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Airlines face
various financial risks just as any other business does. Hence, this management
policy framework aims to assist the facilitation of risk management process. It
helps to ensure that information about risk derived from the risk management process
is transparent and used as a basis for decision making and responsibility of
all relevant organizational levels. Effective risk management can only be
achieved when there are different parties putting in effort and responsibility
in the management process.

Boards
Responsibility

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The Board
Directors of Unlimited Airway have the responsibility for the risk oversight
and the management of the risks. They should be focusing at the areas that
either may be subject to risk or may be non-compliant with the best practices implemented
by the company on risk management, from a domestic and global viewpoint. Boards
can fulfil their roles in risk oversight by:

a.    
Developing
policies and procedures that are consistent with Unlimited Airway’s strategy
and risk appetite.

b.    
Following
up on management’s implementation of risk management policies.

c.    
Ensure
the existence and implementation of an appropriate framework and strategies.

d.    
Taking
steps to foster risk awareness

Risk management
falls under more than one committee, which are the risk management committee
and the audit committee. The risk management committee should be able to oversee
Unlimited Airway’s most critical financial risks and mitigate these risks. They
identify and evaluate the key financial risks, implement appropriate management
of these risks and enforce through policies and procedures established. On the
other hand, the audit committee should be able to oversee the policies and
processes relating to the financial statement, the financial reporting process,
compliance and auditing. The audit committee, usually in coordination of the risk
management committee, will perform the internal audit function as well as
monitor ongoing compliance issues and matters to produce risk assessment
plan.  Both parties should ensure that
the risks are identified and managed before reporting it to the board
directors.

1.1.   
Risk Management Practices (With
reference to Diagram 1)

Within the Risk
Management Policy Framework, a simplified Risk Management Process is adopted to
allow easier communication, understanding and application by all levels of staff.
The steps are to establish goals and context, identify risks, analyze risks,
evaluate risks, treat the risks, monitor and review.

a.     Establish
goals and context

Before risks can
be clearly understood and dealt with, it is pivotal to understand the purpose
of it and the significance of any given uncertain event. For example, in the
context of Unlimited Airway, it will be well-prepared with risk assessment plan
ready to deal with uncertainties in the event of economic crisis and
fluctuation.

b.     Identify
the risks

The risk
management team are required to uncover, recognize and describe risks that
might affect Unlimited Airway’s projects or its outcome. The risks involved can be credit, market
and operational risks. In Unlimited Airway’s case, the company encountered credit and market
risks. Examples of these risks include Unlimited Airway facing credit risks if
the Great Flight fails which causes no or late coupon payout of the bonds
invested and company encountering market risks as loss of sales and changing variable
interest rate may happen in the event of economic downturn.

c.Analyze
& Evaluate the risks

Once risks are
identified, likelihood and consequence of each risk should be determined.

To examine the
likelihood and consequence of each risk:

·      
Use
of likelihood scale (With reference to Diagram 2)

·      
Use
of impact scale (With reference to Diagram 3)

By using
likelihood and impact scale, the priority of the risk can be evaluated by
combining the effects of likelihood and impact of consequences. The greater the
combined score of the parameters, the higher the risk factor should be
prioritized for mitigation. If the risks are small or acceptable, they can be continued
with minor adjustments/treatments. However, they should be continually
monitored going forward. If the risk is big, it should be mitigated at priority
before executing the original plan.

d.     Treat
the risks

This is referred
to as Risk Response Planning. At this step, the management team has to assess
the highest ranked risks and set out a plan to treat or modify these risks to
achieve acceptable risk levels. Risk mitigation strategies, preventive plans
and contingency plans are created. The highest rated risks should be addressed
as a matter of urgency. While selecting the most appropriate risk treatment,
the cost of implementing each activity must also be taken into consideration.

There
are various options to treat the risks. It includes:

·      
Avoid – deciding not to proceed with the activity that introduced
the unacceptable risk, choosing an alternative more acceptable that meets the
business objective or choosing an alternative less risky approach or process.

·      
Reduce – implementing a strategy that is designed to reduce the
likelihood or consequence of the risk to an acceptable level, where elimination
is considered to be excessive in terms of time or expense.

·      
Share or Transfer – implementing a strategy that
shares or transfers the risk another party. The third party accepting the risk
should be aware of and agree to accept this obligation. In the context of
Unlimited Airway, insurance can be understood as a protection against risks it
is exposed to. In this case, the insurance company accepts this obligation and
accept the risks on behalf of the Unlimited Airway.

·      
Accept – making an informed decision that the risk rating is at an
acceptable level. No further action is taken to treat the risk, however,
ongoing monitoring is recommended

 

e.    
Monitor and Review 

This is the step
where the management team is required to take project risk register and use it
to monitor, track and review risks. They have to document any actions or events
that change the status of a risk, for example:

·      
Changes
to a risk evaluation as a result of improvements in controls

·      
A
control breach and near miss should be logged at the time of the event

·      
A
new risk that has been identified

As risk are not
eliminable, some risks still remained. Factors that might affect the
probability and consequences of an outcome may change, as the factors that will
affect the suitability or cost of various treatment strategies. Therefore,
Review is an integral part of risk management treatment plan. Hence, Unlimited
Airway made sure to revisit their risk management policy frequently to ensure efficiency.

1.2.  
Business continuity and disaster recover
planning

Business
Continuity Plan (BCP) refers to maintaining business function or quickly
resuming them in the event of a major disruption. It outlines procedures and
instructions an organization must follow in the face of disasters. Disaster
recovery plan focuses mainly on restoring IT infrastructure and operations
after a crisis.

There are certain
things that need to be included in the BCP:

·      
The
recovery strategies

·      
Business
contingency planning

·      
Property
protection against hazards

·      
Site
map documentation

·      
Resuming
operations

·      
Training

Employees of the
Unlimited Airway have their own roles and responsibilities in the event of
disaster. First of all, the board directors must come together to review the
plan regularly to make sure it is plausible so that the company will still be
able to continue operating. All the employees must be given the opportunities
to review disaster preparation and emergency action plan procedures with their
department head. Mock disaster training must be conducted annually and should
involve police and fire authorities. By implementing this plan, Unlimited
Airway can reduce the impact and cost of disruptions and insure the
unacceptable risks.

1.3.  
Consulting with employees

Consultation with
employees and their health and safety representatives is required at each step
of the risk management process. By drawing on the experience, knowledge and
ideas of its employees,  the Unlimited
Airway is more likely to identify all hazards and choose effective risk
controls.

The employees must
be trained to follow safety instructions and procedures and understand how the
procedures work. They should also be encouraged to report any hazards and
health and safety problems immediately so that risks can be managed before an
incident occurs.

 

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