Risk Management in British Airways - Essay Example

of the Organization and Risk Management Practices British Airways is considered as one of the most respected airliners in the world as being the official carrier of Great Britain; it has evolved into a full service global airline. It offers low costs and extensive services across the globe serving major global routes. Established in 1971, British Airways has become one of the leading organizations within Britain to offer airline services across the region. British Airways has put in place a proper framework for identifying, assessing and managing the risk at the organization wide level. The overall process has been designed in a manner that it remains an iterative process wherein the changes and implementation of the existing and new risk management practices are scrutinized on continuous basis.( Goh, 2011). British Airways (BA) has a separate Corporate Risk Management Group in place which not only oversees the organization wide risk management practices of the firm but is also involved in managing internal control systems of the company. The Corporate Risk Group is overseen by a management board and senior key executives to ensure that the involvement of the key senior managers remains so that required improvements could be achieved and the process is managed strategically. The existing risk management practices of BA involve not only the identification of the key risks and their drivers but also their mitigation and management. The overall process is monitored at the Board Audit Committee level and involves senior management to provide an independent review and insight into the risk management practices of the firm. Current Risk Management Process The current risk management process and its infrastructure within the organization are based on a combination of independence and authority. BA has put in place a separate risk management group which has the overall responsibility of managing the corporate risk affairs of the firm. The group is headed by the Head of Corporate Risk and Internal Controls and oversees different aspects of the risk management process. Further, there is a supervisory management board which comprises of the key senior managers of the firm to provide strategic insight and ownership to the strategic management process within the organization. (Rothwell, 2011). Company maintains a corporate risk register which is actually used for the purpose of identifying the risks and recording them for the purpose of review and assessment. The overall assessment process is based on quarterly reviews wherein the management board as well as the senior managers along with the Corporate Risk Managers evaluate the existing and new risks and determine the future course of action. It is also important to note that this is the highest level within the organization which actually assess and outlines the risk management processes within the organization. The work is further distributed to the individual departments and risk leaders within each department responsible for the management of risk at the departmental and individual level. It is also important to note that the risk at the individual level is measured through an internally developed matrix called Heat Map. Heat Map takes into account each individual risk based on its likely impact and the overall likely scale.1 This therefore allows BA to map its overall risk identification process according to the overall importance and impact of the risk on the organization. Once the different critical risks are identified, mitigating factors for managing the risk are identified and are each risk is individually managed. A report is finally produced which attempt to address different risk issues and responsibilities and accountabilities are than fixed at the individual level to ensure that the overall process is delegated to the lowest level of the organization. It is also critical to understand that this report usually do not contain the mapped results and critical actions required to be undertaken. This is purposefully done by BA in order to ensure that the sensitive management plans are not disclosed or identified before time. The overall risk management process at the organization is a combination of the involvement of both the senior as well as junior management of the firm. (Chapman, 2006). The management board is responsible for identification and assessment of the risk however; different action plans are communicated down-the line to ensure that the risk is managed at the individual and department wise level. It is also important to note that financial risk management is an entirely different domain at BA which is separately managed however; some overlapping do exists where the existing set up of the organization provides a supervisory overview of the entire process. Risk Management Problems There are different risk management problems underlying the organization and the overall emphasis of the efforts of BA is focused on ensuring that the organization has put in place proper infrastructure to manage these risks. One of the key risk problems faced by the firm includes the erosion of its overall brand image and the consumer acceptability.( Fernando,2006). Over the period of time, BA has developed an excellent brand due to its superior and efficient services. Issues such as employee strikes and the flight cancelation therefore can serve as the key risks faced by the firm in terms of managing its overall brand reputation. In order to overcome and manage this risk, BA conducts a monthly customer satisfaction surveys in order to gain an insight into the level of customer satisfaction as well as provide top management of the firm readily accessible information regarding the overall preferences of the customers. Competition Considering the inherent nature of the business and the industry, BA also faces a strong risk of losing to competition. Strong pressure to cut prices and remain profitable and competitive keeps BA to put in place key risk infrastructure in place in order to ensure that different risks and uncertainties arising in the external environment of the firm are continuously mapped and risk mitigates are put in place. Due to de-regulation of the industry and introduction of new competitors in the market, the degree and level of competition poses great risk problem to the firm to deal with. Financing of Operations Probably one of the key risk problems faced by the firm is to ensure