Strategic Risk Decision: Delta Air Lines - Case Study Example

Strategic risk decision making Name of the Student: Name of the Instructor: Name of the course: Code of the course: Submission date: Strategic risk decision making: Delta Air Lines Contents Contents 2 Introduction 3 Organizational description; Delta Air Lines 3 Major activities and their rationale 4 Legal framework under which Delta Airlines operates within 4 Statutory duties of Delta Airlines 5 Political factors 5 Economic factors 6 Social factors 6 Technological factors 7 Stakeholders’ analysis 7  Organizations critical services which for a fire service would be Emergency response 8 Critical deliverables 9 Monitoring the effectiveness of your critical deliverables 9 Risk and threat assessment 9 Threat assessment of the critical deliverables 11 Timeframe work (objectives) 11 Dealing with the disruption 13 Example of activities when the company is in danger 14 Communicating the plan and embedding it into the organization to ensure its effectiveness 14 Testing the plan to ensure it remains effective under changingcircumstances 15 Conclusion 15 References 16 Introduction In a generic sense, business continuity management can be perceived as a management process which is aimed at identifying the potential effects which threaten an organization and provides a robust structure for creating resilience and the ability for an effective response which upholds the key stakeholders’ interests, value creating activities, reputation and brand. BCM entails various components which include but not limited to crisis management, disaster recovery, product recall, emergency management, contingency planning and incident management among others (International labour Organization, 2011, p. 11). This paper will focus on reviewing Delta Air lines which is a large commercial organization and prepare a business continuity plan which provides resilience in the face of disruption. In addition, it will explore the issues to be addressed to control risk and minimize it to an acceptable level. Organizational description; Delta Air Lines Delta Air Lines is a robust airline in America whose history dates back to 1924. This company has evolved overtime into becoming a major carrier in the world. This is evidenced by the fact that in 2002, Delta was the third largest passenger carrier in the globe when the total revenues were put into consideration and the second-largest in terms of total passengers flown. In this period, this carrier enplaned over 100 million passengers in an annual basis which was chiefly through its primary hubs in Dallas, Atlanta, Cincinnati and Salt Lake City. In the periods after deregulation, Delta Air lines was the most profitable of the big three carriers namely Delta, United and American. In the wake of September 11 catastrophe, Delta had avoided bankruptcy but ended up incurring an operating loss of $1.6 billion in 2001 (Rivkin & Therivel, 2005, p. 8). This company has approximately 80,000 employees in various branches and departments. Major activities and their rationale Delta airlines engages in two major activities. These are provision of air travel services to the consumers and offering cargo transportation services. Both of these services are directed towards the consumers who either need to travel from one place to another or ship their cargo to diverse destinations. The activity of providing travel services to the consumers is the most important one based on its central role generating of revenue in the company, meeting a large segment of the operational cost of this company as well as generating enough profits to meet the dividends expectations of the shareholders. Secondly, the activity of offering cargo transportation services is second in terms of priority to this company. This is also based on its significant contribution in revenue generation as well as expanding the portfolio of this company. Other secondary services include construction and maintenance of infrastructure like restaurants, lodging and recreational areas. There are also other secondary transportation services which include rental car agencies and taxies. However, it is worth pointing out that provision of air travel services to the consumers and offering cargo transportation services are the activities which have the most impact on the company in the shortest time period. Legal framework under which Delta Airlines operates within It is imperative to note that Delta airlines is a public company based on the virtues that it is traded in the public market, most notably the New York Stock Exchange (NYSE). Delta airlines operates under diverse legal frameworks which include but not limited to National labour Relations Act (NLRA), U.S Federal Aviation Administration (FAA), Security Laws and Customs Acts among others (Kaps, 1997, p. 7). Statutory duties of Delta Airlines Delta Airlines has several statutory duties. These includes but not limited to provision of quality air travel services to the consumers, disclosure of financial statements to the shareholders, compliance with environmental legislations, mostly those aimed at curtailing pollution, legal obligation to treat the employees fairly and transparently as well as the statutory duty to comply with federal and national acts related to issues like taxation and corporate social responsibility. There are diverse political, economic, social and technological factors which have played a central role in shaping the operations of this company. These are analyzed in the subsequent analysis. Political factors It is imperative to note that the political stability of the United States was adversely affected by the terrorist attack of September 11, 2001 which has the detrimental impacts of overall drop of business as well as personal air travel. This had adverse effects on Delta Air Lines which was faced by the possibility of bankruptcy in this particular period (Rivkin & Therivel, 2005, p. 8). Other political factors include