One of Turner & Townsend’s keys to success is our approach to risk management. Our partnership model sets the tone and there is shared understanding that only risks we believe are capable of being managed are retained.
Our appetite to risk is made clear to the whole organisation and risk issues are addressed in all decision-making.
Risks continue to be categorised, using our G6 business model, which helps to highlight the biggest risks and those responsible for managing them. There is increasing oversight of risk matters by the Executive Board and more briefings on key decisions and issues.
As in previous years, the types of risk we faced this year largely remained the same, albeit with changing impacts.
Current and emerging trends are:
Markets continue to be volatile. Even where they recover, they remain commercially tough with competitive pricing and associated market pressures.
One of the most significant changes we have seen this year is more risk around changing political situations worldwide. Brexit, elections in several jurisdictions we operate in, and public policy changes are just three examples that are delaying decision making, impacting investment and economic growth.
Our business strategy to cope with market volatility continues to be market and sector diversification and differentiation through service excellence. Working in seven regions means we always have different pressures to manage, but our diversity gives us a degree of protection. It allows us to focus and adapt our operations in alignment with changing circumstances.
Routes to market
The size, complexity, and type of programme opportunities we compete for now necessitates more joint ventures to meet the client’s delivery requirements. To limit additional liabilities and prevent over-reliance on third parties we consider the number and extent of joint ventures and the partners we engage with.
We expect this route to market to continue. This may require us to look at our capability in certain areas if we see opportunities or sustained demand for services we currently do not offer.
Bribery and corruption
There is more industry visibility of bribery and corruption incidents. We maintain high ethical standards and invest in training to help our employees understand what constitutes bribery and corruption, our position that bribery and corruption is unacceptable, and what needs to be done to minimise the risk.
Our new e-learning system will continue to help our people around the world maintain current knowledge on the correct behaviours.
Sanctions increasingly appear to be a tool used by governments.
As a global business we operate with sensitivity to changing international relations and comply with sanctions where they exist. However compliance is hard because of the complex nature of the sanctions and the various jurisdictional requirements as well as continuing changes. Approval to proceed is only given by the Executive Board after a thorough review of the facts and receipt of specialist advice.
There are increasing incidents and threats associated with cyber security and data fraud as we have seen with some high-profile attacks across the world. The risks of ransomware attacks and viruses remain real. We remain alive to the risk and continue to invest in IT infrastructure and data security to protect ourselves as much as possible.
As economic pressures and increased competition to win work continues, the contracting supply chain is being impacted.
Contractors continue to be selective when tendering for work, resulting in difficulties in achieving full tender lists, and increased construction costs and delays affecting the ability to bring projects within the client’s budget.
These factors, coupled with often adversarial relationships, are increasing the pressures our people face in managing projects for our clients.
Natural resources capability
This year oil and mineral prices have started to rise, and we have seen more activity in the sector than for some time, creating increased confidence that the market has started to return. Investment in the USA has been particularly encouraging.
As new projects come back into play following the sustained downturn, there is a risk of not having the capability to support our clients. However, this risk is diminished as we retained key personnel during the downturn by redeploying them elsewhere in the business. We are now able to return resources to meet renewed demand in the sector.
Changing service model in infrastructure
We have seen significant success in infrastructure in the last few years. However, it is becoming a competitive market globally, with both clients and other suppliers retaining in-house capability.
Because of our expertise and reputation in this sector, we can engage at industry level before projects are initiated and in conjunction with our AMCL business offer clients an end-to-end service across all stages of their asset life cycle.
Changing service offering and digitalisation
There is a continual need to develop our service model and evolve our offering to suit clients’ changing need, as well as to be more productive and insightful to clients.
One way of doing this is in the digital arena. This year has already seen significant digital investment as we continue to improve our cost management offering around benchmarking, estimating, procurement and post contract administration. This is a massive change in how we deliver our services, and its successful implementation is key. As a consequence, this investment is being overseen by senior directors in the cost management business.
The introduction of the strategy and set-up team in the UK, the strengthening of our project and service leads, and development of guiding minds also help keep our service offering relevant to our clients.
By far the biggest risk we face is failing to deliver a quality service to our clients.
The Executive Board are quite clear that service excellence is at the heart of everything we do. Our inductions highlight our culture of high quality delivery and we use a three lines of defence approach to assure our work, which is linked into our quality standards.
There is also a need to engage more with our clients. This year in particular we have given more consideration to how we mature our client relationships and how we continue to be their consultant of choice.
Contractual terms and conditions
We are seeing more instances where clients are attempting to transfer contractual risk. A number of these, for example indemnities and warranties, potentially have longer-term liabilities attached.
As part of our ‘bid/no bid’ process, our managers consider onerous terms as well as other risk factors, such as evaluating what work will be done in house/sub-let to others, the nature of the services we are being asked to perform, etc. Significant time has been invested in further clarifying our risk appetite this year, which also helps our people with decision making.
Preserving net margin
A number of factors are impacting our ability to preserve net margin, including salary pressures, inflation and the competitiveness of bids. To remain successful, we must also invest in new geographies, sectors, services, our people, and tools and systems while balancing cost in an increasingly competitive environment.
Greater and more regular financial oversight is helping to make sure that the business is challenged robustly, and the right decisions are being made at the right times. Our digitisation strategy is just one way in which we are looking to sustain our net margin.
Payment or fee recovery
Delayed payment or non-recovery is a risk, particularly where we may be a third party to a contract. Accordingly, our finance and risk management teams work with operational teams to check that contracts are signed, purchase orders are in place where required, and all parties to the contract are understood and considered ‘safe’.
Financial crime and fraud
We are seeing increasing examples of financial crime and fraud by external third parties in the industry and we expect the trend to continue. Our primary defences are awareness and segregation of duties, including dual authorisation of payments.
Insurance coverage in the market provides additional protection.
Failure to attract or retain skilled people
Resourcing also remains a key risk with shortages in the industry and competition from both clients and competitors alike to recruit the best people. This can impact our growth targets but is mitigated by our strong global resourcing model and a strategy to attract a wider diversity of people to careers within our business.
Brexit and legislative changes, or government sentiment in certain markets in which we operate, will also impact our resourcing model, reducing the pool of people we have traditionally used to grow the business.
Our HR teams work with our operational people to consider the impact of these changes. Our diversity and inclusion strategy is one area we are working on, which will help retain talent and develop a larger resource pool.
Part of our global success over the years has been based on localisation, which complements growing national legislation and client requirements. We continue to invest in and recruit local talent to strengthen our knowledge and insights into local markets and to maximise opportunities for growth. A significant proportion of employees also benefit from the opportunity to work in other regions and transfer the knowledge they gain back to their home markets.
Travel safety and security of people
Safety and security of our people is our first priority. There is an awareness that security risks increase year on year according to our growth and when we work in countries where we do not have permanent offices. When the decision is taken to progress these opportunities, we work with our clients to assess and manage the risk.
Notwithstanding this, a number of the most recent terrorist attacks have occurred in major cities globally and we have worked with our regional managers to introduce safety measures in the workplace and developed more robust business continuity plans.
The wellbeing of our people continues to be a key priority.
Overall, operational risk in the business is being managed, and this year has seen a greater contribution from our people and better conversations with our clients regarding risk.
Our focus in the coming year will include further work on our assurance programme and building lines of defence on both project delivery and the wider business. The successful implementation of several global initiatives, including our finance system and IT transformation projects, will also be fundamental to managing risk in the business next year.
This content is part of the Annual review 2017/2018