The Acronyms
The BAA is the British Airports Authority, owner of some of the UK's largest airports, and BA is British Airways, one of the world's premier airlines. Unfortunately, BAA + BA does not quite add up to A+. T5 is the new fifth terminal at Heathrow Airport London, one of the world's busiest airports. In this case, BAA can be considered as the architect and builder of a new house (T5) for a homeowner (BA) - from experience many of us are bitterly aware of the strains that can occur in such a relationship.
Heathrow Terminal 5
T5 is an engineering and architectural marvel. Costing some $8.5 billion, it was the largest construction project in Europe in the early 21st century. Building this new terminal meant constructing new roads, new subway lines, and new facilities to handle the next generation of super-sized aircraft, in the middle of, and without disrupting, one of the busiest airports in the world. The new terminal is considered 'state of the art', with the IT component alone costing some $500 million.
T5 Risk Management
From the outset, BAA was very aware of the risks that they were running with such a huge project. Before starting planning for the project they analyzed several 'big project' disasters and came to an unusual but bold conclusion - BAA could not afford to outsource risk management to its contractors!
To meet this challenge, BAA developed what has become known as T5 Planning. This basically means that BAA would manage the risks in all of the T5 project activities and its contractors would deliver their assigned components to the highest quality that they could, without adding any 'risk buffer'. In order to implement this distinctive approach, BAA developed a unique 'T5 Agreement' for its contractors which basically delved into the underlying cost structures of their approved contractors, paying them cost + a standard profit margin plus a bonus for delivering exceptional quality. Contractors were not allowed to price risk into their quotations.
The T5 Planning approach worked. The new terminal, with all of its complex component parts, was delivered on time and on budget, with an industry leading safety record, even though thousands of sub-contractors were involved.
If this is a risk management triumph, what went wrong on Day One!
Before discussing what went wrong, it is worth standing back for a little theory.
Queuing Theory
One of the major reasons for building T5 is that Heathrow is full, and is often claimed to be running at 100% capacity. BA's implementation plan for T5 was, in a so-called 'soft-launch', to move some 50% of its existing operations from its other two terminals on the first day progressively consolidating all of its operations into the new terminal over a number of months. In effect, BA had split its workforce at a critical stage in its implementation. A BA spokesperson has been quoted as saying that the initial target for T5 was to run at 87% capacity (measured in passenger arrivals and departures).
Anyone with a rudimentary knowledge of queuing theory knows that capacity utilization rates of over 85% are unsustainable in the long term because customer waiting times grow exponentially beyond that point. In real life, people queuing in the supermarket get very annoyed if there is a slow trainee on their till - they have to wait much longer. For T5, staff were, reportedly, allocated only 4 'familiarization days' with the new systems and layout.
Utilization rates of over 85% are achievable for short periods, provided that everything goes well, i.e. service staff can cope. However, if something goes wrong the system can quickly go to 'hell in a handbag' [or in this case in a missing suitcase].
And things did go wrong on the first day of T5's operation!
Bright and Early
The first flight was scheduled to arrive at the new terminal around 4:45 am on Thursday 20 March 2008. However, the first 'problem' appeared earlier around 4 am when the new car park opened - security staff couldn't find their parking spaces in the new facilities [I guess car parking was a skill that had not been in the T5 training plan?].
As a result, security in the main building was undermanned for the first shift, which meant that baggage handlers (queuing for new security checking procedures and probably also having difficulty parking their cars) were late arriving to man the brand new, shiny, state of the art baggage system. By this stage, flights were landing and baggage was building up on the carousels - soon too many bags to off-load with minimal staff. At some point, the new 'intelligent' baggage system decided 'enough was enough' and shut itself down to protect itself. After that, the deluge.
To compound the problem at T5, new procedures were being used to ferry baggage from BA's existing terminals for passengers in transit. Since this baggage could not be loaded into the system, problems started to back up, planes had to be cancelled due to the knock-on effect and passengers began to get very annoyed. With mobile phones, irate passengers were contacting news outlets with tales of chaos and the first day quickly became a PR disaster. Passengers were forced to travel without their baggage, or to find a room in nearby hotels rapidly filling up to capacity. At this stage the first of many PR snafus occurred when BA began to place limits on compensation for overnight delays: creating even more irate passengers!
The next few days were not much better; insufficient staff to clear the backlog meant that normal operations were overloaded and so more days of chaos ensued. Over the weekend, BA finally brought in hundreds of staff to clear the backlog and claimed by Monday to be winning the battle - we wait to see.
The Fall Out
Following the mid-week defeat of the national soccer team, and with Paris Hilton missing in action, the British media (not noted for its sobriety) went into one of its periodic bouts of self-flagellation, declaring T5 the final proof of the end of the British Empire.
While not playing down what appears to be an extremely bad example of project implementation, there is a need for some sense of proportion. For example, over the first five days of operation of T5, some 360 planes had to be cancelled, whereas during the storm of early February 2008, 900 planes had to be cancelled in a single day at Chicago O'Hare airport. We all (staff, passengers and air traffic controllers) know what to do when there is a major storm, we just don't know what to do at a new airport!
People Risk
Basel II defines Operational Risk as "the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk but not strategic or reputational risk."
In the case of the T5 opening, while there were some apparently minor problems with systems and processes, the major risk appears to have been 'people'. Note this is true also in financial services where 'rogue traders, such as Jerome Kerviel of Societe Generale, can cause massive losses AND severe damage to a firm's reputation.
People are infuriating. At the same time, they can be very clever and very dumb [how many Mathematicians does it take to change a light-bulb - an 'irrational' number]. They can be both very flexible and extremely obdurate. The staff prepared to work over the weekend to save T5 reflects exactly what happened during Hurricane Katrina and the 9/11 attack in New York. People will go to extraordinary lengths to help in a real disaster. Yet media reports suggest that not all working practices in T5 had been agreed beforehand with obstinate union members.
People tend not to react well in unfamiliar situations, they will probably do the right thing eventually but it will take longer - this is the so-called 'learning curve'. A service environment that is already under strain cannot afford too many people learning on the job at the same time. There is a lesson here for new products in the financial services area?
As a result, from a risk management perspective, it is very difficult to measure people risk, since performance can vary wildly over individuals and over time - the 'variance' is large. Maybe measuring people risk is a minor problem; managing it is the real skill.
Lessons to be learned
It is probably too early to draw too many lessons from the T5 fiasco, as the patient is still recovering and an analysis, stripped of emotion, has not yet been completed.
However, it is already obvious that no matter how much a complex system has been tested, no matter how detailed the planning has been, no matter how much training is undertaken, people are often the weakest link in any project.
In a few months' time, as staff and passengers become familiar with the new systems and procedures, T5 will, hopefully, be appreciated for the success that it deserves to be. The opening will be remembered as a major blunder, heads will have rolled and the media will have moved on.
For risk managers, however, T5 should become a classic case study on that most elusive of risks - people risk. And it should also become a case study on how NOT to manage a crisis!
