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Understanding and Managing Risk in Complex Supply Chain Projects
The document discusses understanding and managing risk within complex supply chain projects. It outlines different types of risks that can occur, such as financial, operational, strategic and political risks. It also discusses identifying and evaluating risks through methods like risk mapping, workshops and prioritizing risks based on probability and impact. Finally, it discusses implementing risk processes and governance through tools like risk registers, probability impact grids, stage-gate processes, and defining roles for risk management.
Understanding and Managing Risk in Complex Supply Chain Projects
- 1. Understanding and ManagingRisk within Complex Supply Chain Projects CILT Supply Chain Network London, UK Monday 15th June 2009
- 2. Duracell and Corussuffer due to steel conflict (Source: headlines from national newspapers)
- 3. Car transporter vessel sinks after collision (Source: headlines from national newspapers)
- 4. Recall of MercedesML Models (Source: headlines from national newspapers)
- 5. More takeovers andmergers in the transport sector (Source: headlines from national newspapers)
- 6. Strikes in Austria,France and Italy (Source: headlines from national newspapers)
- 7. Distribution halted byIT system fault (Source: headlines from national newspapers)
- 8. EC requires traceabilityof food, feed and ingredients throughout supply chain (Source: headlines from national newspapers)
- 9. Research center studies terrorism'simpact on supply chain (Source: headlines from national newspapers)
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- 11. Derek Hill w A rro cy g en ntin Co
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- 30. Risk Not a ment Man age Exp ert
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- 32. • Understanding differenttypes of risks • Identifying and evaluating risks • FKI Logistex risk processes and governance
- 33. Objective of Risk Management
- 34. • Not toremove risk • To raise awareness and visibility of risks • To manage risks by mitigation actions to prevent major impact • To prepare for contingency
- 35. Improve the predictability of a project!
- 37. 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
- 38. 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
- 39. 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
- 40. 1. Understanding different types of risks
- 41. What Is ARisk? • 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!
- 42. Two Basic Classifications •Known unknowns – Things that we know we don’t know • Unknown unknowns – Risks that surface despite our best efforts
- 43. 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)
- 44. Logistex Corporate RiskRegister 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
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- 46. Context • Project objectives •Scope, terms costs conditions, an guarantees • Schedule, location, and plan of project • Assumptions • Interfaces and stakeholders • Definitions
- 47. Expectations GAP = Difference in expectations End-User = Increased risk Provider
- 49. Influences External End-User Provider Complexity
- 52. Project Risk Profile •Profiling output determines weight of Bid Approval and Project Execution Process
- 54. Risk Mapping • Holda 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
- 55. NASA's illustration showinghigh impact risk areas for the International Space Station
- 56. Method • Describe theRisks – Brainstorming potential risks – Walkthrough of the risk identification checklist
- 57. 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.”
- 59. Method • Analyze andPrioritize 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
- 60. 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
- 61. 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%
- 63. RISK Reject / Transfer / Reduce Reduce Accept Eliminate Insure Probability Impact Actions
- 64. Mitigation and ContingencyPlanning • 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
- 65. Risk Provisions • Provision= (Probability x Impact) + Mitigation cost • Mitigation cost may out way the Impact cost – Manage to the Risk
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- 68. Key Risk • AKey Risk Overview (KRO) is required • Detailed plan of mitigation actions • Embed responsiveness
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- 71. • Eliminate therisk 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.
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- 74. 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
- 75. Monitor • Re-Assess Risksregularly – Has probability and damage of controlled risks changed? – New risks identified? Analyse them
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- 77. 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
- 78. Who is involvedin Risk Management? • Customer • End-user • Project Team • Management • Product Management • Related Projects • Subcontractors and Suppliers
- 79. Roles in RiskManagement • Business Unit • Project Team • Risk Action Owner • Risk Coordinator • Steering Group
- 80. 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)
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- 83. 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
- 84. derek.hill@fkilogistex.com 07940 764844
- 85. Discussion… • What risksdoes your business or team face? • How do you deal with them? • What lessons (good or bad) can you share?