pricing regulations, the deregulation policies which were established in 1978, wage legislation and union requirements as well as the elevated emphasis on national and airport security. The synergy influence of all these political factors has had extensive impacts on the operations of Delta Air Lines as well as increasing the overall risks in its undertakings. Economic factors One of the major economic factors which have negatively impacted on the operations of Delta Air Lines has been the dramatic slowdown of economic growth rate in the United States. This is evidenced by Data Monitor (2009, p. 7) who determined that the growth of the Gross Domestic Product (GDP) in the US was forecasted to decline from 0.4% in 2008 to -2.7% in 2009. In addition, Delta Air Lines witnessed increased debt obligations in FY2008. In this year, the debt amounted to $16, 571 million, an increase of 84.1% over FY2007. Other economic factors include the constant increase of fuel cost in the global market, fluctuations and inflationary of the dollar against other major global currencies like the Euro and the Yen as well as balance of trade accounts. All these have had the overall impact of increasing the amount of financial risks at Delta Air Lines. Social factors The risks which are associated with the social factors at Delta Air Lines are also directly linked to the post-September, 11 event. This is based on the sweeping impacts of this occurrence on different social spectrums. These include a sharp decline of the lower and middle income travels, elevated layoffs which impacted all the income groups, decrease of vacation destinations which are linked to the airlines, decline of the generic travel plans related to the airlines by the consumers as well as low-fare travel stigma paradigm shift to an acceptable alternative among others. These social factors have increased the risk in the airline industry and Delta Airline has not been an exception. Technological factors Emerging technologies in the airline industry have been credited for transforming the way in which the airline tickets are sold and making airline pricing more transparent to consumers (Rivkin & Therivel, 2005, p. 3), there are other technological factors which have played central role in increasing efficiency and effectiveness if service delivery at Delta Air Lines. Some of these include the decrease of the airline travel agencies, the availability of the internet as a business and consumer fare and flight shopping tool as well as the entry of Orbitz, Expedia, Cheaptickets among other best price selling services. These have thus impacted on the operations of Delta Airlines. Stakeholders’ analysis The primary stakeholders at Delta Airlines are the consumers, the suppliers, the employees and the investors. The consumers deal with this company based on the services they derive from it which include individual and business air travel, cargo transportation and promotions. In regard to the suppliers, the deal with Delta Airlines based on the profits which they gain after delivering goods or services to this airline. These include airplane parts suppliers, petroleum industries and ground equipment suppliers among others (Brinkerhoff et. al, 2002, p. 5) The employees at all levels of Delta Airlines also form part of the stakeholders and they deal with this company based on the financial benefits in terms of remuneration, networking and advancing their careers prospects. Lastly, the investors who are fundamental in provision of financial trust and aid deal with this company based on the dividends which they gain following the company making some profits (Brinkerhoff et. al, 2002, p. 6). Other stakeholders include domestic government, local community, foreign governments, media and business support groups.  Organizations critical services which for a fire service would be Emergency response The main critical service at Delta airlines which for a fire service would be emergency response is cargo transportation. This is whereby fire occurs in the cargo compartment which is caused by highly inflammable cargo which is stored improperly. Another service is the in the construction and maintenance of infrastructure like restaurants, lodging and recreational areas. For the cargo transportation service, the maximum tolerable period of disruption (MTPD) is as soon as possible. In this case, the disruption is bound to occur provided the fire crisis in the cargo compartments is apparent. In this emergency response, there is zero tolerance and thus the plan ought to prevent loss of emergency response. After the crisis is contained, then the process of service delivery resumes to normalcy. In the service of constructing and maintaining infrastructure like restaurants, lodging and recreational areas, the maximum tolerable period of disruption (MTPD) is almost zero and necessitates community fire safety. Critical deliverables These include human resource which is key in ensuring effectiveness in service delivery. Another critical deliverable warehouses which are important in cargo storage before and after transit from one place to another. In addition, good technology to facilitate online booking and marketing is also a critical deliverable in this company. Lastly, there are the premises which are central in housing major administrative activities. Monitoring the effectiveness of your critical deliverables All the above critical variables are monitored using a different approach. This is founded on the fact that each deliverable has a distinct attributes. This is epitomized whereby the effectiveness of the human resource can monitored using performance appraisal mechanisms. On the other hand, the effectiveness of the technology which is central to online bookings can be assessed through consumers’ feedback after they use this service. The BCP is triggered when a certain phenomenon affecting these deliverables has reached a critical stage. Risk and threat assessment In a generic sense, this