Risk Management in the Aviation Industry

This assignment delves into the realm of risk management within the aviation industry, specifically focusing on Emirates Airlines. It examines various risks the airline faces, categorizing them as financial and operational. The analysis utilizes a risk map to illustrate potential impacts and likelihoods, drawing upon resources such as academic journals, industry reports, and financial statements from Emirates Group. Furthermore, it explores the concept of enterprise risk management and its significance in mitigating these risks.

Enterprise Risk
Management

TABLE OF CONTENTS
INTRODUCTION............................................................................................................................4
TASK 1 RISK MANAGEMENT PROCESS IN EMIRATES AIRLINE.......................................4
TASK 2 INTERNAL AND EXTERNAL RISKS...........................................................................6
TASK 3 CATEGORISING THE RISKS USING LIKELIHOOD AND IMPACT........................7
TASK 4 APPROPRIATENESS OF RISK MITIGATING STRATEGIES IDENTIFIED IN
REGARD OF INTERNAL AND EXTERNAL RISKS................................................................13
CONCLUSION .............................................................................................................................14
REFERENCES...............................................................................................................................16
Appendix........................................................................................................................................18
ILLUSTRATION INDEX
Illustration 1: Financial information of emirates airline 2014-2015................................................4
Illustration 2: Risk management process.........................................................................................6

INTRODUCTION
Enterprise risk management (ERM) can be stated as the process of planning, organizing,
leading and controlling the activities of business in regard to minimize the effects of risk on
business. ERM also helps in providing a framework for risk management that typically involves
identifying specific events or circumstances relevant to the business objectives i.e. risk and
opportunities evaluating them in terms of likelihood and impact so that set targets can be attained
(Arena, Arnaboldi and Azzone, 2011). Through identifying and proactively addressing risks and
opportunities it assists business enterprise to protect and create value for their stakeholders that
involves employees, owners, employees and customers. In the present study, risk audit has been
done in relation to Emirates Airline. Further, the report analyses about the risk management
process applied to Emirates. Also, it evaluates different internal and external risks in order to
categorise the risks using likelihood and impact.

(Source: The Emirates Group, 2015)
TASK 1 RISK MANAGEMENT PROCESS IN EMIRATES AIRLINE
As per the current operating environment, it can be assessed that it demands a more
integrated risk management approach. Also, it is essential to manage the risk at individual level
so that organization is required to manage the risk accordingly. However, Emirates Airline uses
effective security measures in order to control the risk and provide proper mitigation to overcome
the identified risks (Baxter and et.al., 2013). For instance, there are different types of risk faced
by business such as policy, program, operational, human resource, health and safety etc. Thus,
enterprise is required to undertake proper decision making perspective which typically involves
Illustration 1: Financial information of emirates airline 2014-2015

the establishment of hierarchical authorities and risk management committees in order to
determine the allocation of risk and achieve desired outputs. Following is the risk management
process used by Emirates Airline-
 Establishing goals- In this particular stage of risk management it assesses that Emirates
Airline management is required to analyse the environment in which the firm operates
and thus undertake effective action so that opportunities can be attained effectively.
However, there are different methods which can be undertaken in relation to analysing
environment situation i.e. SWOT and PESTEL (Bromiley and et.al., 2015).
 Identify the risks- Here, the business management is required to identify the risks that
are likely to affect the achievement of business goals and thus risk can be formulated in
the form of opportunity or strength (Gates, Nicolas and Walker, 2012).
 Analysing the risk- It is essential for Emirates management to analyse the risk and the
consequence and likelihood to estimate the inherent or unprotected risk with no control.
Therefore, management is required to identify the control of risks and thus minimize its
effect in order to achieve common goals (Hoyt and Liebenberg, 2011).
 Evaluating the risk- However, once the risk have been analysed it can be compared
against the previously documented and approved tolerable risk criteria. Thus, using risk
matrix helps in protecting the tolerable risk and also identifies specific measures or
improvements in relation to overcome the specific risk (Nocco and Stulz, 2006).
 Treating the risk- Further, in this stage an unacceptable risk requires treatment or
control. Main aim of this stage is to develop cost effective measures in regard to treat the
risk. Airlines management needs to develop effectual control system so that appropriate
outcomes can be generated which do not affect passengers as well as employees (Pagach
and Warr, 2010).
 Monitoring the risk- It is an crucial step in which Emirates Airline needs to monitor or
review the identified risks so that it does not impact upon firm. Also, effective treatment
is required so that benchmark can be attained.
 Communication and reporting- Management is required to develop clear
communication in order to mitigate the risk and thus find appropriate action so that best
results can be attained (Peck, 2006).

