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Understanding and Managing Risk
within Complex Supply Chain Projects


         CILT Supply Chain Network
                ...
Duracell and Corus suffer
  due to steel conflict




            (Source: headlines from national newspapers)
Car transporter vessel
 sinks after collision




          (Source: headlines from national newspapers)
Recall of Mercedes ML
        Models




          (Source: headlines from national newspapers)
More takeovers and mergers
  in the transport sector




            (Source: headlines from national newspapers)
Strikes in Austria, France
         and Italy




            (Source: headlines from national newspapers)
Distribution halted by IT
      system fault




            (Source: headlines from national newspapers)
EC requires traceability of
food, feed and ingredients
 throughout supply chain




             (Source: headlines from n...
Research center studies
terrorism's impact on supply
            chain




             (Source: headlines from national n...
Risk is unavoidable
Derek Hill
                     w
                A rro
           cy
       g en
   ntin
Co
Life before Logistex…
Interesting projects…
Risk
Not a ment
M an age
 Exp ert
Agenda
• Understanding different types of risks
• Identifying and evaluating risks
• FKI Logistex risk processes and governance
Objective of Risk
 Management
• Not to remove risk
• To raise awareness and visibility of risks
• To manage risks by mitigation actions to
  prevent maj...
Improve the predictability
      of a project!
Project Predictability
                   250%


                   200%
Planned Cost (%)




                   150%
    ...
Project Predictability
                   250%


                   200%
Planned Cost (%)




                   150%
    ...
Project Predictability
                   250%

                                                Project Cost
             ...
1.
Understanding different
    types of risks
What Is A Risk?
• A potential event with negative consequences that has not
  happened yet
   – However a risk could also ...
Two Basic Classifications
• Known unknowns
  – Things that we know we don’t know
• Unknown unknowns
  – Risks that surface...
Types of Risk
Financial     (e.g. gearing/interest rates, liquidity, foreign exchange,
              commodity prices, sys...
Logistex Corporate Risk Register
Business                              Projects
•   M&A                               •   ...
2.
Identifying and evaluating risks
Context
• Project objectives
• Scope, terms costs conditions, an guarantees
• Schedule, location, and plan of project
• As...
Expectations
                     GAP
                     = Difference in expectations
End-User             = Increased r...
Influences

                   External




End-User




                              Provider



           Complexity
Project Risk Profile
• Profiling output
  determines weight of
  Bid Approval and
  Project Execution
  Process
Risk Mapping
• Hold a Risk Workshop for
  key members of project,
  stakeholder, suppliers etc.




                      ...
NASA's illustration showing high impact risk areas for the International Space Station
Method
• Describe the Risks
  – Brainstorming potential risks
  – Walkthrough of the risk identification checklist
Method
• Common language
  – Clear and accurate description
  – Formulated as an “IF..THEN…” statement
• Example 1
  – “Th...
Method
• Analyze and Prioritize Risks
  – Walkthrough risk sheet and estimate the
    probability and cost impact of each ...
Probability
                      What Is the Probability the Risk Will Happen?

Level                           Your Appr...
Impact
        Given the risk is realised, what would be the magnitude of the Impact?

Level    Technical                 ...
RISK

 Reject /   Transfer /     Reduce      Reduce
                                                Accept
Eliminate     I...
Mitigation and Contingency Planning
• List Mitigation Actions
  – Start with most severe risks
  – List possible actions t...
Risk Provisions
• Provision = (Probability x Impact) + Mitigation cost
• Mitigation cost may out way the Impact cost
   – ...
Project Risk Register
Key Risk
• A Key Risk Overview (KRO) is required
• Detailed plan of mitigation actions
• Embed responsiveness
Key Risk Overview
Risks require active
management
• Eliminate the risk NOW - scope, terms & conditions, reject.
• Do something NOW to transfer the risks - Insurer, customer...
3.
Processes and governance
Probability Impact Grid (PIG)

                                                             1
                            ...
Monitor
• Re-Assess Risks regularly
  – Has probability and damage of controlled risks
    changed?
  – New risks identifi...
Stage-Gate Process
Continuity and Consistency
• Monthly and Gate Based Reviews




                                                          ...
Who is involved in Risk Management?
• Customer
• End-user
• Project Team
• Management
• Product Management
• Related Proje...
Roles in Risk Management
• Business Unit
• Project Team
• Risk Action Owner
• Risk Coordinator
• Steering Group
Risk Roll up & Action Flow-down
                                Corporate
    Risk Action                                 ...
(Near the end….)
Risk management should…
• be an integral part of organisational processes
• be systematic and structured
• be based on the...
derek.hill@fkilogistex.com
      07940 764844
Discussion…
• What risks does your business or team face?
• How do you deal with them?
• What lessons (good or bad) can yo...
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
Understanding and Managing Risk in Complex Supply Chain Projects
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Understanding and Managing Risk in Complex Supply Chain Projects

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Presentation given at CILT Supply Chain Network, London - 15th June 2009

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  • This is a truly excellent and subtle presentation of a complex topic.

