Risk Management in Aviation

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Introduction

The rationale behind risk management in airports is a multifaceted question with a broad scope that necessitates a holistic approach to the notion. Since an effective risk management process involves identifying potential risks and attempting to tackle them, the concept is significant in the aviation sector where risks usually span across major issues like profit, reputation and business holdings, along with legal aspects. Successful implementation of a risk management strategy insinuates integration of the management programme into various branches of the organisation. Many authors point at the socially constructed nature of risk in aviation, thus explaining how often negligible factors contribute to serious mishaps. As portrayed by the literature available on the subject, the uncertainty and unpredictability of individual judgement, attitude and behaviour render aviation risk a largely subjective matter. The magnitude of aviation mishaps is often immeasurable as the latter involve loss of human life along with massive costs. Hence, in the absence of any standard parameter to gauge the gravity of risk, an understanding of the rationale behind risk management requires an all-round method to study the nature of risk in aviation. This also necessitates a detailed critique of the bases of aviation risk management, foundation, justification for the management process and the underlying principles of managing risk in the aviation sector.

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Risks in regional airport

The risks in this case are classified in several categories namely strategic risks, financial risks, legal risks, operational risks, environmental risks and finally the geological risks. Several precautionary measures have been put in place to minimize the effects of risks on the entire business and its cash flow.

Strategic Risks

These include macroeconomic, country risk, inadequate qualified staff, and competition, access to transport and related infrastructure, and marketing, terrorist attack and petroleum products access risks. The macroeconomic risk is brought about by the ongoing global financial crunch and the extremely slow recovery rate. If not checked, the macroeconomic risk may greatly affect the airport’s liquidity level, business transactions and incapacitate its capability to implement scheduled programs. To mitigate the probable effects of macroeconomic risks, the airport regularly reviews its oil prices, exchange rates, inflation margins, etc to suit the prevailing macroeconomic situation. Other strategic risks are caused by the growing shortage of highly qualified and experienced personnel at the global level. This situation has made the airport offer high perks. Such threats have forced airports to increase the salaries for such personnel at the expense of its financial performance in order to retain them.

The other category of risk assessed in this essay for this business situation is Technical Risk. A technical risk means the financier’s possibility of generating financial losses if not able to recover the credit balance for selling goods that he had re-possessed from the user. The airport inability to recover the credit balance arises from the more rapid decrease of the market value of the services and other costs rather than to credit redemption. The different types of technical risks in the given business situation are:

The following is the Risk Breakdown Structure (RBS) prepared for the technical risks in this business situation as per the RBS suggested by Hillson, D, & Simon, P. (2007).

RBS Level 0 RBS Level 1 RBS Level 2 RBS Level 3
Project Risk Technical Risk Risk In Business
  1. Loss due to competition from rivals
  2. Loss caused by mismanagement of the airport
  3. Loss caused by financial Insolvency.
Risk due to incorrect Valuation
  1. Future growth prospects may be bleak
  2. Earnings yield in the future may be poor
  3. Overvaluation.

Study

Understanding risk management:

Raoul Castro rightly defines the three key components of risk management as the human element, the element of anticipation, and the operational element (1995, p.210). Castro further states that the objective of a risk management programme is to “establish the ground work for action that will prevent and eliminate accidents”, and lists education, communication, inspection and investigation and prevention as the four basic elements of a risk management programme (1995, p. 213). The Federal Aviation Administration calls for a thorough comprehension of risk and hazard in order to study the process of risk management. If hazard is defined as “a present condition, event, object, or circumstance that could lead to or contribute to an unplanned or undesired event such as an accident” (Risk management handbook, Chapter 1, p.1-2), then risk is the “future impact of a hazard that is not controlled or eliminated” (Risk management handbook, Chapter 1, p.1-5). Risk anticipates a hazard and since most of the accidents in aviation are based on human error, Castro emphasises safety as the prime concern of each employee and discusses the need to evolve a ‘holistic’ approach to inculcate an effective risk management culture throughout the aviation staff hierarchy (1995, p.205).

