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Enterprise risk management in the airline industry - risk management structures and practices
This thesis was submitted for the degree of Doctor of Philosophy and awarded by Brunel University London.This thesis expands on the literature in the under-researched field of airline risk management by exploring organisational structures and practices of airline risk management systems and their technical and institutional drivers. In particular, it focuses on the phenomenon of Enterprise Risk Management (ERM) and its alignment to
the requirements of airline business contexts. The theoretical framework informing this study combines structural contingency theory with two strands of institutional theory, namely old institutional economics and new institutional sociology. In this thesis, the phenomenon of risk management is investigated in situ as an organisational practice through a two-stage empirical study. Firstly, an exploratory field study was undertaken
in a panel of ten international airlines. Secondly, the field study was complemented with findings from two explanatory case studies. This study explains how in developing risk management systems airlines balance the
sometimes conflicting technical and institutional demands of their respective task and institutional environments. The adoption and implementation of ERM in airlines are found to be driven primarily by coercive and normative pressures, and expectations of improved organisational effectiveness and efficiency. This study additionally improves general understanding of the nature of ERM and its coupling and fluidity in the
organisational settings of airlines. It lends evidence for systematic variations in roles, uses, and organisational design choices of ERM systems. It shows the interdependent nature of airlines’ ERM systems and other management systems. The study also demonstrates that the adoption of ERM in airlines drives development of new institutions, rules, and routines for comprehensive management of risks. Consistent with the tenets of contingency theory, this study conveys lack of a universally appropriate design of an airline ERM system.
The main contribution of this thesis is to assess airline risk management systems, identify core drivers of effective risk management practice, and provide a framework with the aim of guiding airlines in the development of enterprise-wide risk management approaches aligned with the requirements of their institutional and technical contexts. Furthermore, this research overcomes the limitations of previous, mostly quantitative studies of ERM coupling and dynamics in organisations, as it explores and explains the
structures, practices, and rationales of airline risk management systems within wider organisational contexts through the use of qualitative methodologies
OPERATIONAL RELIABILITY AND RISK EVALUATION FRAMEWORKS FOR SUSTAINABLE ELECTRIC POWER SYSTEMS
Driven by a confluence of multiple environmental, social, technical, and economic factors, traditional electric power systems are undergoing a momentous transition toward sustainable electric power systems. One of the important facets of this transformation is the inclusion of high penetration of variable renewable energy sources, the chief among them being wind power. The new source of uncertainty that stems from imperfect wind power forecasts, coupled with the traditional uncertainties in electric power systems, such as unplanned component outages, introduces new challenges for power system operators. In particular, the short-term or operational reliability of sustainable electric power systems could be at increased risk as limited remedial resources are available to the operators to handle uncertainties and outages during system operation. Furthermore, as sustainable electric power systems and natural gas networks become increasingly coupled, the impacts of outages in one network can quickly propagate into the other, thereby reducing the operational reliability of integrated electric power-gas networks (IEPGNs).
In light of the above discussion, a successful transition to sustainable electric power systems necessitates a new set of tools to assist the power system operators to make risk-informed decisions amid multiple sources of uncertainties. Such tools should be able to realistically evaluate the hour- and day-ahead operational reliability and risk indices of sustainable electric power systems in a computationally efficient manner while giving full attention to the uncertainties of wind power and IEGPNs. To this end, the research is conducted on five related topics.
First, a simulation-based framework is proposed to evaluate the operational reliability indices of generating systems using the fixed-effort generalized splitting approach. Simulations show improvement in computational performance when compared to the traditional Monte-Carlo simulation (MCS). Second, a hybrid analytical-simulation framework is proposed for the short-term risk assessment of wind-integrated power systems. The area risk method – an analytical technique, is combined with the importance sampling (IS)-based MCS to integrate the proposed reliability models of wind speed and calculate the risk indices with a low computational burden. Case studies validate the efficacy of the proposed framework. Third, the importance sampling-based MCS framework is extended to include the proposed data-driven probabilistic models of wind power to avoid the drawbacks of wind speed models. Fourth, a comprehensive framework for the operational reliability evaluation of IEPGNs is developed. This framework includes new reliability models for natural gas pipelines and natural gas-fired generators with dual fuel capabilities. Simulations show the importance of considering the coupling between the two networks while evaluating operational reliability indices. Finally, a new chance-constrained optimization model to consider the operational reliability constraints while determining the optimal operational schedule for microgrids is proposed. Case studies show the tradeoff between the reliability and the operating costs when scheduling the microgrids
Node-level resilience loss in dynamic complex networks
In an increasingly connected world, the resilience of networked dynamical systems is important in the fields of ecology, economics, critical infrastructures, and organizational behaviour. Whilst we understand small-scale resilience well, our understanding of large-scale networked resilience is limited. Recent research in predicting the effective network-level resilience pattern has advanced our understanding of the coupling relationship between topology and dynamics. However, a method to estimate the resilience of an individual node within an arbitrarily large complex network governed by non-linear dynamics is still lacking. Here, we develop a sequential mean-field approach and show that after 1-3 steps of estimation, the node-level resilience function can be represented with up to 98% accuracy. This new understanding compresses the higher dimensional relationship into a one-dimensional dynamic for tractable understanding, mapping the relationship between local dynamics and the statistical properties of network topology. By applying this framework to case studies in ecology and biology, we are able to not only understand the general resilience pattern of the network, but also identify the nodes at the greatest risk of failure and predict the impact of perturbations. These findings not only shed new light on the causes of resilience loss from cascade effects in networked systems, but the identification capability could also be used to prioritize protection, quantify risk, and inform the design of new system architectures
New Directions in Compensation Research: Synergies, Risk, and Survival
We describe and use two theoretical frameworks, the resource-based view of the firm and institutional theory, as lenses for examining three promising areas of compensation research. First, we examine the nature of the relationship between pay and effectiveness. Does pay typically have a main effect or, instead, does the relationship depend on other human resource activities and organization characteristics? If the latter is true, then there are synergies between pay and these other factors and thus, conclusions drawn from main effects models may be misleading. Second, we discuss a relatively neglected issue in pay research, the concept of risk as it applies to investments in pay programs. Although firms and researchers tend to focus on expected returns from compensation interventions, analysis of the risk, or variability, associated with these returns may be essential for effective decision-making. Finally ,pay program survival, which has been virtually ignored in systematic pay research, is investigated. Survival appears to have important consequences for estimating pay plan risk and returns, and is also integral to the discussion of pay synergies. Based upon our two theoretical frameworks, we suggest specific research directions for pay program synergies, risk, and survival
Why Catastrophic Organizational Failures Happen
Excerpt from the introduction:
The purpose of this chapter is to examine the major streams of research about catastrophic failures, describing what we have learned about why these failures occur as well as how they can be prevented. The chapter begins by describing the most prominent sociological school of thought with regard to catastrophic failures, namely normal accident theory. That body of thought examines the structure of organizational systems that are most susceptible to catastrophic failures. Then, we turn to several behavioral perspectives on catastrophic failures, assessing a stream of research that has attempted to understand the cognitive, group and organizational processes that develop and unfold over time, leading ultimately to a catastrophic failure. For an understanding of how to prevent such failures, we then assess the literature on high reliability organizations (HRO). These scholars have examined why some complex organizations operating in extremely hazardous conditions manage to remain nearly error free. The chapter closes by assessing how scholars are trying to extend the HRO literature to develop more extensive prescriptions for managers trying to avoid catastrophic failures
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