is overall process of risk identification, risk analysis, risk evaluation and identification of controls (mitigation) (NSW Department of Primary Industries, 2012, p. 5). Thus, risk assessment identifies what threats, hazards, or perils can injure or kill people, damage property, interrupt business operations, or contaminate the environment – either directly or indirectly. The two primary activities which are undertaken by Delta airlines are the on which are bound to be confronted by major risks and thus explored in this analysis. These are provision of air travel services to the consumers and offering cargo transportation services. The major risks confronting the activity of cargo transportation is delay by the consumers to pick their cargo. In this case, there is bound to be increased accumulation and congestion of cargo in the warehouses. In addition, perishable cargo is bound to go bad in case the consumer fails to pick it in time. Another risk which is confronting this primary activity is terrorism which has been ranked as the major point of concern. This fact is determined by Herron (2011, p. 1) who cited that the major risk which is confronting airlines around the world is the risk that terrorists will carry fraudulent documents and move from one country to another. This is not to forget the risk that they pose on the aircraft which they have boarded and the passengers therein. This security risk also applies to the other activity of cargo transportation whereby Delta Air Lines is exposed to transiting cargo which is dangerous. Fire in the cargo storage facilities has also been cited as being one of the rare risks in warehousing operations in the airlines, but endowed with extreme severity (Ackerman, 2006, p. 1). The last risk is technological whereby overreliance on technologies like online booking can adversely affect the operations of this company in case of a breakdown. This is also a major risk which can pose detrimental impacts on both primary activities. The following matrix shows the assessment of these threats. Threat assessment of the critical deliverables Negligible Marginal Critical Catastrophic Certain Delay by the consumers to pick their cargo Likely Increased turnover of the employees Possible Technological breakdown Unlikely Terrorist activities Rare Fire outbreak in the warehouses Timeframe work (objectives) This can be perceived as the target time for resumption of service delivery which has to be less than the maximum tolerable downtime (MTD) of disruption. MTD can be taken to basically mean the maximum time which a business can tolerate the absence or the unavailability of a certain business function (Snedaker, 2007, p. 1). The risk which will be analyzed in this section is breakdown of online booking process as part of the technical breakdown. In this case, the main critical dependencies of this service are the consumers who extensively depend on the functionality of online booking to book, pay and confirm their frights. In this case, breakdown of online booking might mean cancellation or delay of freight schedules at Delta Airlines. Other critical dependencies of this service are the employees who coordinate the freight schedules in this airline as well as the dispute resolution department of this company which is mandated with the role of arbitrating any disputes which might arise from this breakdown. The strategy of recovering and maintaining these critical dependencies is through creating a robust communication mechanism to the consumers as well the employees about the breakdown, the probable impacts and the projected time of recovery. In addition, an effective resolution mechanism of dispute resolution ought to be instituted constituting individuals with robust arbitration skills. In this regard, it is imperative to create a rating system which is key in determining the timeframe objectives by Delta Airlines. In this case there will be four categories. Category 1 (Mission-Critical) - 0-12 hours Category 2 (Vital) - 13-24 hours Category 3 (Important) - 1-3 days Category 4 (Minor) - More than three days Against this backdrop, the breakdown of online booking process is placed under category two meaning that the maximum tolerable time is 24 hours. In this regard, the timeframe work (objectives) is between 13-23 hours. In this period of 10 hours, there are will be three levels prior to convening the crisis planning group and eventually activating the business continuity plan (BCP). This is key in monitoring the aforementioned dependencies through the creation of a bench mark for ach dependency. The first level (13-17 hours) has a green status meaning that everything is working fine. In this level, there is continuous monitoring of the situation and hourly reporting to the SMT. No much action is required in this level. The second level (17-21 hours) has a status ember where the disruption of online booking services at the airline could intensify into an emergency. The final level (21-23 hours) has a status red where there is need to mobilize the crisis planning team. In this last level, there is convening of the crisis planning group, agreement on the membership as well as the activation of the continuity plan. In addition, there is identification and recording of a clear strategy, BCP referenced for advice and guidance and auditing of trail kept for all decisions. In this case, recovery towards normality or ‘business as usual’ is the primary objective (Anytown fire and rescue service, 2007, p. 9). Dealing with the disruption This is primarily through instituting a crisis planning team. The crisis planning team constitutes members from the ICT department at the airline who have a wide alley of roles ranging from system maintenance in the online booking processes. In addition, it will constitute of some members from the management of the airline, mostly those from the financial department. This is founded on the need to assess the amount of funds which will be required in the