Illustration 2: Risk management process
§
(Source: Duckert, 2010)
TASK 2 INTERNAL AND EXTERNAL RISKS
Risk can be defined as the potential of gaining or losing something of value. It involves
two main types of risk i.e. internal and external. Internal risk can be stated as it is faced by firm
internally and arise while normal operations of organization. However, such risks can be
forecasted with certain reliability and thus company possess a good chance of minimizing
internal business risk. Following are the two types of internal risk faced by Emirates Airline i.e.
human and technological factors (Berger, Hasan and Zhou, 2009). On the other hand, external
risk can be stated as events that arise from outside of business enterprise. However, external
events may lead to external risk and thus it cannot be controlled or forecasted easily. The
external risk faced by Emirates is economic and political factors.
Internal risk
 Human factors- It can be assessed that Emirates Airline faces various type of risk from
its workforce and thus involves union strikes, lockouts and dishonesty by workers. Also,
ineffective leadership and failure of suppliers etc. affects the business enterprise
internally (Gordon, Loeb and Tseng, 2009). Therefore, it can be examined that human

factors need to be managed by business as these affects the firm in an effective manner.
For instance, if Emirates does not respect or satisfy their employees it creates a risk for
firm. However, such risk is controllable through adopting effective strategies by business
in order to attract and retain employees for long term. Technological factors- It is another factor that affects the business internally and thus
Emirates is required to implement effective technology within firm so that desired results
can be attained. However, if business does not use innovative technology machines in
their airlines that affect firm's operations in market. Thus, it affects the firm effectively
and thus it is essential for Airline management to adopt effective measures so that
competitive edge can be gained (Huang, and et.al., 2011).
External risk
 Economic factors- It falls under external risk and thus it is not easily controllable by firm
therefore, it is essential for enterprise to analyse the factors that can help in mitigating
such type of risk. It involves changes in the market conditions that influence business
operations so that Emirates faces issues in relation to low money supply in the market
(McShane, Nair and Rustambekov, 2011). It influences firm to manage the risk so that
demand of airlines can be enhanced in market and thus it raises the profitability of firm in
market.
 Political factors- It states that the political risk developed by business which consists of
changes in the political environment and thus introducing new rules and regulations.
However, it is essential for Airline to follow government regulation in relation to
Aviation so that passenger safety and security can be gained. Hence, political risk affects
the operations effectively and thus it is essential for firm to overcome such risk which
results into reducing it and attaining overall objectives (Paape and Speklè, 2012).
TASK 3 CATEGORISING THE RISKS USING LIKELIHOOD AND
IMPACT

Risk
No. Risk
Description Risk Information sources (i.e. references from research)
Likelihood (1-5)
Impact
(1-5)
Risk Rating Score
above
accepta
ble
level
1
Human
factor
Human factor is the most crucial risk that influences business because it is
essential for firm to manage the workforce effectively by providing them
various benefits and satisfying their needs so that best results can be
attained (Rejda, 2011). However, it can be assessed Emirates Airline
faces various type of risk in regard to its labour such as union strikes,
lockouts and dishonesty by workers. Also, ineffective leadership and
failure of suppliers etc. affects the business enterprise internally.
Therefore, it can be examined that human factors need to be managed by
business as these affects the firm in an effective manner. For instance, if
Emirates does not respect or satisfy their employees it creates a risk for
firm. However, such risk is controllable through adopting effective
strategies by business in order to attract and retain employees for long
term.
3 4 12 Yes

2
Technologic
al factor
In such type of internal factor, it influences business operations because
organization need to update its technology in relation to attract and satisfy
customer needs (Farid, 2013). However, if business does not use
innovative technology machines in their airlines that affect firm's
operations in market. Thus, it affects the firm effectively and thus it is
essential for Airline management to adopt effective measures so that
competitive edge can be gained. As there are various similar competitors
using effective technology equipment within their airlines in order to
satisfy the needs of customers and thus enhance the sales and profitability
of firm in market.
4 4 16 Yes
3
Political
risk
It is external factor that influences business as it consists of changes in the
political environment and thus introducing new rules and regulations.
However, it is essential for Airline to follow government regulations in
relation to Aviation so that passenger safety and security can be gained
(Arena, Arnaboldi and Azzone, 2011). Hence, political risk affects the
operations effectively and thus it is essential for firm to overcome such
risk which results into reducing it and attaining overall objectives.
Because of changes in the policies and practices it affects the operations
of firm in market.
3 4 12 Yes

4
Economic
risk
It is another factor that falls under external risk and thus it is not easily
controllable by firm therefore, it is essential for enterprise to analyse the
factors that can help in mitigating such type of risk. Economic condition
involves changes in the market conditions which influences firm's
operations so that Emirates faces issues in relation to low money supply
in the market (Gates, Nicolas and Walker, 2012). It influences firm to
manage the risk so that demand of airlines can be enhanced in market and
thus it raises the profitability of firm in market.
4 4 16 Yes

Likelihood Score Impact Score
1 Very unlikely 1 Negligible Impact
2 Unlikely 2 Low Impact
3 Likely 3 Moderate Impact
4 Very Likely 4 High Impact
5 Certain 5 Catastrophic Impact
Score of risk Classification Mitigation
x<1 opportunity No The risk that scores less than 15 is
not considered high enough for
incorporating the mitigation plan.
It is because risk is low and
occurrence of such types of risks
cannot be controlled.
1<= x <5 Negligible risk No
5<=x <10 Low risk No
10<=x <15 Moderate risk Yes However, risk scoring more than
15 has high effect on business
operations. If this risk is not
controlled then it may create bad
results for business.
15 <= x <=20 High risk Yes

