Wednesday, November 27, 2013

Can Reputation be a RISK?

Can Reputation be a RISK?

(A post from my experience on the power of a Good Reputation)

Risk assessment has typically been associated with Safety Issues in most companies. Back in February, I wrote a post to this blog on the Carnival Triumph disaster, (see: Carnival Triumph: Evidence of Lack of Control.) In addition to the lack of planning, Carnival did not even consider what a disaster would do their REPUTATION. Is there a cost involved in reputation? The Carnival example proves the extensive costs associated with a debacle of that size. If management had planned and highlighted potential risks, the fire in the engine room could have been prevented or at least mitigated. Then management’s decision to by pass a dozen ports and keep the customers on board for an extra 5 days was NOT using "profound" knowledge at all. The result was a tremendous blow to Carnival’s reputation and millions of dollars in cancelled vacations and loss of loyal customers.

Carnival Triumph incicendt deeply tarnished Carnivals reputation
The reputation of a business is essential to its survival. The trust and confidence of the consumer can have a direct and profound effect on a company’s bottom line. Recently, the importance of reputation has become increasingly apparent, as companies such as BP and Toyota have had to cultivate their responses to crises in order to maintain the reputation and standing of their companies to the world.

How do people view your Business? Trustworthy? Honest? Greedy?

Example Risk Assessment with Reputation included. This
example is from the SMS Memory Jogger II. (GoalQPC Publishing)

In the Safety Management System, SMS, world Risk Assessment is mandatory and an integral part of the Management System. Since I have been involved with Aviation companies that have experienced problems, I realize the need to include “Company Reputation” in the Risk Matrix. Here is an example of the inclusion of the company reputation in a risk matrix, (this example is from the SMS Memory Jogger II; 

If an organization has a good reputation in the marketplace, consumers may have a preference for that company even if there are similar businesses offering the same products or services even for different prices. The reputation of an organization can enable a company to differentiate its product in highly competitive markets. A company with a great reputation will allow it to have premium pricing. Reputation can become the ultimate factor in whether a customer decides to patronize one business over another. It is important to assess the “Risk” of a tarnished reputation. 

Your thoughts………...

Thursday, November 21, 2013

Moneyball in SMS

Moneyball in SMS

NOTE: This post is from one of our frequent contributors to this blog, "Birdseye59604."

Moneyball is a movie based on a baseball team where players for the team are picked based on their on-base percentage.  By getting players with a higher average of on-base percentages, the team manager executes a plan to build a competitive team at a lower cost and eliminate the subjective and often flawed process of picking high-impact team members. This approach brought a baseball team to the playoffs with only a salary budget of about 33% of the highest salary team.  Statistical Process Control (SPC) and SMS are profit makers when applied to desired operational results. When applying SPC to Aviation Safety, an Enterprise has established measurable parameters.

Identified parameters set the stage for greater profit margin. However, precise application is what makes the difference. 

Moneyball in SMS is to know what an Enterprise's values are and what the undesired outcomes are. In the Moneyball movie the value is to win games and the undesired outcome is to play high salary players. This process is an uphill battle since it is not a conventional approach and it is a battle to receive cooperation from other managers.  

A Safety Policy should be written for application of measurable results. An Enterprise's Safety Policy that is measurable would state something like this: "Our Enterprise operates with zero tolerance to compromise aviation safety".  Every aspect of operation is then measurable against "zero tolerance".

The next step is for the Enterprise to establish measurable objectives. A measurable objective could be:" The objective of zero tolerance is to increase profit margin by 1.5% ". When a measurable objective is established, the Enterprise establishes measurable goals. A measurable goal could be: ”The profit margin is increased by reducing hazard costs”.

After a goal is established, the parameters are established. A parameter is a variable given a specific measurable factor that sets the conditions of its operation, and could be: ”The condition of assessing hazard cost is limited to a dollar value of $ 1 per 1 second spent in processing hazard reports received, time spent on preliminary risk assessment and time spent processing into hazard registry”. 

When the cost parameter is set at $ 1 per 1 second spent, the cost of hazard becomes a cost of the identified hazard. In other words, the hazard is assigned a cost-account and it doesn't matter to whom, or to what level in the Enterprise the task is assigned. 

A goal gives directions of action. However, arriving at the goal is what makes it measurable.

An Enterprise applying SPC strategy to their SMS has direct and measurable links from Parameter – to Goal – to Objective – to Policy.  
The parameter is $ 1, the goal is to increase the value of $ 1, the objective is to apply the increased value of 1 to the profit margin, and the increased profit margin is based on a safety policy with”zero tolerance to compromise aviation safety”. SPC is the tool to ensure SMS processes are in control.


Your thoughts............

Line-Item Audits

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