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Director, Risk Management and Insurance
BAE Systems Inc.
Winthrop, Mass.

Operations Manager, Physical Asset Risk Control
BAE Systems PLC Winthrop, Mass.

Manion, Mann and the Formula

With $36.2 billion in sales in 2009, BAE Systems Inc. ranks as the world's second-largest defense, security and aerospace company.

With some innovative and proactive risk management measures, R. Mark Manion and Larry Mann are ensuring that the company's customers in more than 100 countries do not encounter an interruption in the products and services they count on from the company.

A proprietary BAE-developed software system that Manion and Mann have modified has been critical in identifying potential business interruption problems for the company. In addition, the risk management workshops they conduct annually have directly led to beneficial loss prevention for BAE Systems.

Manion is director-risk management and insurance at Arlington, Va.-based BAE Systems Inc. Mann is the operations manager for the physical asset risk control group at parent company BAE Systems P.L.C., in Farnborough, England.

The enterprise loss estimation software system that BAE Systems developed--and Manion and Mann improved and simplified--allows risk management to develop maximum foreseeable losses by product line and site. As a result, BAE Systems can quantify risk from a property damage and business interruption perspective so the company can prioritize capital for risk improvement at a corporate level.

The information also is valuable to the BAE Systems business continuity teams because it highlights for them the company's exposures and their interdependencies, allowing them to identify and justify contingency plans.

"Most client capabilities in this regard allow analysis only to the location/site level," said Mark Driscoll, vice president of XL Global Asset Protection Services, BAE Systems' property loss control consultant.

"In these cases, clients are not able to get a true sense of downstream/upstream impacts of fire, floods and other loss events that occur at one location to the corporation's ability to conduct business operations," Driscoll said.

But BAE Systems' process "is quite a step forward in this regard," because it provides "a truer picture" of the impact of implementing risk management strategies at locations deemed strategically critical to the corporation, he said. "This allows the BAE risk and insurance department to more effectively communicate with business leaders to gain buy-in which assists in risk reduction activities."

The system also provides more granularity than traditional approaches, which helps risk management control insurance costs, according to Mann. "On larger facilities, it allows collection of loss estimates at zone level--which could be one building or a collection, rather than entire site--to give a more realistic estimate of maximum foreseeable losses," he said.

That analysis aids BAE Systems in curbing insurance costs, because it justifies the company's decision to purchase less insurance, he said.

Manion and Mann also are keen promoters of the risk management culture. To that end, they annually co-host two-day workshops that focus on a topic particularly important to the risk management profession and BAE Systems. All levels of BAE Systems management participate in the workshops.

Not many risk management departments at other companies are as proactive, Driscoll said.

In recent years, workshop topics have included pandemics, natural catastrophes, enterprise-wide property risk management, the philosophy of a highly protected risk, and property loss prevention.

The 2006 workshop on natural catastrophes led to several earthquake loss mitigation measures at BAE Systems sites with earthquake exposures, which are located in California primarily. Those measures included seismic gas valves for shutting off natural gas supplies and sway bracing on sprinkler systems to prevent pipes from breaking during a quake, which would expose the facility to a much greater fire risk.

The measures worked as designed when a company facility in Ontario, Calif., was rocked by an earthquake centered in nearby Chino Hills in July 2008. While the 5.5 temblor caused significant damage in Southern California, the Ontario facility did not sustain any losses.

Manion and Mann promote a strong risk management culture in other ways, too.

For example, Manion said: "Larry and I have been focused on identifying and developing a network of colleagues, within BAE's North American operations, to provide for a team that is constantly looking for ways to improve upon the loss estimation process."

--Dave Lenckus

Executive Director
WatchTower International
Christchurch, New Zealand

Watching Out for the Silos

The International Civil Aviation Organization has growing concerns about airline and airport safety problems attributable to operators' multiple silos of information.

ICAO's concern is not that airline and airport operators cannot anticipate risk events. The organization also acknowledges that those losses and incidents often occurred when operators were fully compliant with regulations.

The issue is that airlines and airports manage the various elements of their governance, risk and compliance profiles separately, aided by a variety of management systems.

That approach is understandable, because each of the areas that operators are managing--including civil aviation regulation and safety--requires a high level of expertise, said Aarron Spinley, executive director of WatchTower International in Christchurch, New Zealand.

Even when management is outstanding, though, the operator loses the potential of understanding and managing to the interdependencies of all of those areas. Those interdependencies are at the heart of potential systemic risk for operators, as well as at the industry level, Spinley said.

To unite airlines' and airports' management of all areas of governance, risk and compliance, WatchTower has developed the WTI-Navigator system. Navigator brings into a single platform the management of civil aviation regulation and safety systems, as well as enterprise risk management and legislative compliance. Those areas encapsulate every aspect of an operator's organization: its boardroom, its core operations and its corporate services, such as information technology, finance, legal services, human resources and occupational safety and health.

The primary benefit is moving away from multiple systems, which fail to capture the interdependencies of risks, he said.

As a result, when the operator's environment changes, only one area of the organization might detect that development. Because multiple management systems are not connected across an enterprise, many relevant managers are not provided critical information.

But, a single, specialist platform allows "interdependencies to be built up between multiple controls and multiple risks, controls to controls, risks to risks, and the overall profile against organizational objectives and strategy," Spinley said.

"One specific example we use to discuss the failings of silos is a Singapore Airlines crash in Taipei in October 2000," when a Boeing 747-400 crashed into construction equipment sitting on a closed runway that the pilot mistakenly had attempted to use for takeoff during windy and rainy conditions, Spinley said. The crash killed 83 people.

"This resulted from next-to-zero visibility and an information gap between the operational teams, which failed to address a changed operating environment," he said.

"A simple example might be the failure of a safety light at an airport hangar, detected only by a maintenance team," he said. "In isolation, as a maintenance task, it is of little consequence."

This seemingly small failure is connected to issues of health and safety and regulation compliance, however, and has a much broader impact, he said.

Using a single systems management platform, operators not only would eliminate information silos, they also would reduce the costs associated with maintaining multiple systems, including software licensing, maintenance, internal information technology resources, external consulting resources and staff training, Spinley said.

Other systems that Navigator can replace are electronic safety incident reporting, occupational health and safety, system action improvement reports, hazard reporting systems, manual/semiautomated legal compliance reporting, incident management, capital project risk systems, insurance claims management, staff surveys and others.

Some operators have favorite systems that they choose to integrate instead of replace. WTI-Navigator can also cater to those requirements.

Spinley said Brett Watson, an equal owner and founder of WatchTower, has been equally involved in developing Navigator. He has a systems background and has been responsible for analysis of existing operating environments and system customization and testing.

--Dave Lenckus

Flying into the Ranks of Leadership

It's been a rapid flight into the leadership ranks for New Zealander Aarron Spinley, a former Marsh executive and now executive director of WatchTower International, a consulting firm to the aviation industry.

Spinley, described as an expert with the requisite degree of "high intensity," in the words of client Roberto Martinelli, is known for instilling trust. From 2007 to 2010, Spinley worked for Marsh before leaving for WatchTower in March. Young, aggressive and steeped in the techniques of aviation safety, Spinley isn't lacking for initiative. He's a member of multiple risk management organizations and a dozen or so aviation-related organizations.

His firm's recent white paper, titled "The Case for Integrated Risk and Compliance Management Platform in the Aviation Sector," explores the silos in the aviation industry, and the many governance, regulation and compliance challenges facing it. An avid blogger, Spinley is the author of the "Risk & Reward Equation" blog, where he opines on issues from aviation to governance to enterprise risk management to just plain old common sense.