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Operation management final


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Operation management final

  1. 1. OPM3 Risk Management Group presentation
  2. 2. Problem definition Building manufacturing plants in emerging countries 1) What is the problem? To expand our business in the global market, building manufacturing plants in emerging countries is inevitable activity. However, many Japanese companies face lots of critical issues in every foreign manufacturing plant. The causes of those issues are varied and many of them are uncertain and unpredictable. 2) Why do I want to make the risk analysis for the problem? If we can conduct risk analysis for the projects, we can prepare for them in advance to some extent. What’s more, we can determine which country/area should be selected for a certain project with the results of the risk analyses. 3) How do you use the results? After arranging the HHM modeling chart, we will generate a quantitative risk analysis model. Then, we will be able to conduct MC simulation to predict the probability of the critical incidents and prioritize possible alternatives.
  3. 3. Approaches 1. Make a master list of risks • What is the risk for building manufacturing plants in emerging countries • Through discussions and desk research we clarified possible risks 2. Develop HHM • Categorize all of risks into several segments, that is, develop the HHM 3. Apply RFRM to extract key risks • Identifying, rankin g, and finding critical risks are essential • Apply RFRM for them 4. Quantify risks by utilizing Monte Carlo simulation • To judge the investment, qu antifying risks is the only way
  4. 4. Master list  Risks for building manufacturing plants in emerging countries?           Some countries policy and regulation are often changed! Some areas have geographical difficulties to develop Terrorists possibly come to risks Accounting standard is difference with my company There is not still enough infrastructure It is difficult to find the good partnerships It is hard to collect the good work force on site Procurement delay often happens in some regions We do not still understand some countries’ market We cannot easily connect to Internet in some areas Discussion in the team Desk research on investment in emerging countries Review of thirdparty analyses Interview to colleagues in foreign division
  5. 5. Brainstorming Accounting standard Politics Law/Regulation Local technical support Forwarder Tax standard IT systems Auditor/Consultant Public safety Suppliers Equipment Network Insurance company Exchange rate Pandemic Terrorist attack Infrastructure Data loss Currency devaluation Financial report Business ethics Labor Natural Disasters Accounting staff Weather Tax (Tariff) Local bank Interest rate Sustainability Delivery Religion
  6. 6. Hierarchical-Holographic-Model (1st level)
  7. 7. Hierarchical-Holographic-Model (2nd level - 1)
  8. 8. Hierarchical-Holographic-Model (2nd level - 2)
  9. 9. Hierarchical-Holographic-Model (2nd level - 3)
  10. 10. Hierarchical-Holographic-Model (2nd level - 4)
  11. 11. Hierarchical-Holographic-Model (2nd level - 5)
  12. 12. Risk Scenario-1 • • • • • • • • • • • • • • • • • • • • Local government changes. A coup erupts. New regulation is installed. Corporate tax increase. Tariff increase. Flood is caused by typhoon, or hurricane. Snowstorm hits. Drought occurs. Electricity is not sufficient. Water supply is poor. Roads are not well developed. Light crimes like thieves, pick pockets may disturb life. Guerrilla is active. Pandemic breaks out. Earthquakes happen. Mountain, bush fires . There is fear of terrorist attack. Local operation is damaged by protesters. Different nationalities of employees may cause dispute. Different religious shows different custom at work place
  13. 13. Risk Scenario-2 • • • • • • Government political Regulation change Tax policy Change Weather change Electricity Shortage Water Shortage • • • • • • • Tarrif Policy Change Public Safety Pandemic and Infectious Disease Outbreak Natural Disasters: Fire, Flooding, Bushfires Terrorist attack/ Bomb threat etc. Infrastructures are well developed Nationality of the employees
  14. 14. Risk Scenario-3 • • • • • • • • • • • • Accounting standard diffrences Tax standard differences No trustworthy Auditor/consultant Exchange rate fluctuation Currency Devaluation Credit control Financial reporting requirements not understood Accounting staff availability Relationship with local Bank Interest rate Affordable labor cost Affordable Fixed cost(Land, building, leasing etc)
