The Group's main business activity is to develop and manufacture products and systems based on orders received. The Group reports gross balance sheet values attached to long-term construction contracts. Gross amounts due from customers for contract work (Projects in progress) are classified as an asset, and gross amounts due to customers for contract work (Prepayments from customers) and accrued project costs are classified as a liability.

Projects in progress are the net amount of accumulated earned operating revenues less accumulated invoicing for all current contracts, where accumulated operating revenues exceed accumulated invoicing.

Prepayments from customers are the net amount of accumulated earned operating revenues less accumulated invoicing for all current contracts where accumulated invoicing exceeds accumulated operating revenues.

Accrued project costs are the net amount of variable costs accrued as a percentage of the project's degree of completion less accumulated direct costs incurred on the project.

Amounts in MNOK	31 Dec 07	31 Dec 06
Projects in progress	1 082	1 107
Prepayments from customers	(1 938)	(1 497)
Accrued project costs	(575)	(271)
Net projects in progress	(1 431)	(661)

The Group has long-term construction contracts in both business areas. Most of Kongsberg Maritime's projects have a duration of less than two years, and earnings on individual projects account for a limited share of consolidated earnings. The projects performed by Kongsberg Defence & Aerospace are of longer duration and the overall earnings from each individual project make a significant contribution to the Group's operation.

A summary of important contract data appears below:

Amounts in MNOK	2007	2006
Total orders	23 916	18 934
Operating revenues for the year	4 607	4 088
Accumulated operating revenues	15 677	13 872
Accumulated variable expenses	12 306	11 016
Remaining operating revenues	8 239	5 063
Prepayments received	1 938	1 497
Remaining variable expenses on loss-making projects	75	26

The presentation in the 2006 accounts showed projects recognised upon delivery in compliance with IAS 18. These have been removed for 2006 and 2007 in the table above.

In 2007, a contract was signed for the delivery of the Naval Strike Missile (NSM) to the Norwegian Armed Forces. The NSM programme is divided into three main phases: development and qualification, the transition from development and qualification to production, and the production of missiles. In December 2004, a contract was signed to cover the cost of the transition phase from development and qualification to production. To optimise preparations for the production of missiles, activities with long lead-times have been initiated prior to the signing of a contract for the production phase. At year-end 2006, there was inventory valued at MNOK 144 related to the delivery contract. The value of this work is included in the contract signed in 2007. The development project is scheduled for completion in 2008.

Uncertainty associated with estimates

Revenue is recognised on the contracts in tandem with the estimated progress. Progress is calculated as accrued production costs as a percentage of total expected production costs. Revenues are agreed by contract. Total expected production costs are estimated based on a combination of historical figures, systematic estimation procedures, the follow up of efficiency targets and best estimates. Ordinarily, the number of remaining hours employees must use to develop or complete the project will constitute a large part of total production costs. The uncertainty of the estimates is influenced by the project's duration and technical complexity. Principles have been established for categorising projects in terms of technological complexity and development content. This forms the basis for risk assessments and taking to account the profits from the projects. The projects are reviewed on a quarterly basis at minimum.