2010-02-03-奥纬咨询-Risk_management_as_a_profit_driver_2页_69kb

Summary of Plant Construction Industry Analysis

Growth and Profitability

• The European plant construction industry experienced substantial growth from 2006 to 2009, often referred to as the "Champagne era," with average annual revenue growth exceeding 10%. However, profitability, measured by EBIT margins, did not significantly improve for most companies, with margins falling for about one-third of them and profits offset by losses on large projects.

Competitive Pressures

• Asian companies are intensifying competition by increasing pressure on rates and margins for European plant construction firms. This has led to tighter profit margins and operational challenges, necessitating new strategies for sustainable growth.

Risk Management as a Profit Driver

• Risk management is advocated as a key lever for improving profitability, alongside traditional factors like products, procurement, and sales. Systematic risk management can enhance earnings stability, reduce volatility, and increase EBIT margins by 2% to 5%. Key steps include analyzing risk drivers (e.g., engineering, procurement, operations), evaluating and quantifying risks using simulation models, and implementing mitigation strategies such as contracts, hedging, or insurance.

Data and Findings

• Revenue growth averaged higher than 10% annually from 2006 to 2009, but unmanaged risks often led to cost and time overruns, eroding profits. Most companies lack systematic risk assessment or integration into financial planning, relying on basic tools like checklists or Excel, which falls short for effective risk handling.

Recommendations for Action

• Companies should adopt a three-step risk management approach to systematically integrate risks into financial planning and decision-making, resulting in clearer risk understanding and better profitability. Customized risk management systems can deliver tangible benefits, such as improved EBIT and reduced earnings volatility.