Risk Management Problems of Emirates Airline - Essay Example

?Organization Emirates Airline is a subsidiary of the Emirates Group. The Emirates Group is described as “a dynamic travel and tourism operation with a global reputation for excellence spanning every aspect of the industry” (Emirates Group, 2011). With an ambition to be the leader in world air travel business, emirates Airline has over the years put in place measures and strategies that ensure that its cherished customers are give the very best of service. Part of these services is the practice of ensuring safety and security. To do this, the airline embarks on several risk management processes. It is not surprising therefore that for all but the second year of operation Emirates Airlines have recorded profits and growth that always span above 20% (CNN Money, 2005). The airline has recorded a profit every year, except the second, and growth has never fallen below 20% a year. In its first 11 years, it doubled in size every 3.5 years, and has every four years since Current Risk Management Process In the view of Tatum (2011), Risk management is a logical process or approach that seeks to eliminate or at least minimize the level of risk associated with a business operation. Kolakowski (2011) posits that “risk management is concerned with identifying and measuring the risks faced by the firm.” This makes risk management more of a preventive venture than a curative one. In light of this, the Risk Management Magazine (2011) argues that, most airlines have their risk management undertaken by the internal audit department. Risk management undertaken by companies varies in scope. Some of the commonest identified scopes of risk management include financial risk and field risk. With particular emphasis on the Emirates Airlines and other aviation services, special emphasis are laid on risk associated with staff and customer safety of customers and staff when talking about risk management. Commenting on a typically workable risk management model for airlines, the Risk Management Magazine (2006) outlines nine areas that airlines could look out for in their risk management exercises. These nines models are “station size, last audit date, last management change, prior audit report rating, compliance with submitting inventory reports, promptness of remitting funds, promptness of submitting sales reports, magnitude of unreported sales (passengers flown for which the ticket sale was not located), and magnitude of discrepancies with local disbursements” (Goepfert, 2006). Still writing on management process for airlines, the International Air Transport Association (2010) outlines areas that airlines may consider in their risk management efforts. According to the association, “Crew fatigue has typically been controlled by a simple set of prescriptive rules concerning flight time limitations (FTL) and flight duty limitations (FDL).” These model, when carefully followed by airlines guarantees financial returns as well as employee and customer safety. Such safety assured among customer also goes a long way to promote a continued business relations with the airline and invariable ensures profitability for the company. Risk Management Problems Like in every other human endeavor, undertaking a useful measure towards the growth of a company does not come easily. In an attempt to ensuring risk management, there certain challenges that the management of Emirates Airline encounters. First and foremost, there is the problem of defining potential risk. Brodzinski (2006) notes that the definition to a risk too general. This is to say that in an organization such as an airline where there are certainly many managers in charge of the risk management business of the organization, coming to a consensus about what to include in the risk management plan of the organization always becomes the first and most challenging task. This is because what may seem to be a potential risk to manager ‘A’ may not seem a risk to manager ‘B’. It should however take the identification of a problem before any further action on risk management can continue. This situation leads to a second problem where there is likely to be unreasonable factors included as risk when actual and real risks may be lying unattended to. This is of course a great risk itself in risk management. This is because when the management includes factors of less importance to the detriment of more serious factors, the neglected factors become parasites that eat up whatever positive effort that the risk management team might be putting in place. In such cases, a scenario of fetching water into a broken pot becomes created before the efforts of the management would not really be leading to any solutions. The next problem has to do with bureaucracy and this problem never seem to depart from any large organization such as the Emirates Airline. Brodzinski (2006) states that “No one wants more bureaucratic work. Unless people believe that it really works it will always be something they do because they have to.” Bureaucracy makes the implementation of risk management plans delay, thereby defeating the effort of preventive risk management. Most often than not, due to delayed implementation of previous plans and risk management policies, it becomes difficult for the risk management team to