Human Resource Development and Transformation; Risk Management; and Procurement.

A briefing to the Portfolio Committee on Public Enterprises

Adv. Sandra CoetzeeExecutive CEO Office (Acting CEO) ,

SAA

INTRODUCTION

RISK MANAGEMENT

BACKGROUNG

• We intend providing the Portfolio Committee with an overview of how significant

risks are indentified, managed and monitored within SAA in order to ensure

minimal adverse impact on the operations.

• This section of the presentation focuses on:

Governance Structures incorporating roles and responsibilities

Approach to Enterprise Risk

Risk Management Process

Concluding Remarks

OVERVIEW

• Risk management activities are governed by the Board approved Enterprise Risk

Management Policy and Framework and the Financial Risk Management Policy.

• The Board Committees with responsibility for risk oversight are:

Financial Risk Management and Investments Committee (FRIC)

Audit Committee

• Operational Committees (EXCO’s committees) with responsibility for risk management are:

Treasury Working Committee (TWC)

Financial Risk Sub-Committee (FRSC)

Emerging Risks & Crises Committee (ERCC)

Anti-Fraud Committee (AFC)

Compliance Forums

• Management

GOVERNANCE STRUCTURES

• Financial Risk Management and Investments Committee (FRIC)

Assists the Board to discharge its responsibilities in relation to corporate financial and

investment accountability, and the associated risks in terms of management assurance and

reporting.

• Audit Committee:

Assists the Board to discharge its responsibilities in relation to adequate systems of

financial, risk management and internal control including financial reporting and liaison

with auditors.

• Treasury Working Committee (TWC) :

Executes all financial market transactions (currency and commodity markets).

• Financial Risk Sub-Committee (FRSC)

Decides on hedge strategy and recommends this to FRIC via EXCO for approval.

ROLES AND RESPONSIBILITIES

• Emerging Risks & Crises Committee (ERCC)

Ensures business continuity during adverse conditions.

• Anti-Fraud Committee (AFC)

Assists with implementation of fraud prevention, detection and response measures including the

investigation of alleged irregularities, fraudulent and corrupt activities.

• Compliance Forums

Ensure compliance with industry regulations and overall legislative and regulatory compliance.

Examples include a PFMA Forum, Emergency Response Committee (aviation safety), etc.

• Management:

Responsibility to design and implement appropriate risk and compliance management systems.

This responsibility is incorporated in performance agreements of the managers.

• Internal Audit Function:

provides assurance on risk management processes.

ROLES AND RESPONSIBILITIES Cont’d

• Risks are managed at three levels:

Strategic

Divisions / Subsidiary / Functional

Project

• Significant risks are determined by using a five by five risk assessment matrix

(impact and probability)

NB: Template on the next slide .

• The risk assessment matrix incorporates financial and non-financial elements.

APPROACH TO ENTERPRISE RISK

RISK ASSESSMENT MATRIX: IMPACT DESCRIPTION

Level Outcome Description Financial (R’million)

Business Interruption Reputation Legal / Regulatory

Natural Environment

Safety & Health

(Employees and

communities)

Catastrophic Disaster with potential to lead to collapse of business and are fundamental to the achievement of strategic objectives.

>500 In excess of 20 days Prolonged international, regional and national condemnation

Loss of operating license

Material release with significant detrimental effects

More than 5 fatalities

Critical Critical events which can be endured but which may have a prolonged negative impact and extensive consequences.

>250 In excess of 10 days up to 20 days

International criticism

Board and/or management guilty of business irregularities

Material released but without real or perceived detrimental effects

More than one (1) but less than 5 fatalities

Serious Major events, which can be managed but requires additional resources and management effort.

>125 In excess of 5 days up to 10 days

Serious negative regional criticism

Legal fines Material release contained on-site with external assistance

One fatality

Significant Event which can be managed under normal operating conditions.

>50 In excess of 1 day up to 5 days

Serious negative national criticism

Reprimand by regulatory authorities

Material release contained on-site by staff

Hospitalisation

Minor Events which do not warrant immediate intervention

<5 Below 1 day (Couple of hours)

Adverse national public attention

Reportable non-compliance

Minor material release

Near misses / minor injuries

RISK ASSESSMENT MATRIX: PROBABILITY

Probability Level Description Rating

Almost certain The event is expected to occur in most circumstances. 1

Likely The event will probably occur in most circumstances. 0.5

Moderate The event should occur at some time. 0.2

Unlikely The event could occur at some time. 0.1

Rare The event may occur only in exceptional circumstances. 0.02

• Strategic Risks

Assessed (identified, analysed and evaluated) as part of the annual corporate

planning process.