    It would be greatly appreciated if it were possible to receive a copy of your slides.

    In that regard, I would be more than happy to exchange ideas, concepts and research that I have undertaken.

    Regards,

    Tony Young

    Please Note: I have 2 email addresses.
    tyoung@corprofit.com
    anthonyjayoung@yahoo.com.au

    Once again, my congratulations on an impressive body of work.
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
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Transcript of "Understanding and Managing Risk in Complex Supply Chain Projects"

  1. 1. Understanding and Managing Risk within Complex Supply Chain Projects CILT Supply Chain Network London, UK Monday 15th June 2009
  2. 2. Duracell and Corus suffer due to steel conflict (Source: headlines from national newspapers)
  3. 3. Car transporter vessel sinks after collision (Source: headlines from national newspapers)
  4. 4. Recall of Mercedes ML Models (Source: headlines from national newspapers)
  5. 5. More takeovers and mergers in the transport sector (Source: headlines from national newspapers)
  6. 6. Strikes in Austria, France and Italy (Source: headlines from national newspapers)
  7. 7. Distribution halted by IT system fault (Source: headlines from national newspapers)
  8. 8. EC requires traceability of food, feed and ingredients throughout supply chain (Source: headlines from national newspapers)
  9. 9. Research center studies terrorism's impact on supply chain (Source: headlines from national newspapers)
  10. 10. Risk is unavoidable
  11. 11. Derek Hill w A rro cy g en ntin Co
  12. 12. Life before Logistex…
  13. 13. Interesting projects…
  14. 14. Risk Not a ment M an age Exp ert
  15. 15. Agenda
  16. 16. • Understanding different types of risks • Identifying and evaluating risks • FKI Logistex risk processes and governance
  17. 17. Objective of Risk Management
  18. 18. • Not to remove risk • To raise awareness and visibility of risks • To manage risks by mitigation actions to prevent major impact • To prepare for contingency
  19. 19. Improve the predictability of a project!
  20. 20. Project Predictability 250% 200% Planned Cost (%) 150% Project Cost 100% Project End 50% 0% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Time (months) Planned
  21. 21. Project Predictability 250% 200% Planned Cost (%) 150% Project Cost 100% Project End 50% 0% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Time (months) Planned Risk Managed
  22. 22. Project Predictability 250% Project Cost 200% Planned Cost (%) 150% Project End Project Cost 100% Project End 50% 0% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Time (months) Planned Risk Managed Freestyle
  23. 23. 1. Understanding different types of risks
  24. 24. What Is A Risk? • A potential event with negative consequences that has not happened yet – However a risk could also be defined as the event with unforeseen positive consequences; an Opportunity • A possibility of loss — not the loss itself! – A source of problem during a project – Avoid labeling the cost of a risk as a risk (e.g. Schedule slippage). Find the sources! – Strike at the root of the problem, not the leaves! • Something that makes the project special • In the widest sense everything is a risk • There are better ways of handling recurrent problems!
  25. 25. Two Basic Classifications • Known unknowns – Things that we know we don’t know • Unknown unknowns – Risks that surface despite our best efforts
  26. 26. Types of Risk Financial (e.g. gearing/interest rates, liquidity, foreign exchange, commodity prices, systemic risks etc) Credit (e.g. customer default, failure of key partner/supplier) Operational (e.g. business continuity, service quality) Strategic (e.g. changes in markets, customers, products, M&A, major capital investments/projects) Legislative (e.g. HSE, anti-competitive practices, stock market rules) Political (e.g. Country risk, civil commotions, nationalisation) Environment (e.g. natural disasters, pollution, global warming impacts, diseases/pandemics) 3rd Party (e.g. risks of being let down by partners, key suppliers, outsource providers etc)
  27. 27. Logistex Corporate Risk Register Business Projects • M&A • Technology • Capital expenditures • New roles • Factory moves/closures • Ill defined specifications • New product development • Sourcing and supply chain • Supply chain development • Terms and Conditions • Organizational restructuring • People • Corporate Social Responsibility • Organisational • HSE • Estimation • Environment • Currency • Competencies
  28. 28. 2. Identifying and evaluating risks
  29. 29. Context • Project objectives • Scope, terms costs conditions, an guarantees • Schedule, location, and plan of project • Assumptions • Interfaces and stakeholders • Definitions
  30. 30. Expectations GAP = Difference in expectations End-User = Increased risk Provider
  31. 31. Influences External End-User Provider Complexity
  32. 32. Project Risk Profile • Profiling output determines weight of Bid Approval and Project Execution Process