start over with another risk management (especially the risk identification) process. To reduce risk management problem, there should structures in place to break bureaucracies as largely as possible. This should be done by investing finalization and implementation authorities to risk management directors below the organizational hierarchy. Sight should not be lost of the fact however, that the work and activities of such directors would be assessed and checked on regular bases to ensure that they operate within standards. There is a final problem with budget. Emirate Airline is a very large international organization with very huge budget, running into billions of dollars for each year. Though the organization prioritize its risk management projects, there is not denying the fact that there has always been equally important components of the airline’s budget that reduces the about of allocation that could have possibly gone into risk management. In such situations therefore, the risk manager and directors have been left with very little to do other than cutting down on their internal budgets. REFERENCE LIST Air Worldwide, 1996, AIR Risk Management Software, retrieved 10 April, 2011 Brodzinski P, 2006, ‘Top 6 Problems with Risk Management’, retrieved May 12, 2011 CNN Money, 2005, ‘Rise of the Emirates Empire’ retrieved 12 April, 2011 Frontline Solvers, 2010, Risk Analysis, retrieved 12 April, 2011 Goepfert R, 2006, ‘Risk management in practice: risk at Continental Airlines’ retrieved 12 April, 2011 International Air Transport Association 2010, Fatigue Risk Management, retrieved 11 April, 2011 Kolakowski M 2011, ‘Risk Management’ retrieved 13 April, 2011 Macrae C 2009, ‘Making risks visible: Identifying and interpreting threats to airline flight safety’ Journal of Occupational and Organizational Psychology. Volume 82, Issue 2, pages 273–293, Risk management magazine 2011, ‘Risk management in practice: risk at Continental Airlines’ retrieved 12 April, 2011 Tatum M, 2011, What is Risk Management? Retrieved 11 April, 2011, Wise Geeks The Emirates Group, 2011, ‘The Emirates Group’ retrieved 12 April, 2011 Risk Identification The Acquisition community Connection, (2009) explains that “Risk Identification is discovering, defining, describing, documenting and communicating risks before they become problems and adversely affect a project.” This makes risk identification the principal and foremost step in risk management. It also makes risk identification very important and paramount. Without risk identification in place an organization will only be spending resources on solving problems; some of which might even be unsolvable. But with risk identification, the organization will always nib the problem in the bud. At Emirates Airlines, the first approach to risk management is risk identification. According to the US Federal Highway Administration (2010), risk identification is undertaken for a number of purposes. The Administration notes that “The objectives of risk identification are to (1) identify and categorize risks that could affect the project and (2) document these risks.” To get task done effectively, the Emirates Airlines has a risk management department that is responsible for the risk management of the company. Within this department, there is a risk identification team who sets out the entire process of risk management. The airline has series of procedures put in place to ensure that potential risks, including those discussed above are easily identified by risk manager. The basic risk identification procedure in place is the interpretative approach. By interpretative, the department gives interpretation to audit reports and feedback documentations received from customers, peer reviewers and quality assurance officers. Because the reports are forthcoming, and regular, the department is able to forecast possible ‘red flags’ and any suspecting inappropriateness that could impart negatively on the risk situation of the organization, spanning around the areas of finances and safety. It must however be emphasized that because improved customer assurance and safety leads to indirectly to increased patronage and profit, much attention on risk identification is always dedicated to customer safety. As noted above, once the risk identification team identifies any potential risks, they categorize the risks and documents them. Then other teams under the risk management department are given documents on risks identified that relates to their team. The risk management then continues from there. Risk Analysis (Qualitative and Quantitative) At Emirate Airlines the next step after identifying potential risk is to analyze the risk using carefully chosen analysis models. As put forward by Frontline Solvers, in its attempt to analyze all identified potential risk, the risk management department of the Emirates Airline, which is responsible for risk management of the company goes into risk analysis by quantifying the magnitude of all identified source of uncertainty (Frontline Solvers, 2010). This magnitude calculation determines the level of importance or attention to be given in terms of risk prevention and control. Most commonly, the magnitude is calculated in relation to the level of impact of the risk, should it arise. These calculations are done based on estimation and