Pushing Your Aviation Risk Management Comfort Zone
October 2007
Why would anyone, let alone an aviation pundit,
talk about the importance of pushing comfort zones on a regular basis? Believe
it or not, it's just another part of a good long-term risk management strategy.
by Adam
Webster
Marcil Technology
Group, Inc.
Good business and risk management doesn't mean avoidance of all risks at
all costs. Aviation, by its nature, is risky. So the question remains, what
qualities distinguish good businesses from stale and stagnating ones when it
comes to risk taking?
While the founders of successful enterprises are certainly bipolar (and that's
being polite), the fact is that their risky behavior during the manic phase
of behavior is usually what drives innovation.1 Good risk management is about capturing the best of these phases without running
the entire enterprise off a cliff. Despite the best intentions of the shareholders,
the accountants, lawyers, and other assorted risk managers, the one thing aviation
entrepreneurs know is that the very landscape they live in is so fraught with
risk, that they need to not only plan for the terrain, but also embrace it.
Aviation Business Facts
Consider the following facts about the aviation business.
| a. Large capital requirement |
Bad |
| b. Heavily regulated |
Bad |
| c. Operational challenges |
Bad |
| d. High business failure rate |
Bad |
| e. Litigious environment |
Very bad |
| f. VIP passenger/High-value cargo |
See e. above |
For the crazy, passionate, curious, and downright dangerous thrill seekers,
this could be the article you can use to defend yourself from those mistakes
that almost killed you, your company, and your dream. Simply put, challenging
assumptions and increasing awareness of how the world around you works creates
the most cohesive long-term risk management strategy for the survival of an
enterprise. Admittedly, in the world of short-sighted goals, it is hard to have
all of key people constantly looking over the horizon for the next large opportunity.
Assumptions
If it is scary, painful, or unknown, I should avoid it at all costs. To most
businesses, this means change—new clients, procedures, vendors, shareholders,
or any mechanism that somehow forces the company to challenge assumptions. To
airplane people, this is more simple. Consider the following scenario.
The Flight Instructor: "Ok, now we'll do some spins."
The Student: "Geez... I dunno. Are these required?"
The Flight Instructor: "No, but it is safe to do, and you should experience
it."
The Student: "Wow… I'm really not sure... "
The Flight Instructor: "Ok... as we enter the stall, apply full right rudder..."
One minute later.
The Student: "Hey that wasn't so bad!"
The purpose of this flight instructor lore is mainly to show that while spins
are something to be avoided at all costs, they are not a life-altering event
(in specific aircraft). Furthermore, by
entering and leaving them intentionally, the student learns new limits of the
training aircraft's potential. Comfort with the seemingly unnatural makes the
pilot stronger, more confident, but also aware of how much altitude is lost
when a stall leads to a spin.
The risk manager (the instructor) sees that the student is better prepared
to navigate the future by not being afraid to intentionally put the aircraft
in an odd situation, that no one (except pilots and instructors) ever want to
experience. But going in and out of it naturally is smart training and planning.
Awareness
Most businesses that are running profitably find little urge to soak up such
profits with "new" mistakes. However, were it not for prior calculated risk
taking, the current enterprise would not exist. Risk managers' toughest calls
are usually figuring out how to let the enterprise run and stay nimble and fresh
without running into truly crazy behavior.
To the aviator, this is simple: Where have you been? Where are you now? And
where are you going? If you can keep those three elements straight (in flight
and in life), you are most likely to avoid all major disasters. But more importantly,
without an awareness of what other unknown possibilities may lurk out there,
creative minds that form the fabric of successful businesses starve. The reality
is that failure is very much part of any process, and surviving that failure
to live another day is the key. One could even argue that the more you fail
and fall down, and get back up, the more successful you will be.
Consider the madness of Southwest Airlines' early days: "We'll make it cheaper
to fly than drive" between points in Texas. As an airline that formed its core
business (initially) within Texas, Southwest created what was later to become
known as the Southwest
Effect. Do something crazy with your pricing, and generate a base of customers
that allows your net revenue to increase and the market size to increase exponentially.
To get an idea of how successful firms keep their edge, look at how Google
rewards experimentation and minimizes micromanagement: Employees are expected
to spend 20 percent of their time working on any project of their choice—period.
It is their corporate culture to expect their employees to "goof off" in a way
that ultimately will pay dividends to the corporation in the long term.
Action Items for Risk Managers
The simple question might then be: How do we assure our organization is nimble
and not killing innovation?
Solicit ideas from the janitor to the CEO,
giving them equal weight. While this may sound preposterous to the CEO who rides
comfortably in the corporate jet as he reads the contents of the suggestion
box, one carefully constructed argument by James Surowiecki (author of the Wisdom of Crowds) is that the pool of
idea generators should not focus on recruiting
the smartest and most experienced exclusively. Unabashed and maximum diversity
of opinion is more valuable than the typical circles we've been acclimated to
seek out first.
Challenge assumptions that just seem right
to you. A good example is the old frog story:
"Well, if you boil the water slowly enough, the frog never jumps out of the
pot and dies." This is actually totally untrue. It suffers from the classic
preface of "everyone knows." Whenever you hear "everyone knows," it is generally
time to pull the file and review the contract very carefully to see what the terms are.
Measure risk as a function of reward and
survivability. When plotting major course changes for profit centers, policy,
etc., consider the rules of venture capitalists. Their goal is to seek the riskiest
investments and to watch 9 out of 10 fail. If 9 out of 10 don't fail, then they
are not taking adequate risks. (This is how most successful fund managers think—from
my limited perspective on their world.) The job of a risk manager is to make
sure that, despite the risks, the enterprise as a going concern can survive
the swinging for the fences should you strike out.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author's employer or IRMI. Expert Commentary articles
and other IRMI Online content do not purport to provide legal, accounting, or other
professional advice or opinion. If such advice is needed, consult with your attorney,
accountant, or other qualified adviser.