  33. 33. Risk Mapping • Hold a Risk Workshop for key members of project, stakeholder, suppliers etc. HGIH • Brainstorm types of risk and PROBABILITY categorise in terms of size MEDIUM of impact. • Then assess probability of occurrence and populate LOW Prioritising Risk Matrix opposite. LOW MEDIUM HGIH • Risks should be owned and tracked. IMPACT
  34. 34. NASA's illustration showing high impact risk areas for the International Space Station
  35. 35. Method • Describe the Risks – Brainstorming potential risks – Walkthrough of the risk identification checklist
  36. 36. Method • Common language – Clear and accurate description – Formulated as an “IF..THEN…” statement • Example 1 – “The equipment will arrive late and we will incur liquidated damages.” • Example 2 – “IF customs requires additional paperwork and this delays the release of the equipment, which delays the installation, THEN we will incur liquidated damages.”
  37. 37. Method • Analyze and Prioritize Risks – Walkthrough risk sheet and estimate the probability and cost impact of each risk – Calculate risk rating of each risk (e.g. probability * impact) – Concentrate on Key Risks
  38. 38. Probability What Is the Probability the Risk Will Happen? Level Your Approach and Processes... 1 Not Likely: …will effectively avoid or mitigate this risk based on standard practices. 2 Low Likelihood: …have usually mitigated this type of risk with minimal oversight in similar cases. 3 Likely: …may mitigate this risk, but workarounds will be required. 4 Highly Likely: ...cannot mitigate this risk, but a different approach might 5 Near Certainty: ...cannot mitigate this type of risk; no known processes or workarounds are available
  39. 39. Impact Given the risk is realised, what would be the magnitude of the Impact? Level Technical Schedule Cost 1 Minimal or no impact Minimal or no impact Minimal or no impact 2 Minor pert shortfall, Additional activities Budget increase of less same approach retained required; able to meet than 1% key dates 3 Mod pert shortfall, but Minor schedule slip; Budget increase of less workarounds available will miss need date than 5% 4 Unacceptable; but Program critical path Budget increase of less workarounds available affected than 10% 5 Unacceptable; no Cannot achieve key Budget increase of less alternatives exist program milestone than 10%
  40. 40. RISK Reject / Transfer / Reduce Reduce Accept Eliminate Insure Probability Impact Actions
  41. 41. Mitigation and Contingency Planning • List Mitigation Actions – Start with most severe risks – List possible actions to reduce probability and/or cost – Some risks can be avoided • Contingency Planning – Only for the most severe risks that cannot be mitigated – List actions to take should the risk mature
  42. 42. Risk Provisions • Provision = (Probability x Impact) + Mitigation cost • Mitigation cost may out way the Impact cost – Manage to the Risk
  43. 43. Project Risk Register
  44. 44. Key Risk • A Key Risk Overview (KRO) is required • Detailed plan of mitigation actions • Embed responsiveness
  45. 45. Key Risk Overview
  46. 46. Risks require active management
  47. 47. • Eliminate the risk NOW - scope, terms & conditions, reject. • Do something NOW to transfer the risks - Insurer, customer, supplier. • Do something NOW to reduce the probability of the risks occurring. • Plan contingency actions NOW to reduce the impact if the risk occurs. • Set up fallback plans NOW to limit the impact for implementation before the risk occurs. • Get everybody’s agreement if you will just accept the risk.
  48. 48. 3. Processes and governance
  49. 49. Probability Impact Grid (PIG) 1 2 HGIH 8 3 PROBABILITY 12 5 11 4 MEDIUM 10 14 6 13 9 10 OTHER 15 7 LOW RISKS LOW MEDIUM HGIH IMPACT
  50. 50. Monitor • Re-Assess Risks regularly – Has probability and damage of controlled risks changed? – New risks identified? Analyse them
  51. 51. Stage-Gate Process
  52. 52. Continuity and Consistency • Monthly and Gate Based Reviews 1 2 HGIH 8 3 PROBABILITY 12 5 11 4 MEDIUM 10 14 6 13 9 10 OTHER 15 7 LOW RISKS LOW MEDIUM HGIH IMPACT
  53. 53. Who is involved in Risk Management? • Customer • End-user • Project Team • Management • Product Management • Related Projects • Subcontractors and Suppliers
  54. 54. Roles in Risk Management • Business Unit • Project Team • Risk Action Owner • Risk Coordinator • Steering Group
  55. 55. Risk Roll up & Action Flow-down Corporate Risk Action Risk Roll-up Flow-down Business Unit Business Project Task • Risk Escalation – Risks outside the control of the area or affecting next levels objectives • Risk Action Flow-down – Actions to ensure business objectives are met (Business Plan Deployment)
  56. 56. (Near the end….)
  57. 57. Risk management should… • be an integral part of organisational processes • be systematic and structured • be based on the best available information • take into account human factors • be transparent and inclusive • be dynamic, and responsive to change • be tailored • deliver better projects
  58. 58. derek.hill@fkilogistex.com 07940 764844
  59. 59. Discussion… • What risks does your business or team face? • How do you deal with them? • What lessons (good or bad) can you share?
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