recovery process as well as the approximated losses as a result of the system breakdown. On the other hand, this team will constitute members from the operations department in order to evaluate the extent of impacts that this technological breakdown will pose on various operations of the company. This team is mobilized and managed collectively by its appointed leader in collaboration with the overall organizational management. The team operates from the risk management department. The BCP is triggered through a collective decision of the overall critical planning team. Example of activities when the company is in danger There are various activities which are undertaken by a company when it is confronted by unavoidable danger. Firstly, it formulates and implements mechanisms aimed at addressing the cause of the danger as well as minimizing the impacts which are posed by this danger. This is key in ensuring that the company will be able to move forward even after the danger has superseded. Another activity by the management structure of a company is to constitute a team which is mandated with the role of not only deciding on the recovery objective of the current danger but also looking into the cause of the danger and setting relevant and feasible interventions aimed at mitigating the possibility of the danger occurring in the future. Lastly, the company ought to establish a monitoring and evaluation mechanism (M&E) to assess the compliance with the set policies to eradicate the cause of the danger. Communicating the plan and embedding it into the organization to ensure its effectiveness There are various methods of communicating the business continuity plan. Firstly, this can be in the course of training programs, both for the current employees as well as those newly recruited. This is key in informing them about the plan, what it entails as well as their respective roles in ensuring the effectiveness of the plan. This will ensure that the plan is not only embedded in the organizational culture of Delta Airlines at the present times but also in the future. The second channel of communication is in the course of departmental meetings. In this case, the heads of various departments in this airline are mandated with the role of informing their respective members about the business continuity plan and involving them in the implementation process as well as in the monitoring and evaluation processes mentioned in preceding section. The last communication channel is through formal channels like mails, memos and notices among others. However, this is not a very effective model since the employees will not have a way of getting clarifications regarding this plan and thus their level of compliance might be minimal. Testing the plan to ensure it remains effective under changingcircumstances The methodology of testing the plan geared towards ensuring that it remains effective under changing circumstances is through robust M&E mechanisms. This ought to be done on regular basis. In regard to monitoring, this ought to be conducted quarterly (after every three months). This is key in capturing any upcoming dynamics affecting the plan and incorporating them therein. On the other hand, the evaluation process ought to be conducted at least annually to ensure that it is effective in addressing all the forthcoming circumstances. Conclusion From the preceding discourse, it is apparent that business continuity management is a fundamental process in an organization. The above analysis has explored the applicability of BCM in the operations of Delta Airlines, which is a public company in the USA. There are diverse socio-economic, political and technological factors which affect the operations of this airline and expose it to a wide alley of risks. The primary stakeholders in this company are the consumers, the suppliers, the employees and the investors. In addition, it has been pointed out that Delta airlines operates under diverse legal frameworks which include NLRA, UFAA, Security Laws and Customs Acts among others. The primary activities of this firm are provision of air travel services to the consumers and offering cargo transportation services. The major critical dependencies in this company are the customers, the employees and the dispute resolution department. Both of these activities are confronted by diverse risks associated with increased delay of the consumers to pick their cargo, prospective terrorist attacks and technical breakdown. Lastly, communicating the plan, embedding it in the organization as well as testing its effectiveness have also been analyzed. References Ackerman, KB., 2006, ‘Risk Management For The Warehouse Operator’, Ackerman Warehousing Forum, Vol. 21, No. 6, pp. 1-4. Anytown fire and rescue service, 2007, Business Continuity Plan: Version 3.1, Anytown, USA. Brinkerhoff, D., et. al, 2002, ‘Delta Air lines Stakeholders Analysis’, retrieved 21st January 2013, . Data Monitor, 2009, ‘Delta Air Lines, Inc.:Company Profile’, retrieved 21st January 2013, < http://bus690-airlines.wikispaces.com/file/view/Datamonitor+SWOT+-+Delta.pdf>. Herron, V., 2011, Terror Risk Confronting Airlines and Countries’, retrieved 21st January 2013, . Hüschelrath, K., & Muller, K., 2011, ‘Low Cost Carriers and the Evolution of the U.S. Airline Industry’, Discussion Paper No. 11-051, Centre for European Economic Research, Mannheim. International labour Organization, 2011, Multi-hazard BusinessContinuity Management, International labour office, Geneva. Kaps, RW., 1997, Air Transport labor Relations, Southern Illinois University, Illinois. NSW Department of Primary Industries, 2012, ‘Procedure – Aviation Risk Assessment and Management Process’, retrieved 21st January 2013, . Rivkin, JW., & Therivel, L., 2005, ‘Delta Air Lines (A): The Low Cost Carrier Threat’, Harvard Business School, Vol. 9, pp. 1-15. Snedaker, S., 2007, ‘Understanding security risk management: Recovery time requirements’, retrieved 21st January 2013, Read More