  15. 15. Risk Scenario-4 • Availability of Suppliers who can supply high quality materials • • • • • Availability of Forwarders who can deliver/ship the goods with high frequency Highly educated Employees are available Availability of Equipment manufactures and its service staff. Insurance company are available Availability of Utilities(Water, Electricity, Gas Housing, Hospital, school, etc). • • • • • Availability of Infrastructures(Airport, SeaPort, Highway, customer, Supplier) Availabity of low cost, high quality Labor Tender evaluation requirements not defined Overpayment for goods and services Failure to comply with procurement legislation/ processes • • • Conflicts of interest in tender award process Failure/ closure of service provider Unethical service provider actions • Goods/ services not meeting quality requirements • • Non-delivery of goods and services by supplier Breach of contract
  16. 16. Risk Scenario-5 • • • • • • • • • • • • • • • • Changes in services provided Loss of customers to private sector companies Services/ goods not provided within budget Change in ability to supply services/ goods Change in public demand for services/ products Loss of customers to other state organisation Change in interest rates Undefined or unclear strategic vision Inaccurate forecasting Unethical business practices Incomplete or inaccurate resource planning Poor organizational design/ Inappropriate reporting lines Strategic plan not implemented Business Continuity Planning inadequate/ BCP not developed Stakeholders not identified Poor/ deteriorating stakeholder relationship
  17. 17. Risk Scenario-6 • • • • • • • • Expectations of stakeholders not understood Poor community relationships Negative/ hostile/ inaccurate press coverage Ineffective communication strategy/ plans Joint ventures/ partnerships not managed Loss of customer loyalty/ revenue Failure to meet sustainability targets Failure to assess and understand environmental impact of organizational activities • Contamination of water supply • Damage to/ development of protected sensitive natural habitats
  18. 18. Risk Scenario-7 • Poor local technical support available • Inadequate system security/ Confidential information not adequately protected • IT systems not integrated • Network unavailability • IT system/ software obsolescence • Poor choice of software/ IT solution/ IT solution does not support business requirements • Loss of data/ information
  19. 19. RRF: Risk-Ranking and Filtering method (Selected 11 critical risk scenarios) 1. 2. 3. 4. 5. 6. 7. 8. Poor IT security causes serious confidential information leakage. Immature organizational leads to low quality products. Local parts supplier cannot meet quality requirement. Local maintenance company cannot provide timely support. Change of local government causes unfavorable economic effects. Poor infrastructure disturbs smooth operation of factory. Terrorist attack. Anti-Japan sentiment erupts around the region, and leads to serious damage. 9. Low job retention rate causes unstable operation. 10.High salary increasing rate to keep retention rate. 11.Severe natural disasters, Earthquake/Flood/Hurricane, cause long downtime.
  20. 20. RRF: Risk-Ranking and Filtering method (Evaluation criteria, Proxy attribute) 5-grade evaluation for each criterion considering both proxy attributes i. Undetectability • • Can we predict the risk? If we can predict and detect the risk Can we detect the risk? 1 If we cannot predict and detect the risk 5 Any monitoring method of unfavorable conditions? ii. Uncontrollability • • Can we stop the risk immediately? iii. Multiple paths to failure • • Many paths to the risk? Unpredictable paths exist? Standardized path exists? iv. Irreversibility • • How probable the occurrence of critical risk? How severe the risk mess up?
  21. 21. Extracting 4 critical risk scenarios 5. 7. 8. 11. Change of local government causes unfavorable economic effects. Terrorist attack. Anti-Japan sentiment erupts around the region, and leads to serious damage. Severe natural disasters, Earthquake/Flood/Hurricane, cause long downtime.
  22. 22. Weighting factor investigation by AHP ⅰUndetectability ⅱUncontrollability ⅲMultiple paths to failure ⅳIrreversibility ⅰUndetectability ⅱUncontrollability ⅲMultiple paths to failure ⅳIrreversibility 1 1/3 1/5 3 3 1 1/3 5 5 3 1 7 Weight of each evaluation criteria i. ii. iii. iv. Undetectability Uncontrollability Multiple paths to failure Irreversibility : : : : 0.263 0.118 0.055 0.564 1/3 1/5 1/7 1
  23. 23. Quantitative ranking of critical risks 5. Change of local government causes unfavorable economic effects. 4×0.263 + 4×0.118 + 5×0.055 + 3×0.564 = 3.491 7. Terrorist attack. 5×0.263 + 4×0.118 + 5×0.055 + 4×0.564 = 4.318 8. Anti-Japan sentiment erupts around the region, and leads to serious damage. 4×0.263 + 4×0.118 + 4×0.055 + 5×0.564 = 4.564 11. Severe natural disasters, Earthquake/Flood/Hurricane, cause long downtime. 4×0.263 + 5×0.118 + 4×0.055 + 5×0.564 = 4.682 Order of Risk scenario : #11 > #8 > #7 > #5
  24. 24. Risk assessment by MC Total damage [MJPY] =  1,000 MJPY 2,000 MJPY 5,000 MJPY 10,000 MJPY Monte Carlo simulation PDF of each risk was defined as triangular function by the following table.