that its operations are financed adequately. The increasing pressure to upgrade the fleet as well as bring in more innovative changes, BA has undertaken debt financing. However, the cost of debt financing depends upon the conditions in the financial markets thus creating a direct correlation between the financing of firm’s operations with the conditions in the financial markets. BA has to manage its overall debt profile in order to reduce its risk at the organization wide level and ensure that its market acceptability remains intact. People Risk BA has faced people risk in the past wherein its employees went on to the strikes for considerable period of time. Issues such as employee compensation as well as job security are some of the key risk problems to be dealt by BA. Extended strikes not only disrupt the operations of the firm but also create adverse reputation risk for the firm. Reputation risk therefore can translate into different other risks making it difficult for the firm to manage the risk holistically at the organization wide level. Above are some of the key risk problems faced by British Airways in recent times due to the changes in its external environment. Probably the key risk faced by the firm is maintaining its brand image and reputation. Part B This section will explore some of the factors outlined above and design a risk management plan for British Airways in order to successfully negotiate with some of the risks outlined above. This document will therefore serve as a controlling document and will deal with the following risk related issues: 1. Risk Identification 2. Risk Analysis 3. Risk Mitigation Planning 4. Risk Monitoring and Control Risk Identification Risk is always associated with not achieving the desired outcome from an event or an action. From the organizational point of view, risk identification involves identifying the risks which can potentially endanger the organization and create risk for its profitability or its ability to continue to perform as a going concern.( Williams, R ,et .al, 2006) It is important to understand that risks can be originated from different sources and as such the overall scope of identifying the risk and suggesting appropriate mitigation strategy depends largely upon the overall scope of risk identification.( Tchankova, 2002). It is thus important that more critical risks are identified before the start of any project or any planned action however; risk identification process should also be robust enough to identify the some risks arising during the execution of different activities or projects.( Richardson, 2010) The management board has the overall responsibility in BA to identify the critical risks faced by the firm. Corporate Risk Head will share the responsibility with the management board and will provide the critical operational support and insight to the board in identifying the key risks faced by the firm in short as well as in the long run. The identification and subsequent communication of different risks to appropriate departments and risk leaders in different departments will be the key responsibility of the Corporate Risk Head of BA. It will also be the responsibility of the Corporate Risk Head to document each risk in the risk register and present the same for the deliberation to the management board of the firm. The overall responsibility therefore falls upon the Corporate Risk Group and the Corporate Risk Head to identify and communicate different risks to various stakeholders within the organization including the senior management and Board of Directors.( Hollman, & Forrest, 1991), It is however, critical to understand that other departments and individuals will also share their insight and information regarding any potential risk identification with the Corporate Risk Head through an appropriate mean of communication. It is however, critical that the individuals must first inform their respective managers regarding the potential risks and after due deliberation at the department wise level, the same should then be communicated to the Risk department so that same could be discussed and shared with the senior management and policy guidelines could be given. Since BA has the policy of including the risks in its risk register based on its impact and likelihood therefore it is the responsibility of the risk head to assess and measure the impact of the same and assign the relative probabilities once risks are identified for the inclusion in the risk register. This will allow higher management of the firm to have a quantified view of how risk can actually affect the organization and how its impacts could be nullified. Risk Analysis Risk Analysis will require estimating the likely impact of the risk on the organization and will determine the probabilities for the likely outcomes of the risk on the organization’s profitability as well as ability to perform as a going concern. Assigning probabilities to any unwanted event is always considered as a forward looking assessment and analysis of the risk in which an organization attempt to map and analyse future risks which may have an impact on the organization. (Burnaby, & Hass, 2009), Risk analysis therefore can be broken down into two mutually inclusive steps of first assigning the probabilities to any future risk event and than assessing the impact of the same in terms of monetary or cash values. It is critical to note that probability from 1% to 100% can only be assigned to any given risk event signifying that 100% probability mean that the identified risk event will occur with 100% certainty.