Expert Commentary

Pushing Your Aviation Risk Management Comfort Zone

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.


Corporate Aviation
October 2007

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.

Fact Risk Management Analysis
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.


1For those of us bipolar entrepreneurs out there, the perennial question is: How do we spend more time in that manic phase?


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.

Like This Article?

IRMI Update

Dive into thought-provoking industry commentary every other week, including links to free articles from industry experts. Discover practical risk management tips, insight on important case law and be the first to receive important news regarding IRMI products and events.

Learn More



User ID: Subscriber Status:Free