Use a combination of bottom-up and top-down methodology.

Approved by the Board for inclusion in the Corporate Plan submitted to the

Shareholder (Executive Authority).

Quarterly feedback to the Audit Committee, Board and the Shareholder on

progress in mitigating these risks.

By and large, the sources of the strategic risks lend themselves to legacy issues

and the regulatory environment within which we operate.

RISK MANAGEMENT PROCESS

• Divisional / Subsidiary / Functional Risks

Assessed on an ongoing basis using a facilitated workshop methodology.

Workshops are attended by the GMs/CEOs and their direct reports.

Significant risks in this regard are managed at divisional or subsidiary level.

These are however reported to EXCO regularly and to the Audit Committee quarterly.

• Functional Risks

Mainly high risk areas, including but not limited to compliance with existing and new

legislation like Consumer Protection Act, anti-trust litigation (competition issues), hedging,

etc.

• Project Risks

• Major projects’ specific, including the transactions under section 54(2) of the Public

Finance Management Act (PFMA)

• Assessed on ongoing basis using facilitated workshop methodology with the Project

Teams.

• Significant project risks are reported to EXCO regularly.

RISK MANAGEMENT PROCESS CONT’D

• SAA operates in a highly competitive, risky and complex global

environment.

• Accordingly, risk management plans will always lend themselves to

improvement and this is a focus of the Board and management.

• Airline still has a lot of legacy issues to deal with

• Some of the top risks monitored:

A weak balance sheet;

Onerous contracts; and

Anti-trust litigation relating in various jurisdictions.

Baggage pilferage

RISK MANAGEMENT – CONCLUSION

PROCUREMENT

• SAA’s legacy of PFMA related non compliance extends from both the 2006/7 and 2008/9

AFS:

Irregularities regarding procurement breaches

The 2008/9 external audit management letter indicated:

o poor use of the SAP IT system as a key enabler of compliance, and

o the need to develop a total Procure to Pay and Strategic sourcing capability.

• 3 year plan put in place in late 2009 with the objective of re-establishing the procurement

function

Action plan takes the form of a “portfolio of initiatives” to be executed in order to create

sustainable change on the procurement function within the framework of: Governance,

People and Methods and practices.

This was designed to move the SAA Procurement from its current “Basic” state of maturity

to an “Advanced” state in lie with global best practice.

BACKGROUND

BACKGROUNG

• Short term focus remains compliance with legislation, policy and procedure through the

establishment of a suitably controlled procurement environment.

Short term focus also includes the review of the Delegation of Authority framework and

the use of SAP as a key enabler of compliance and process.

• In pursuit of the above, particular attention is given to compliance to the following sections

of the PFMA:

Section 51(1) (iii): “An accounting authority of a public entity must maintain “an

appropriate Procurement and provisioning system which is fair, equitable, transparent,

competitive and cost effective” Prevent irregular expenditure, fruitless and wasteful

expenditure, losses resulting from criminal conduct, and expenditure not complying with

the operational policies of the public entity.”

Section 55 (2): “The Financial statements must include particulars of and irregular

expenditure and fruitless and wasteful expenditure that occurred during the financial

year”

STATUS – PROCUREMENT CLEAN UP PROJECT

BACKGROUNG

• Medium and longer term focus is on optimisation and driving efficiencies. It includes the

following initiatives:

Enforcement of a centre-led procurement organisation that re-enforces SAA’s policies

and strategies for the procurement function, while delegating individual buying and

tactical execution to purchasing staff to achieve efficiency as well as flexibility in times of

change.