by proportion everyday inventory taken by the company. For instance by knowing how many customers the airline serves on each Christmas Day, it is possible to calculate the level of financial impact the airline would suffer should there be low visibility on a particular Christmas Day, for which reason flights would have to be canceled or diverted. As stated earlier, the level of impact assessed paves the way for further action regarding risk response, monitoring and control. The risk analysis approach used by Emirates Airlines takes two major forms, which are qualitative and quantitative risk analysis. Risk analysis is able to take these forms because risk is actually measurable. According to the C&A Security Risk Analysis Group (2003), quantitative risk analysis “employs two fundamental elements; the probability of an event occurring and the likely loss should it occur.” Mathematically, the quantitative risk analysis exercise is undertaken by the organization by sampling the probability of suffering a particular risk. After this probability is known, the department then goes into finding the potential amount of loss the company could suffer should the risk occur. Then these two variables, thus the probability and amount of loss are multiplied to give a single entity or figure of the quantitative risk analysis. Quantitative risk analysis is very important because is gives a nominal or numeral value to potential risks. As said already, the company pays much attention to bigger risks and the value of risk gotten out of the quantitative risk analysis makes it easier to know the ‘size of risk through the quantitative value got. The group also makes use of Qualitative Risk Management Assessment, which is different in the sense that it does not make use of any probabilities. Rather, it makes use of estimated potential loss. This way, the team makes use of factors such as threat, vulnerability and control. Sims (2007) states the importance of using the qualitative risk analysis saying “you also learn that multiple groups within the organization will be accessing and modifying the database daily and that the control of that system will fall under the Operations group.” Risk Mitigation Planning The US Federal Highway Administration (2010) explains the reasons underlining risk mitigation planning stating that “the objectives of risk mitigation and planning are to explore risk response strategies for the high risk items identified in the qualitative and quantitative risk analysis.” This means that on the risk management steps, risk mitigation planning is next to risk analysis and that whether it is qualitative or quantitative risk analysis that is put in place, an organization must follow it closely with risk mitigation planning. This situation is no different at Emirates Airlines. After the various teams under the risk management department have been briefed through the recorded documents drafted out of the risk analysis exercise, heads of teams sit to plan reasonable ways to respond to the high risks and other forms of risks that were detected. The term ‘risk mitigation’ is therefore used because the department finds all possible means to mitigating the risk. By mitigating, they ensure that they battle the risk from happening or occurring. It is therefore not out of place that the Dictionary.Com (2011) defines ‘mitigate’ to mean “to lessen in force or intensity, as wrath, grief, harshness, or pain; moderate.” Once the heads of teams meet, they device means to ensure that even if they cannot totally eradicate the risk, they subside to a very large extent. Risk Monitoring and Control Monitoring, responding to and controlling of risk are done at a wider platform than the other preceding processes. Unlike the risk identification, risk analysis and risk mitigation processes which are done by the risk management department only, the risk response, monitoring and control extends beyond the risk management department to include almost all other departments of the airline. This is done by forwarding documented reports of the risk identification and analysis to all departments concerned. These departments sit with the risk manager to deliberate on ways of finding preventive antidotes to the perceived risks. The aim of such meetings is not actually to go into implementation of risk management interventions. The meeting is used to bring up ideas and strategies that can be taken over at management level. The reason for consulting with these departments is that most often than not, they are the people directly involved in the risk and might have previous experiences on tackling them. The risk monitoring and control process is made up of a series of approaches and steps. First, the team that makes up the monitoring and control goes into reassessment of risk found. This is more of filtration and authentication exercise where all potential risks listed by the risk identification team are revisited and researched into. The team does this to bring them up to speed on the risks so that they appreciate better, the need to tackle them. Next to the reassessment stage is the risk audit. According to Super Business (2009), “risk audits examine and document the effectiveness of risk responses in dealing with identified risks and their root causes, as well as the effectiveness of the risk