Risk Management

What is risk? : Risk of something happening that will have an effect on objectives; measured in terms of consequences and likelihood (AS/NZS 4360:1999—“Risk Management,”)
What is risk management? : It is the culture, processes, and structures that are directed toward the effective management of potential opportunities and adverse effects.
Examples of risk managementCompetition forces companies to develop products faster as markets become specialized and customers demand more. Companies realize that they can’t keep pace with customer demands, so they rely on suppliers to design new marketplace offerings to improve their products. Collaborations become more critical, and product-timing risks increase. If products reach the market too early, there is insufficient demand; if too late, the crucial buy window is missed.
Much like The Boeing Co., which adopted a business model that emphasizes outsourcing and supply management. The model is: Design the core product, outsource the core assembly (up to 85% of manufacturing dollars), assemble the complete product, test the product to ensure compliance, and then manage the Boeing brand. But Boeing didn’t anticipate the risks involving its fastener supplier, which delayed the 787’s market introduction by many months.
U.S. Homeland Security would like womb-to-tomb traceability of shipments based on source and product risks. Incoming shipments can be a terrorist vector or delivery mechanism for chemical, biological, high-explosive, radiological, and nuclear terrorism. The federal government is moving rapidly toward supply chain security using Customs-Trade Partnership Against Terrorism compliance audits, 100-percent container inspection, radio frequency tagging of containers, issuance of biometric IDs to port workers, supplier profiling, and fewer “less than truckload” shipments. These change the just-in-time supply chain model to a ‘just-in-case’ risk model.
Product development is a global activity. Automobiles may be designed in Los Angeles and assembled in Ohio from parts manufactured throughout the world. Managing worldwide, disparate suppliers requires project risk management. It is the ability to anticipate project problems and obstacles that may hinder the project from achieving objectives within cost, schedule, and quality constraints.
The risks represented by imported products and food are now issues of public safety and homeland security. It is proposed to improve the safety of imported products by focusing on preventing nonconformances and controlling risks. You can’t inspect all incoming goods to protect consumers from possible harm. One system is, the government would collect the data, identify safety hazards along the entire life cycle of imported products, and manage risks proactively and preventively. The change from an inspection-focused strategy to a risk-based approach emphasizes prevention with verification and validation.
Risk management standards and modelsISO is developing ISO/DIS 31000--”Risk management--Principles and guidelines on implementation.” The critical elements of the standard are:
• Risk identification. Identifies the sources of risk, risk events, and their potential consequences
• Risk analysis. Analyzes the causes and source of the risks and the likelihood that they will occur
• Risk evaluation. Determines whether risks need to be addressed and treated
• Risk treatment. Determines strategies and tactics to mitigate or control risks
ASME ITI has developed Risk Analyses and Management for Critical Asset Protection (RAMCAP) for the U.S. Homeland Security as a guidance document for assessing risk analysis and risk management for critical infrastructure assets.
Advantages of risk-based decision makingAn interesting management phenomenon occurred during the last decade. Approximately 10 years ago, quality was the critical filter in high-level management decision-making. Then it evolved to price, which led to the global rush to find offshore suppliers and eventually to massive outsourcing. Price evolved into the total cost of ownership, and quality became a less compelling issue to senior management.
So, what’s the primary filter for senior management decision making now? Risk management. Why is risk management so critical these days? Four reasons:
• Risk is inherent in globalization and outsourcing.
• Executives don’t want to be blindsided, and they feel uncomfortable with uncertainty.
• Executives want to manage outcomes and stakeholder expectations.
• Bottom line: Risk management is preventive and predictive, not reactive.
- From “Risk Management- The Future of Quality” by Greg Hutchins (www.qualityplusengineering.com) in Quality Digest