Enhanced use of systems to facilitate efficiency, re-skilling of staff, as well as visibility of

spend and strategic sourcing capability

Demand management

Catalogue buying

Supplier relationship management

Targeted cost savings of R58m for the 2010/11 financial year, and

R73m of annual benefits from 2011/12 and beyond

STATUS – PROCUREMENT CLEAN UP PROJECT CONT’D

BACKGROUNG

1. Maintenance of “an appropriate procurement and provisioning system which is fair,

equitable, transparent, competitive and cost effective”

Review of all tender processes in line with the SAA Procurement and  Supply Chain

manual  to:

o ensure a common understanding of the tender process by all key personnel,

o identify areas where underlying controls need to be strengthened

o ensure consistency in the application of these policies

o highlight any areas where the policy requires revision

Creation of standard tender audit documentation with checklists for each stage of the

tender process to aid self audits throughout the tender process

Implementation of the Internal Audit tender process whereby a minimum of 4 tenders are

audited on a quarterly basis, and all tenders in excess of R50 million in value are audited

on a progressive basis to minimize any potential deviations from policy.

CLEAN UP PROJECT – PROGRESS TO DATE

BACKGROUNG

2. “Prevent(ion) of irregular expenditure, fruitless and wasteful expenditure, losses

resulting from criminal conduct, and expenditure not complying with the operational

policies of the public entity”

Focus is on the prevention of irregular expenditure, incurred when payments are

made against an invalid contract. This can result through the absence of a contract, or

a contract that has expired, or has not been entered into and authorised through a

valid tender process or the provisions of the Delegation of Authority framework.

Activities include:

o Continued review of monthly spend by vendor against the contracts database to identify

irregular spend

o Interaction with Accounts payable prior to payments being made

o Review of all suppliers to identify those with invalid contracts

o Regularisation of suppliers through the BAC in accordance with the BAC mandate  

CLEAN UP PROJECT – PROGRESS TO DATE

• 100% compliance for the 2010/ 11 financial year

Non Audit comments or qualifications in our Annual Financial Statements

• Centre led procurement excellence, including:

Demand management

Category strategic planning and strategic sourcing

Performance management

Streamlined Procure to pay processes

Supplier relationship management

World class workforce and organisation

Optimal use of Technology – SAP SRM/, CLM,

– Proven track record of cost savings and service improvement from our suppliers

– Improve BBBEE rating

LONGER TERM VISION

Spend on BBBEE compliant companies R 4,905,075,391.08

BBBEE procurement spend R 4,320,369,949.07

Total spend R 9,993,387,506.07

Spend on BBBEE compliant companies as a % of Total spend 49.08%

BBBEE procurement spend as a % of Total spend 43.23%

BBBEE – PAST PERFORMANCE

• BBBEE spend for 2009/10 financial year.

• BBBEE spend for the 1st Quarter 2010 is as follows:

Weighted BBBEE compliant companies R 1,366,107,671.46

BBBEE procurement spend R 1,215,136,613.44

Total spend R 2,871,902,562.13

Weighted spend on BBBEE compliant companies as a % of Total spend 47.57%

BBBEE procurement spend as a % of Total spend 42.31%

BBBEE – PAST PERFORMANCE

• SAA is in the process of being re-accredited based on the 2009/10 financial year,

which is targeted for completion by the end of August

HUMAN RESOURCE DEVELOPMENT AND TRANSFORMATION

6892

455

61

8

Headcount by Level

Junior

Level 3

Level 2

Level 1

• Total headcount as at June 2010 = 7973.

Excludes

o 500 fixed term contract staff

o 1181 temporary workers

Includes:

o 2584 SAAT staff (a wholly owned

subsidiary of SAA)

o 557 International staff

o 1041 Airports Operations

o 1500 In-Flight Services

o 931 Flight Operations

o 498 Cargo

• Headcount data by level show 93% of the

workforce represented at a junior level

(bargaining chamber ).

HEADCOUNT

18 - 25 26 - 35 36 - 45 46 - 50 51 - 55 56 - 60 60+

Grand Total 270 2644 2508 794 662 442 96

Age Distribution

18 - 25 26 - 35 36 - 45 46 - 50 51 - 55 56 - 60 60+

270

2644 2508

794 662 442 96

SAA Average Age Distribution

HEADCOUNT – AGE DISTRIBUTION

•Age distribution data shows that:

36% of the workforce is represented

in the 26 to 35 year old age group,

and

34% in the 36 to 45 year old age

group

•Approx 6% of the workforce is close to

retirement age

18 - 25 26 - 35 36 - 45 46 - 50 51 - 55 56 - 60 60+

Level 1 1 3 3 1

Level 2 8 25 9 13 6

Level 3 7 114 159 57 67 44 7

Junior 263 2522 2323 725 579 391 89

Age level Analysis

18 - 25 26 - 35 36 - 45 46 - 50 51 - 55 56 - 60 60+

1 3 3 1825 9 13 67

114159

57 6744

7

263

25222323

725579

391

89

Age by Level Analysis

Level 1

Level 2

Level 3

Junior

HEADCOUNT – AGE LEVEL ANALYSIS

The implementation process takes place within the context of the following Employment

Equity Life Cycle model.