management process.” This of course opens the door for the implementation of the recommendations put forward by the risk monitoring and control team. But before the implementation stage, there is a technical management team that gives technical advice on how the implementation should go. As stated early on, implementation is shifted to the very last step. Integrated to the task of the risk monitoring and control managers is implementation. This is the last but most sensitive stage which involves the risk manager and the management of the Airline. The implementation could at times go as far as the board of Directors and Shareholders meting because most risk management implementation models involves money. So as the overseers of the finances of the Airline, the demands and inventions suggested by the various departments and audit department are out before them. Generally, there are two ways of implementing risk prevention interventions. These two ways are manual or personnel approach and software approach. On the manual approach, various resources are given to the care of leaders of the various departments who may be concerned with specific risk identified. The resources range and include finance, logistics and at times intrinsic materials like motivation. These departmental heads or their internal auditors are entrusted with the responsibility of putting the intervention or action plan to work. At the Emirates Airlines, logistics are provided to check risk of fatigue, low visibility operations, money losses, smuggling as well as fire safety. With the introduction of technology, software is at times employed to cater for some of these risk preventions. The International Air Transport Association (2010) for instance recommends the implementation of “fatigue risk management system (FRMS), which may either partially or totally replace the traditional prescriptive FTLs and FDLs.” For even more comprehensive reliance on software, the Emirate Airline depends on expertise companies that specialize in the provision of software and technology that caters for almost all aspects of airline related risk. A typical example of a company with such connection is the AIR Worldwide, which is a subsidiary of ISO, which: “Offers software systems designed to help you assess and manage your company's catastrophe and weather risk. AIR's suite of software applications is the preferred choice of companies around the world. With software from AIR, you get: Comprehensive and reliable results, driven by the most scientifically advanced natural-hazard and climate models Clear and understandable analysis Built-in mapping, charting, and graphing utilities Reporting capabilities designed for the decision maker Logical and intuitive user interfaces The ability to integrate output with other AIR systems and Dynamic Financial Analysis (DFA) models” (AIR Worldwide, 1996). Conclusion Evaluation of company’s risk management process using risk management theory ? The risk management process available at Emirate Airline can be described as satisfactory. This judgment is primarily influenced by the fact that the whole process is step by step and personnel involving. For instance, the fact that almost all departments and their staff are made to be aware and part of the drawing of interventions and action plans is commendable. This makes the departments responsible and useful to the case of risk management. By implementing their own inputs, departments see the need to adhere to the action plans they designed themselves. It is also very commendable that the company depends a lot on technology. This is because in today’s fast growing IT world, it is almost impossible to rule out technology in every aspect of business including airline business. Clearly, the work that technology can do can hardly be compared to the work that any manual mind can do in risk management. As technology continues to take center stage of the world; including the running of businesses and organizations, Emirates Airline could of course not leave itself out. Technology enhances the quality of work of organizations and makes general work output faster and better. Technology makes work easier and simple. It also makes work done less stressful. It is therefore highly commendable that Emirates Airline approaches risk management with a sense of technology. REFERENCE LIST Sims S, 2007, ‘Qualitative Vs. Qualitative Risk Assessment’, retrieved May 14, 2011 Super Business 2009, ‘Risk Monitoring and Control: Tools and Techniques’, retrieved May 13, 2011 Dictionary.Com (2011) “Mitigate”, retrieved May 12, 2011 The US Federal Highway Administration (2010), ‘Risk Identification, Risk Assessment and Allocation for Highway Construction’, retrieved May 13, 2011 C&A Security Risk Analysis Group, 2003, ‘Introduction to Risk Analysis’, retrieved May 8, 2011 US Federal Highway Administration (2010), ‘Risk Identification, Risk Assessment and Allocation for Highway Construction’, retrieved May 13, 2011 Acquisition community Connecttion, 2009, ‘Risk Identification’, retrieved May 7, 2011 Air Worldwide, 1996, AIR Risk Management Software, retrieved 10 April, 2011 Brodzinski P, 2006, ‘Top 6 Problems with Risk Management’, retrieved May 12, 2011 Goepfert R, 2006, ‘Risk management in practice: risk at Continental Airlines’ retrieved 12 April, 2011 Read More