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Underlying principles of risk management

The question may be- what are the underlying principles of risk management in aviation? The answer to it invariably comprises a picture of potential disasters in this industry. If one goes by Castro’s opinion, an accident is the outcome of numerous miscalculations that occur one by one, ultimately causing it. In this case, an accident involves many factors which are sometimes as small as a “bolt left unsatisfied” or even the use of wrong fuel (Castro, 1995, p. 205). The Federal Aviation Administration states that there are four ‘fundamental’ risk elements in any ‘given aviation situation’: the pilot, the aircraft, the environment, and the external pressures (Risk management handbook, p.G-4). It is in this scenario that assessment of risk gains significance. Risk assessment is an important part of the whole process of risk management and necessitates an overall perception of the potential hazards and attendant risks. The Safety Management Systems prescribed in the ICAO Safety Management Manual has devised various procedures of decision making and acceptance as a method of risk assessment in aviation. Safety Management Systems work in four sections whereby risk management is a comprehensive process involving systems analysis and engineering that calls for a grasp of operational elements, identification of hazard which is based on a thorough knowledge of the system, a detailed analysis of the causal factors and taking adequate steps to control the risk, and safety assurance (Stolzer et al, 2008, p.27).

As mentioned earlier, risk management, among others, revolves around the key elements of risk. Considering the first component or the pilot in command, following factors such as illness, emotional and mental well-being, abstention from alcohol a fixed time prior to the flight, medication, fatigue, and stress etc. should be taken note of. Since stress could be psychological, physiological or even environmental, effective risk management would need to focus on these issues too. Raoul Castro opines that an accident that occurs during the operation of an aircraft after it has left the chocks is the responsibility of the pilot. Castro goes on to suggest implementation of measures to encourage the self-preservation instinct of the staff and talks about the need to study one’s own behavioural pattern with a view to curb potentially harmful tendencies such as compulsion, complacency, carelessness, incompetence, inattention, haste etc. (1995, p. 209-210). The Federal Aviation Administration statistics points out that three out of four aviation mishaps result from “improper human performance” (Risk management handbook, chapter 2, p.2-1). An article titled Accident Prone Pilots by Patrick De Veillette, Ph.D., in the August 25, 2006, issue of Commercial and Business Aviation referred to research findings that showed how the pilot’s disregard for rules and regulations often led to serious accidents (Risk management handbook, Chapter 1, p.1-2). Since the human element is the most important yet highly vulnerable part of risk, managing this particular component requires an optimum use of education, awareness, and personality traits to induce astute judgements.

The second factor that needs attention in management of risk is the aircraft, since it is on the basis of its performance that the pilot often takes decisions. Airworthiness and equipment are other two factors that are equally important while managing risks related to the aircraft. Third comes the environment which covers “many elements that are not pilot or airplane related, including such factors as weather, air traffic control (ATC), navigational aids (NAVAIDS), terrain, take-off and landing areas, and surrounding obstacles” (Risk management handbook, Chapter 3, p.3-2). This includes weather, terrain, airport, airspace, night time flying, and visual illusions. External Pressures have been defined as influences “external to the flight that create a sense of pressure to complete a flight—often at the expense of safety” (Risk management handbook, Chapter 3, p.3-9). Listed as the ‘most important key’ to risk management, managing external pressures deserve special attention as they can manipulate pilot’s decision-making ability, often leading him to ignore all other risk factors.

After defining elements of risk management, identifying hazards and taking steps to tackle them, studying human behaviour and assessing risk with due attention to various risk elements, the process of managing risk works on certain principles, with Aeronautical Decision Making being the “basic staple”. Defined as “a systematic approach to the mental process used by pilots to consistently determine the best course of action in response to a given set of circumstances” and a “cornerstone in managing risk” (Risk management handbook, Chapter 5, p.5-1), aeronautical decision making makes use of up-to-date information available to the aviation staff. The significance of ADM can be evaluated by the fact that it has played a pivotal role in the past twenty five years in avoiding accidents and ensuring safe operation of aircraft. ADM focuses on analytical decision-making, automatic decision-making, operational pitfalls, and works on the 3P model based on Perception, Processing and Performance. Next comes Single Pilot Resource Management, defined as the “art of managing all the resources (both on-board the aircraft and from outside sources) available to a pilot prior to and during flight to ensure a successful flight” (Risk management handbook, Chapter 6, p.6-1). SRM incorporates risk management, Aeronautical Decision Making, CFIT (Control Flight into Terrain) as well as situational awareness. It works on principles such as recognition of hazards, use of resources and 5P check emphasising Plan, Plane, Pilot, Passengers, and Programming. Another factor is Automation which includes cockpit automation study, an understanding of the realities of automation, enhanced situational awareness, autopilot systems, and flight management skills which in turn cover automation management, information management and risk management.

