In the wake of the two airline crashes, Ethiopian Airlines jet and a Lion Air flight last year, a major aviation Company’s planes got grounded globally and lost its share value as well as consumer confidence. The crashes killed all 346 people on the two flights. While the officials of the aerospace company are defending their 737 airplane line and working on fixing the software, they will still need approval from global regulators before the grounding is lifted. As the company is working towards coming out of the crisis, there are vital lessons on Enterprise Risk Management for the Boards from this instance.
Importance of Identifying the Risk in real time
In both the Ethiopian crash and a crash in Indonesia, the preliminary investigations found that there was misfiring of the 737 MAX flight-control system known as MCAS. The system was apparently activated by false readings from sensors that measure the angle of the plane’s nose.
Fixing the grounded plane is an urgent priority for the Company for recovering from two fatal crashes of the jet, followed by repairing its reputation with airlines, pilots and passengers worldwide. Like the Justice Department, Congress and other federal investigators are examining the Company’s actions while developing the said airplane, the importance of Risk Identification in real time is highlighted. In this particular case, some pilots have said that the airline company and U.S. Regulators should have highlighted specific steps crews are supposed to take before shutting off power to MCAS. As per their statement, without such steps being mentioned and highlighted in emergency checklists, crews may lack a full understanding of how MCAS works and how to disable it. This is a classic example of why Risk Identification in real time becomes mandatory, doesn’t matter what the Industry.
We infer that ineffective corporate Risk Governance within the Company led to the tragedy that involved the killing of innocent people, loss of billions, elimination of trust in the brand and resulting degradation of its global brand value.
Risk Management: Why it is vital and urgent in the Airline Industry
Risk Management and Governance is a fundamental concern in the complicated, hazardous and dynamic environment of the airline industry. Airline operations have to continuously deal with a cascade of Regulations and norms, which prevent airlines from operating in the same way as other global businesses, making them susceptible to a myriad of Risks. Apart from internal Risks, a significant part of airlines’ challenges is mapping related Risks with a network of human operators, technological systems, and policies and procedures.
The specificity of airline business indicates the need to embrace the enterprise-wide approach to managing risks from different dimensions of airline operating contexts. However, airline Risk management approaches have conventionally been rooted in Compliance with multiple industry regulations or they are segregated into functional silos focusing on the management of only a limited scope of Risks. Neither the Regulation and policy-based compliance approach nor the silo-based functional approach has enabled airlines to generate returns for investors. And so the ERM strategies of today’s Aviation Industry needs to be revisited.
Risk Management: Stepping up from being a one time management activity to being a continuously monitored function
The objective of the Risk management function is enhancing the likelihood of positive consequences and reducing the likelihood of negative consequences of events. Organizational risk portfolios are affected by dynamically changing geopolitical and Business Landscape and so Risk management should be performed continuously to be aligned concurrently with changing market conditions and organizational strategies. Random and sporadic Risk management initiatives might create temporary advantages, but, they prove to be ineffective in the long run as they do not take into account the dynamic nature of the Risk landscape.
By making ERM an integral part of organizational strategies and creating a continuous pattern of Risk management, organizations can reduce uncertainty and stay on top of the evolving Risks. Also, in order to make informed decisions Boards need to thoroughly understand the Risk profiles of their organizations and how these Risks can affect strategies at the corporate level.
A structured GRC program based on Industry frameworks cannot achieve high maturity scores without process automation for Risk and Compliance management as the Risk universe is expanding by leaps and bounds and at the same time, Regulatory bodies are becoming more and more stringent. At Confident Governance, we strive for making Governance processes like Risk, Compliance, and Audit. The aim is to make Risk and Compliance processes competitive advantages rather than letting them be check-the-box activities. Since continuous monitoring and innovation is all about accurate Governance, our robust Governance as a Service® product suite for Audit Automation, Risk and Compliance is constantly updated to address changing Business needs.
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