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Understanding and Managing Risk in Complex Supply Chain Projects
 

Understanding and Managing Risk in Complex Supply Chain Projects

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

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

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  • Full Name Full Name Comment goes here.
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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.
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    Understanding and Managing Risk in Complex Supply Chain Projects Understanding and Managing Risk in Complex Supply Chain Projects Presentation Transcript

    • Understanding and Managing Risk within Complex Supply Chain Projects CILT Supply Chain Network London, UK Monday 15th June 2009
    • 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 national newspapers)
    • Research center studies terrorism's impact on supply chain (Source: headlines from national newspapers)
    • 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 major impact • To prepare for contingency
    • Improve the predictability of a project!
    • 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
    • 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
    • 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
    • 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 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!
    • Two Basic Classifications • Known unknowns – Things that we know we don’t know • Unknown unknowns – Risks that surface despite our best efforts
    • 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)
    • 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
    • 2. Identifying and evaluating risks
    • Context • Project objectives • Scope, terms costs conditions, an guarantees • Schedule, location, and plan of project • Assumptions • Interfaces and stakeholders • Definitions
    • Expectations GAP = Difference in expectations End-User = Increased risk Provider
    • 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. 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
    • 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 – “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.”
    • 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
    • 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
    • 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%
    • RISK Reject / Transfer / Reduce Reduce Accept Eliminate Insure Probability Impact Actions
    • 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
    • Risk Provisions • Provision = (Probability x Impact) + Mitigation cost • Mitigation cost may out way the Impact cost – Manage to the Risk
    • 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, 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.
    • 3. Processes and governance
    • 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
    • Monitor • Re-Assess Risks regularly – Has probability and damage of controlled risks changed? – New risks identified? Analyse them
    • Stage-Gate Process
    • 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
    • Who is involved in Risk Management? • Customer • End-user • Project Team • Management • Product Management • Related Projects • Subcontractors and Suppliers
    • Roles in Risk Management • Business Unit • Project Team • Risk Action Owner • Risk Coordinator • Steering Group
    • 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)
    • (Near the end….)
    • 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
    • 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 you share?