Monday, 27 October 2014

What Do Disruptions And Chauffeur Knowledge Have In Common?

Chauffeur knowledge is making its way into business dictionaries following a story told by Charlie Munger during his talk about what went wrong with Enron.

After winning the Nobel prize for Physics in 1918, Max Planck went around Germany giving talks. His chauffeur heard the talk so many times that he had it by heart, and so one time, he asked Max Planck if he could give the address. Planck agreed, they changed places, and the lecture came off famously. But then came the question time, with the very first question being one that the chauffeur had no hope of answering. The chauffeur replied: ‘Never would I have thought that someone from such an advanced city as Munich would ask such an elementary question! I'll let my chauffeur answer it.'

If you are a decision maker in an extremely busy airline environment, and are expected to think and act fast, to be persuasive but unable to commit time and effort to understand the topics, the chances are that you can easily slip outside of your circle of competence, the zone of chauffeur knowledge and source of not so obvious causes of disruptions. This doesn't have to be as bad as it may look like as long as you can recognise when you are outside this circle and are open for inputs from those with real knowledge. 

Distinguishing between those with real and chauffeur knowledge in real life is difficult. Here are some hints.

How big is your circle of competence and how often are you out of it?

Thursday, 16 October 2014

Recovering Disruption Losses Caused By Third Parties

This time the problem and the solution are described in Recovering Disruption Losses Caused By Third Parties as a SlideShare Presentation and contains some additional information. Hope you'll find it useful.    

My Renewed Website is Online!

I have just launched a renewed website Beyond Airline Disruptions. It is designed to promote my business activities focused on unlocking hidden potential for cost saving and improvement in airline profitability.

We at Beyond Airline Disruptions are helping airlines to understand why their plans do not work on the go. We identify, analyse, model, and measure the true cost and causes of operational disruptions in order to minimise their impact on airline financial and operational performance and assist airlines in recovering disruption losses caused by third parties.
Visit Beyond Airline Disruptions to learn more.

Wednesday, 1 October 2014

Why Do the Existing Cost Saving Projects Have Little Chance to Succeed and What Can Be Done About It

Never before has there been so much hype about cost saving, and never before has there been less evidence of it. We often mistake knowing the inexhaustible volume of reported data for understanding the costs, forgetting that it is not just facts that are important, but the intertwined threads and people that connect them to their ever-changing origins.

To find out more follow this link to my SlideShare presentation 'Managing Costs We Don't Understand'.

Saturday, 26 July 2014

Disruptive Overconfidence

We systematically overestimate our knowledge and our ability to predict – on a massive scale. The overconfidence effect does not deal with whether single estimates are correct or not. Rather, it measures the difference between what people really know and what they think they know. What’s surprising is this: experts suffer even more from overconfidence than laypeople do. If asked to forecast oil prices in five years’ time, an economics professor will be as wide of the mark as a zookeeper will. However, the professor will offer his forecast with certitude. 
("The Art of Thinking Clearly", Rolf Dobelli)

Tuesday, 22 July 2014

Can ‘Happiness Blanket’ Really Improve Passengers’ Experience?

British Airways has started trialling a hi-tech blanket – known as the ‘happiness blanket’ – which uses neuro-sensors to measure the electrical fluctuations in the neurons of passengers’ brains, and changes colour depending on their state of mind.' 

Frank van der Post, British Airways’ Managing Director, Brands and Customer Experience, commented: “This is the first time this technology has been used by any airline to help shape how service is delivered onboard an aircraft.” He explained that the happiness blanket “is another way for us to investigate how our customers’ relaxation and sleep is affected by everything onboard, from the amount of light in the cabin, when they eat, to what in-flight entertainment they watch and their position in the seat.”

Wouldn't this 'happiness blanket' be more useful to measure the mood of (potentially the same) passengers experiencing disruptions on ground? Or at least, to protect them against cold if needed.

Wednesday, 16 July 2014

One Way of Solving Big Problems

Have you ever asked someone who doesn't know much about your business, even a child, how they see the solution to the problem you've been stuck on for some time? The chances are that their uncluttered, freer thinking will resonate more closely with the right answer. You may be surprised what they can come up with.

The only effort you have to make is to explain your big problem in a simple way so that even a child can understand it. The effort put in simplifying it will often present you with the answer you were eagerly searching for, but couldn't hear from the noise of cluttered data and other unnecessary inputs.

Monday, 7 July 2014

Risk vs Uncertainty and How to Make Better Predictions

Predicting the company's future has never been trickier than today. In the age of accelerating changes, even the most comprehensive annual reports could be misleading and cannot serve their purpose.

We can make predictions more reliable by understanding the difference between risk and uncertainty. Companies that are able to make this distinction usually perform better than others. In practical terms, they are more capable of narrowing the gap between plans and reality and can tolerate uncertainty with greater ease. 