EMPLOYMENT EQUITY – STATUS

1 SAA ConsolidationLevel Target (2010) June 2010 Employees White/Foreign Black (A,C,I) African Gap to target* Gap %

Top Management 71.4% 57.1% 7 3 4 3 -1 -14.3%Senior Management 59.3% 51.9% 54 26 28 22 -4 -7.4%Professionally Qualified 23.7% 24.2% 1141 865 276 150 7 0.5%Skilled Technical 60.5% 58.9% 644 265 379 221 -11 -1.6%Semi-skilled 81.1% 80.9% 2756 527 2229 1618 -6 -0.2%Unskilled 94.6% 92.0% 25 2 23 19 -1 -2.6%

Total

Progress against targets: SAA Consolidation

* A negative gap is the number of Black people required to achieve the target.

71.4%

59.3%

23.7%

60.5%

81.1%

94.6%

57.1%51.9%

24.2%

58.9%

80.9%

92.0%

0%

25%

50%

75%

100%

Top Management Senior Management Professionally Qualified

Skilled Technical Semi-skilled Unskilled

Target (2010)

June 2010

EMPLOYMENR EQUITY – TARGET

APPRENTICE INTAKE

2006 2007 2008 2009

1 76

2 98

3 75

4 37

TOTAL 76 98 75 37

Ethnic origin Female Male

Grand Total

African 6 50 56

Coloured 2 2

Indian 7 7

White 3 8 11Grand Total 9 67 76

Female Male

Grand Total

16 67 83

4 4

4 4

7 7

16 82 98

Female Male

Grand Total

17 54 71

2 2

2 2

17 58 75

Female Male Grand Total

18 18 36

1 1

0

18 19 37

HUMAN DEVELOPMENT – APPRENTICE SCHEME

STATUS AF AM IF IM CF CM WF WM TOTAL

Cadets Employed at SAA in 2010

2 1 1 0 1 2 8 0 15

Cadets in internship at feeder

1 14 0 4 1 4 6 0 30

Cadets Waiting to be placed on internship

1 3 1 4 0 0 0 0 9

TOTAL 4 18 2 8 2 6 14 0 54

• This is a transformation programme to bring the SAA pilot fraternity more in line with the

demographics of South Africa

• The first group of cadet pilots commenced training in 1995 and the last intake was in 2008

before it was put on hold as part of the restructuring programmeThe current status is as follows:

The contract with the current training service provider is being reviewed to facilitate the next intake.

HUMAN DEVELOPMENT – CADET PILOT SCHEME

SAA Leadership competency profiles were developed as part of the Talent management Project.

Subsequent Development Programmes were designed and implemented for all Levels of

management in alignment to the competency framework.

Learning partners were identified to implement the said programmes and those include USB-ED

and GIBS (Gordon Institute of Business Science).

Since April 2010 the SAA has trained a number of managers on the following programmes:

The HR Practice 77

Workwise 105

Management Development Program (USB-ED)

89

Leadership Development Program (GIBS)

Commences in September 2010

HUMAN DEVELOPMENT – MANAGEMENT AND LEADERSHIP DEVELOPMENT

BACKGROUNG

• The Diversity Manager Software Suite to track Employment Equity Progress has been

implemented.

• The Employment Equity Policy currently under revision to ensure alignment to recent

regulations and best practice.

• Draft Disability Policy has been finalised.

• Roles and Responsibilities guidelines compiled to guide various stakeholders in terms of their

specific roles regarding Employment Equity.

Plans underway to empower all stakeholders in terms of their roles to ensure successful

implementation of the EE Plan.

• Relevant HR Policies are under revision for alignment to the Code of Good Practice on

integrating Employment Equity into HR Policies.

• A company-wide initiative to update employee records, including people with disabilities, has

been undertaken in compliance with Employment Equity regulations.

EMPLOYMENR EQUITY – PLAN AND AA MEASURES

Questions and Answers