts of the programme- senior leadership are well experienced in delivering business
deploying such a wide range of initiatives required to meet the objectives of Build to Last creates a high level of disruption to the delivery of day-to-day operations transformation successfully.
and the Build to Last programme itself.CausesIneffective change management during the implementation of the Build to Last programme could cause the risk to be realised
via:- excessive drive to deliver anticipated outcomes- resource (financial, physical and people) being diverted from the day-to-day operational priorities towards
realising new initiatives and addressing legacy problems- employee fatigue with change programme and loss of focus owing to a perceived high number and frequency of
new initiatives- loss of key people and intellectual resource through dissatisfaction with the programme- new systems and processes being used without appropriate
controls being in place and/or tested.
People Build to Last pillar: Owner:
Increased risk Expert The Board
Risk descriptionInability to recruit and retain the best people may weaken the Group's ability to meet its strategic objectives.Causes- Failure to attract and retain How it is mitigatedChange management initiatives are well embedded within the business and aligned to the Build to Last transformation programme.All potential recruits for key roles in the organisation are measured against a leadership framework. Businesses within the Group undertake organisation and people reviews to review the roles, competencies, performance and potential of personnel. Recruitment and retention is measured and regularly reviewed across all parts of the business.A Group-wide employee engagement survey was conducted in 2015 to measure engagement and appropriate actions are being developed and communicated. The Group's succession planning process to identify and develop high-potential personnel is reviewed regularly within the organisation and by the Board. Balfour Beatty regularly reviews its remuneration arrangements to ensure they are appropriate to help it attract, motivate and retain key employees.
skilled staff- Distraction and impact on morale due to transformation programmes and continued operational issues- Inability to successfully promote the right
people through succession planning- Commercial and project management quality/performance- New staff unfamiliar with culture and procedures- Lack of a diverse
workforce- Loss of former staff with traditional bidding and execution skills- Deterioration of client relationships.What impact it might haveFailure to recruit and
retain appropriately skilled people could harm the Group's ability to win or perform specific contracts and grow its business.A high level of staff turnover can result in
a drop in confidence in the business within the market, client relationships being lost and an inability to focus on business improvements.
Business conduct/compliance Build to Last pillar: Owner:
No change to risk Trusted The Board
Risk descriptionThe Group operates in various markets that present business conduct-related risks involving fraud, bribery or corruption, whether by its own staff or via third parties such as agents, partners or subcontractors. Those risks are higher in some countries and sectors. Overall, the construction industry has a higher risk profile than other industries.Causes- Corruption- Bribery- Fraud/false claims- Unfair competition- Human rights abuses, such as child and other labour standards generally, illegal workers, human trafficking and modern slavery- Unethical treatment of and by the supply chain- Other emerging ethical risks- Risk of ethics and values being compromised when times are tough, not just in high-risk markets. What impact it might haveFailure by the Group, or employees and third parties acting on its behalf or in partnership, to observe the highest standards of integrity and
conduct could result in civil and/or criminal penalties, debarment and reputational damage.How it is mitigatedBalfour Beatty has a proactive approach to assessing and
addressing corruption risks. It promotes compliance with its Code of Conduct and in areas such as competition and false claims fraud. The Ethics and Compliance function,
together with compliance officers in the business, are responsible for embedding and monitoring the compliance programme and investigating any alleged breaches of it.The
risk of business conduct/compliance breaches by third parties is harder to control, but the Group has a range of risk assessment, due diligence and procurement controls
that are designed to identify and minimise such risks. Balfour Beatty works with very few agents, all of whom undergo a rigorous due diligence and approval process.
Legal and regulatory Build to Last pillar: Owner:
No change to risk Trusted The Board
Risk descriptionThe Group operates in diverse territories and its businesses are subject to a variety of complex, demanding and evolving legal, tax and regulatory requirements.Causes- Data protection and privacy- Information security lapse- Cybercrime- Government/regulatory enquiry and enforcement actions- Adverse changes of law, including changes to tax law- Local procurement laws- Debarment or blacklisting. What impact it might haveChanges to local laws and regulations could lead to legal proceedings, investigations or disputes resulting in business disruption ranging from
additional project costs to potential debarment and reputational damage. Such action could also impact upon the valuation of assets within that territory. Increasingly,
businesses are the target of cybercrime, which can result in loss of confidential, personal or commercial data, disruption to operations and associated costs. Sometimes
Balfour Beatty may be the target of state-sponsored cyber activities purely because of its customer base.How it is mitigatedThe Group monitors and responds to tax, legal
and regulatory developments and requirements in the territories in which it operates. Local legal and regulatory frameworks are further considered as part of any Group
decision to conduct business in a new country. Data protection and information security programmes are in place across the Group, and cybercrime and other information
security risks are assessed on a regular basis.
Environment and sustainability Build to Last pillar: Owner: Safety and
No change to risk Expert Sustainability Committee
Risk descriptionThe Group's activities can have a positive or negative impact on the natural environment and the communities it operates in. The Group's activities and What impact it might haveFailure to address these risks and to execute projects to meet the Group's environmental and sustainability goals could result in significant potential liabilities, reputational damage, an inability to win future work and in some operational regions potential criminal prosecutions.How it is mitigatedThe Group's Blueprint strategy provides a framework for its operating businesses to accommodate and embed environment and sustainability into operations. Issues such as climate change and resource use are considered in risk management activities at the business unit as well as project level.Balfour Beatty's business processes are used to identify potential risks and opportunities for the business. Management systems are in place to control some of the aforementioned risks and in addition the Group is subject to external audits undertaken by third parties. Scope 1 and 2 GHG emissions are also externally assured (see page 40) to ensure that the data is correct.
their location mean that environmental and sustainability risks need to be identified, monitored and managed.CausesEnvironmental risk may arise leading to a breach of
compliance and incident due to: - failure to deliver leadership- ineffective management of subcontractors- poor risk identification/assessment- having
processes that fail to promote risk elimination or mitigation- failure to follow procedures- not briefing people properly before setting them to work- failure to
identify emerging regulatory requirements.The reporting of inaccurate greenhouse gas (GHG) data and other data needed for sustainability performance reporting may mean
the Group is unaware of its actual impact and expose it to reputational damage and fines.Unethical/unsustainable sourcing (eg timber, forced labour, child labour) could
lead to reputational damage and impact Balfour Beatty's ability to tender for work.Insufficient management support and resourcing to achieve the Group's environment and
sustainability goals.
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