TASK 4 APPROPRIATENESS OF RISK MITIGATING STRATEGIES
IDENTIFIED IN REGARD OF INTERNAL AND EXTERNAL RISKS
R
is
k
N
o.
Risk
Description
Likelih
ood (1-
5)
Impact
(1-5)
Risk
Rating
(Likelih
ood x
Impact)
Score
above
accept
able
level
Mitigation
1
Human factor 3 4 12 Yes
Emirates Airlines is required
to provide proper training to
their human resources so that
they can deliver services in an
effective manner. Also,
identifying the needs of
human resources and fulfilling
their needs helps in achieving
desired results.
2
Technological
factor 4 4 16 Yes
It is essential for business entity
to focus on adopting latest
technology on the regular basis
so that effectiveness of services
can be enhanced (Peck, 2006).
With the availability of new
technology firm can gain
competitive advantage by
improving their practices.

3
Political risk 3 4 12 Yes
Here, it is significant for
Emirates to follow proper
government policies and
practices so that it enhances its
range of products or services
and attracts huge number of
people in order to achieve
desired results (Farid, 2013).
4
Economic
risk 4 4 16 Yes
In this it is essential for
Emirates to change its prices as
per the market conditions and
thus follow government
regulations by providing low or
minimum fares to customers in
order to attract them to use their
services.
CONCLUSION
The concluding remarks can be stated as risk management process has been implemented
at various small and large level businesses. However, it is essential for firm to manage the risk
appropriately so that effective decision making can be made in regard to encourage management
to mitigate the risk properly and attain desired goals. Further, there are different types of risks
occurred within Emirates Airline such as internal and external and it affects business operations.
Therefore, management is required to manage the risk and try to convert it into opportunity and
strength.

REFERENCES
Books and Journals
Arena, M., Arnaboldi, M. and Azzone, G., 2011. Is enterprise risk management real?. Journal of
risk research. 14(7). pp.779-797.
Baxter, R. and et.al., 2013. Enterprise risk management program quality: Determinants, value
relevance, and the financial crisis. Contemporary Accounting Research. 30(4). pp.1264-
1295.
Berger, A. N., Hasan, I. and Zhou, M., 2009. Bank ownership and efficiency in China: What will
happen in the world’s largest nation?. Journal of Banking & Finance. 33(1). pp. 113-130.
Bromiley, P. and et.al., 2015. Enterprise risk management: Review, critique, and research
directions. Long range planning. 48(4). pp.265-276.
Duckert, H. G., 2010. Practical Enterprise Risk Management: A Business Process Approach.
John Wiley & Sons
Gates, S., Nicolas, J. L. and Walker, P. L., 2012. Enterprise risk management: A process for
enhanced management and improved performance. Management accounting quarterly.
13(3). pp.28-38.
Gordon, L. A., Loeb, M. P. and Tseng, C. Y., 2009. Enterprise risk management and firm
performance: A contingency perspective. Journal of Accounting and Public Policy. 28(4).
pp. 301-327.
Hoyt, R. E. and Liebenberg, A. P., 2011. The value of enterprise risk management. Journal of
risk and insurance. 78(4). pp.795-822.
Huang, S. M. and et.al., 2011. Building the evaluation model of the IT general control for CPAs
under enterprise risk management. Decision Support Systems. 50(4). pp.692-701.
McShane, M. K., Nair, A. and Rustambekov, E., 2011. Does enterprise risk management increase
firm value?. Journal of Accounting, Auditing & Finance. 26(4). pp.641-658.
Nocco, B. W. and Stulz, R. M., 2006. Enterprise risk management: theory and practice. Journal
of Applied Corporate Finance. 18(4). pp. 8-20.
Paape, L. and Speklè, R. F., 2012. The adoption and design of enterprise risk management
practices: An empirical study. European Accounting Review. 21(3). pp.533-564.
Pagach, D. P. and Warr, R. S., 2010. The effects of enterprise risk management on firm
performance. Sage.
Peck, H., 2006. Reconciling supply chain vulnerability, risk and supply chain management.
International Journal of Logistics: Research and Applications. 9(2). pp. 127-142.

Rejda, G. E., 2011. Principles of risk management and insurance. Pearson Education India.
Online
Farid, J.,2013. Risk Assessment – From risk exposure to impact. [Online]. Available through:
<https://financetrainingcourse.com/education/2013/07/risk-assessment-from-risk-
exposure-to-impact/>. [Accessed on 4th May 2016].
The Emirates Group, 2015. [Online]. Available through:
<http://www.theemiratesgroup.com/english/facts-figures/annual-report.aspx>. [Accessed
on 5th May 2016].

Appendix
Risk Map
IMPACT
1 2 3 4 5
LIKELIHOOD
5
4 2,4
3 1,3
2
1