According to Wells and Rodrigues, the concept of risk management arises from “financial concerns and a realisation that losses from different areas in a business must either be reduced or accepted” (2003, p.150). In this case, risk management implies preservation of assets and mitigating losses by foreseeing hazards and effectively dealing with inevitable risks. Wells and Rodrigues state that since accidents can be seen as “involuntary and unscheduled expenditures”, successful risk management should involve all sections of aviation to lessen the chance of a possible hazard.

Risk management programme- what, and why

A standard risk management programme usually includes a written safety policy statement authorized by the highest ranking officer on the site, employee evaluations embedded with goals and objectives, formal and informal accident and incident reporting systems, impartial review of the accident-incident report, a systematic and continuous auditing process, a process of prioritising and addressing hazards, a process of providing regular update to senior management on the safety arrangements, a regular feedback process to ensure that the personnel involved in reporting hazards and submitting proposals are briefed about the outcome, constant evaluation and updating of the risk management programme (Wells & Rodrigues, 2003, p. 152). Risk management is important because maintaining economic viability simultaneously with its policies is a prime concern for the aviation sector, and since risk taking is an “accepted part of air carrier life”, it has an influence on the attitude of aviation management towards flight safety (Wells & Rodrigues, 2003, p. 152). Also, as said in the website of Southern California Safety Institute, “the bottom line in the aviation industry is to implement safety improvements in the most cost-effective manner possible” (Operational Risk Management, course description). All these are underlying principles of risk management in aviation, making it a complex field of interconnected factors.

An article by Jennifer Harrington-Snell on the May 6, 2010 issue of the Aviation International News Online revealed how risk management has significantly improved aviation safety, with the European Union encountering the lowest number of serious mishaps recorded. The article also discussed how an in-service risk management process lowered the instances of unstable approaches for operators who are enrolled in the risk management system. However, Sydney Vianna thinks that aviation maintenance organisations’ attitude towards risk management is “critical” and calls for the “development, implementation, and maintenance of a process applicable to the organization’s products and services provided, with well-defined process responsibilities, criteria, mitigation, and acceptance” (Quality Digest, website).

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Tackling the ‘inherent subjectivity’ of risk management:

The Federal Aviation Administration observes that the key point of risk management is to discipline the aviation personnel in a way that enables them to analyse the problem impartially while dealing with the responsibilities in hand, in order to facilitate evaluation and acceptability. However, it should be noted that the subjective nature of risk management implies that various individuals would have different approaches to a risk factor and this might lead to slight variations in risk management strategies. This also means that in certain cases, the pilot overestimates his or her level of acceptability and attempt to deal with a dangerous risk which might in reality be much beyond their capability. According to Dietrich and Jochum, an individual’s perception of risk is governed by the familiarity with the threat and the level of its effect one’s self and the ability to exert control over the situation (2004, p.97). It is under such circumstances that risk assessment gains a prominent role whereby the degree of risk is calculated and after classifying it into low, medium or high, the viability of plans to manage and tackle the risk is evaluated. Therefore it could be said that risk management is the method used to “control, eliminate, or reduce the hazard within parameters of acceptability” (Risk management handbook, Chapter 1, p.1-5, 1-6).

While discussing the inherently subjective and unpredictable nature of risk perception, Dietrich and Jochum seek attention towards the conspicuous lack of sufficient empirical research on risk management and assessments in aviation, especially pilot’s decision-making, and talk about their project at NASA Ames designed specifically to address this issue. According to them, most of the existing work on the subject merely discuss “general aviation pilots and examine the relation between pilots’ attitude towards risk and their decision to continue or to divert in a computer-simulated cross-country flight” (2004, p.98). To this, Patankar and Taylor say that a major challenge faced by the aviation management is whether risk management strategies are embedded in the organisation’s structure, process, reward system, and its social roles (2004, p.37). Dietrich and Jochum are pursuing research based on pilot’s methods of handling risks, what risks are of concern and salience to them, and their influence on pilot’s decision making.