'Risk means that the probabilities are known. Uncertainty means that the probabilities are unknown.
On the basis of risk, you can decide whether or not to take a gamble. In the realm of uncertainty, though, it’s much harder to make decisions. The terms risk and uncertainty are as frequently mixed up as cappuccino and latte macchiato – with much graver consequences. You can make calculations with risk, but not with uncertainty. The 300-year-old science of risk is called statistics. A host of professors deal with it, but not a single textbook exists on the subject of uncertainty. Because of this, we try to squeeze ambiguity into risk categories, but it doesn't really fit.' 
'This confusion contributed to the chaos of the financial crisis in 2008.’    
(‘The art of Thinking Clearly’, Rolf Dobelly)

Even if we learn how to differentiate between risk and uncertainty we still need to transform this understanding into practical decisions. To do that, we need to acknowledge the existence of self-induced uncertainties and learn how to 'read' them. Operational disruptions could be a good starting point as a measure of airline ability to cope with unknown. Being able to grasp even a bit of this knowledge can sometimes make the difference between business survival and demise. This is at the core of my work.

Monday, 30 June 2014

The Cost Of 'Delay-Repay' Promises

This month was marked by two interesting strategic moves towards compensating air and rail passengers experiencing delays.

While air passengers can expect to be able to claim compensation through the courts for flights delays that happened as long as 6 years ago, rail passengers are promised an automatic refund for journeys delayed by 2 minutes or more (3p per minute for delays between 2 and 29min - more afterwards).

Let's go back to reality.

Air passengers have almost zero chances of taking advantage of this regulatory 'improvement' as airlines struggle to track records even for day-old 'cases'. Which is why CAA advises disrupted passengers 'to lodge their claim as soon after the flight as possible'. No extra costs for airlines from this promise. Guaranteed!

As for train passengers, the reality check to be carried out by National Express c2c trains will tell if the multi-million investments in stations and additional trains will pay off and keep this joyful promise alive. Not to forget the potential burden of £100 million in compensation for delays that passengers in Britain miss out to claim each year.

Which of these promises would you trust more as a passenger?

Thursday, 26 June 2014

How a By-Product Of Digital Revolution Can Lead to Business Inefficiency

'One of the unfortunate by-products of digital revolution is our ability to process and communicate that which is numerical, sequential, rational, proportional and intuitive has leaped ahead of our real understanding of a human psychology and a human nature, a kind of imbalance that is created, which in many cases led to inefficiency in value creation that business can achieve.' 

(Transcript from Rory Sutherland's talk Rediscovering a Lost Science

Tuesday, 24 June 2014

How To Recognise Undesired Changes In Planned Costs And Keep Them Under Control

A long time ago I was involved in a cost saving project for a major airline. I vividly remember when the senior executive asked me to find out reasons behind an unexpected increase in crew costs compared with the annual plan. They couldn't figure it out.

I rushed to collect as much information as possible, searching high and low, left and right, and managed to prepare the best answer I possibly could at that time.

He looked pleased, but deep in my heart I knew that it was not completely right - so much data but not of the kind that can truly answer this question. There was a column missing in management reports that would explain what distorts planned costs and make it more clear what needs to be done to squeeze these unwanted distortions to a tolerable level.

At the time, I was not aware of the impact this question would have on my career. The idea about adding the missing column into management reports never left my mind and in many ways shaped my future work. 

Had I known then what I know today, I would tell him that:

Root causes of events that trigger increase in costs have to be recognised and necessary corrections made on the go.

To get there you should focus on the most costly disruption events.

You need to start with numbers and from there, let the events and people involved be your guide.

They will lead you, sometimes through rocky roads, to otherwise invisible cost origins that are enforcing or weakening the company's structure.

If you do this, you will create new bridges of communication, and people will start understanding their roles in a new way.

The answer to your question about reasons behind undesired changes in crew or any other cost will then become available to you directly and constantly.  

Thursday, 19 June 2014

What are the fastest and steadiest growing costs in airline industry?

Thinking of fuel? Nope!

The fastest and steadiest growing costs in airline industry are the costs of operational disruptions, representing the mismatch between companies' plans and actual results. They can reach up to 30 percent of operating costs (for major hub carriers) – partly as an investment in punctuality through built-in buffers meant to offset the negative effects of disruptions (additional block times, more aircraft, more fuel, more crew, more ground personnel, more aircraft stands, more spare parts, more equipment, more airport space, and more human effort), and partly through daily disruptions. Almost every single cost item in financial reports contains a part of these costs. Still, disruption costs are not officially recognised as a cost category - not because they don't exist, but because their multidimensional and dynamic nature doesn't fit into the linear frame of inherited cost structures.

Inability to understand origins of disruption costs is the main obstacle to the effective cost control. Being 'friends' with disruptions and understanding their messages is a rare if not the only opportunity for planners and decision makers to tune into reality, even if only occasionally.