( Demidenko & McNutt, 2010). Corporate Risk Head, based on mutually agreed criteria, will assign the respective probabilities to different risk events identified in the initial phase. The probabilities will be assigned based on the historical experience of the organization as well as the industry trends and unique factors faced by British Airways. It is also important that the Corporate Risk Head must identify the relative costs of such risk events in terms of total monetary value of the losses which firm may incur as a result of any given risk event. Further, costs in terms of identifying the additional resources required to successfully negotiate with a given risk event should also be outlined during the risk analysis phase. It is also critical to analyse the overall scope impact of a given risk event also considering the fact that the intended outcome of an event may not be according to the planned risk response event. For example, mitigating the risk of flight disruption due to any of the factors would require that BA must put in place an alternative plan in action rather than relying on solving the existing problem or negotiating the problem in different manner. It will be the responsibility of the Corporate Risk Head to actually assess and analyse the scope impact of any risk event and how firm will react if the intended outcome of any given event is not according to the desired level. Assessing the impact on the quality is also another important variable to analysed during the risk analysis phase. Traditional risk approaches often negate the impact of any given risk event on the overall quality of the service or goods offered by the firm. Besides the overall impact on the quality of the processes and procedures are also neglected thus avoiding operational risk issues. Final step will involve the catogerisation of different risks wherein after performing risk analysis, risk head will assign different risk categories to risk events identified and analysed. Three risk categories identified here include High, Medium and Low and all the risk events, based on their impact and likely outcome, should be catogerised according to these three categories.( Galloway & Funston, 2000). Risk Mitigation Planning Once risks are identified and analysed, it becomes imperative that the organization must devise a framework to respond to such risks and prepare appropriate risk mitigation planning. British Airways therefore have to ensure that it puts into practice an appropriate mitigation plan in action to correctly and timely respond to different risk events in order to reduce their impact on the organization and its ability to perform as a going concern.( Pelzer, 2009). The overall purpose of risk mitigation planning always remains threefold wherein organization either attempt to avoid the risk, decisions under uncertainty as well as the risk management. Under all these approaches different threats and opportunities are identified while evaluating different risks and appropriate responses are made. This step also requires mapping of any residual and secondary risks so that organization can actually become more equipped with the tools and techniques to make appropriate responses. (Olson, & Wu, 2010). Corporate Risk Head will attempt to identify and describe various actions and activities which can be undertaken in order to reduce the likelihood of any risk events. This will involve a complete collaboration between various departments of the organization and after considering the overall business requirements, appropriate actions and activities will be designed to ensure that risk is mitigated at the department wide as well as at the individual level. (Lam, 2003). Corporate Risk Head will also be responsible for the development and approval of a written contingency plan outlining different actions which will be undertaken by British Airways under different conditions. Corporate Risk Head will ensure that any residual risks left after mitigating the primary risk should be dealt at the department wide level. It will be the individual responsibility of each department to identify any residual and secondary risks and properly communicate the same to the Corporate Risk Group. Further, Risk Head shall also perform a periodic review of the risk mitigating activities and measure the outcomes against the described criteria in order to help departments to identify any residual risk. Secondary risks arising after mitigating primary risks shall also be addressed in the same manner. Risk Monitoring and Control Once risks are identified, analysed and proper risk mitigating factors are put in place, it now become imperative for the organization to ensure that it has put in place a proper risk monitoring as well as control mechanism in place. (Emblemsvag, 2010) Corporate Risk Head will ensure that a Comprehensive Risk policy along with contingency planning is periodically developed and updated so that the overall risk mechanism remains according to the different risk trends observed. (Hillson, 2003). Further, Corporate Risk Head will devise and develop different report formats on which all the departments will report the different results periodically. Every departmental head will initiate the status report under which the status of different trigger events will be evaluated in order to ensure that the risk mapping process is effective in identifying the risks faced by BA. Status reviews will also involve risk mitigation status reviews wherein the Corporate Risk Head will not only brief the senior management of the firm but will also brief different departmental heads regarding the overall status of contingency plans made in order to cater the different contingencies arising. Corporate Head will therefore responsible for the development of reporting mechanisms, the contents of different reports, roles and responsibilities of different departments as well as the initiation of such reports. The individual departmental heads along with the Corporate Risk Head of BA will be jointly responsible for ensuring that the different triggers are identified and documented. Further, the appropriate tracking mechanism for such triggers is in place to quantify as to whether different risks identified and analysed could arise considering these trigger events.( Fraser, & Henry, 2007). It is also important to note that the Corporate Risk Head should also utilize different reports and documentation processes identified above for the effective tracking and monitoring of the different risk events. Since the final responsibility for managing the risk is with the Risk Group of the British Airways, it is therefore important that the Corporate Risk Head must develop an in-house monitoring mechanism which can allow the firm to continuously monitor different risks and triggers while at the same time ensure that the business requirements of the firm are not compromised. (Hopkins, 2010). The above risk management plan if implemented can provide British Airways an effective method to not only identify the risks but also develop appropriate response mechanism in order to effectively deal with the existing and potential future risks. References Burnaby, P & Hass,S (2009), Ten steps to enterprise-wide risk management, Corporate Governance, 9(5), pp.539 – 550 Chapman, R (2006). 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