It should be noted that open communication facilitated by ‘flattened hierarchy’, team work, and incentives for tackling risks can encourage a better employee involvement in risk management and this would prove effective since the higher ranks of administration may not be aware of the magnitude of risks posed by pressures from supervisors and maintenance professionals (Patankar & Taylor, 2004, p.36). As risk management sometimes requires making quick choices, a smooth communication and co-ordination between the staff would ensure a better dealing with potential threats. Moreover, Wells and Rodrigues believe that attitude of the management towards safety norms can easily influence the employee attitude and hence a serious approach and high morale are essential prerequisites for a good risk management, helping to mitigate hazards (2003, p.149).

Conclusion

Fraser and Simkins talk about a study conducted by Ernst and Young involving around 900 companies to understand the leading risk management practices in India, China, Brazil, etc. along with 12 developing market countries, and the study revealed that “establishing a risk culture, improving communications, and aligning organizational structure and risk management processes can ultimately set a strong foundation for better risk management” (2010, p.507). These findings reflect the aviation sector too, and risk management has a multifarious role in the current situation.

Risk management is crucial in civil aviation as the efficiency of service delivery and safety monitoring depend on it. Risk management has another interesting aspect, as the optimum allocation of resources to ensure maximum safety will lead to “an improved level of comfort” (Why risk management, Transport Canada, Website).

The question here has been the rationale behind risk management in aviation. The paper dealt with elements of risk, components and features of a risk management programme, bases of aviation risk management, underlying principles of it and the trends in this field. Any study on the rationale behind risk management will not be complete without understanding the nature of risk in the aviation sector and the necessity of managing probabilities of a hazard. For any organisation, three basic reasons underline the need to enforce risk management: safeguarding resources from surprising losses, preparation to utilize unexpected opportunities, and limiting uncertainty. The organisations achieve these goals by evaluating loss exposures, devising viable techniques to deal with risk, and by establishing risk management programmes while adapting to change. These principles are applicable to aviation sector too wherein the probability of risks is a given, and need a good coordination since it involves the human element, which according to Wells and Rodrigues, “is subject to such a wide range of varying situations and circumstances that not all can be foreseen” (2003, p. 159). Precisely due to this, human beings are the ‘driving force’ behind any risk management operation and hence they are expected to compensate when every other factor miscarries (Castro, 1995, p. 215). Risk management continues to inspire research as its significance grows in the global scenario.

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References List

Castro, R., 1995. “Corporate Aviation Management”. Southern Illinois University Press.

Dietrich, R., & Jochum, K., 2004. Teaming up: components of safety under high risk. London: Ashgate Publishing.

Federal Aviation Administration. 2006. Risk Management Handbook. Pdf.

Fraser, J., & Simkins, B., 2010. Enterprise Risk Management: Today’s Leading Research and Best Practices for Tomorrow’s Executives. London: John Wiley & Sons.

Harrington-Snell, J., 2010. “Risk management boosts aviation safety”. Web.

Hillson, D., 2004. Measuring Changes in Risk Exposure. Web.

Hillson, D, & Simon, P., 2007. Practical project risk management: The ATOM methodology. Vienna, VA.: Management Concepts.

James, M. et al, 1996, Risk management in civil, mechanical, and structural engineering: proceedings of the conference organized by the Health and Safety Executive in co-operation with the Institution of Civil Engineers, and held in London in 1995. London: Wiley-Blackwell.

Leeming, B, M, & Topping, H, V, B 1997, Innovation in civil engineering. Edinburgh: Civil-Comp Press.

Patankar, M.S. & Taylor, J., 2004. Applied human factors in aviation maintenance. London: Ashgate Publishing.

Stolzer, A., Halford, C., & Goglia, J., 2008. Safety Management Systems in Aviation. London: Ashgate Publishing.

Transport Canada: “Risk Management Banner”. Web.

Vianna, S., 2010. “Aerospace Standard for Maintenance, Repair, and Overhaul Services Improves Safety”

Wells, A., & Rodriguez, C., 2003. Commercial aviation safety. New York: McGraw-Hill Professional.

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