Risk Management Process

What we will discuss in this article are the tools and respective functionality we need to consider employing. Each of the following steps make up the RISK MANAGEMENT PROCESS:

1. Risk Identification
2. Risk Analysis
3. Risk Evaluation
4. Implement an Action Plan
5. Measure & Correct

RISK IDENTIFICATION: The third article, "RISK IN PROCUREMENT" provided detail information on such. Below is a summary reminder of such:

• Loss of goods, reputation, or money (fraud, corruption, bribery or theft)
• Loss of Intellectual Property
• Losses from lawsuits
• Supplier poor performance – quality, delivery

Tools to aid us in the risk identity process element are:

• DELPHI METHOD – a group decision from EXPERTS via a questionnaire and comparison of their responses, along with a second round of questions regarding the analysis of their responses.
  • Another review/analysis of responses to the second round will provide further insight
    • The experts will then present their final findings in a CONSENSUS OPINION
• SWOT ANALYSIS – is a methodology to guide you to identify:
  • S = Strengths and W= Weaknesses inside/outside of your organization
  • O = Opportunity and T = Threat providing an awareness of your enterprises strategic planning & decision making.
• BRAINSTORMING – PROCESS
  • Team of involved personnel
  • Present ideas
    • Follow rules of brainstorming & respective process steps(SEPARATE FUTURE ARTICLE)
• CAUSE & EFFECT ANALYSIS(SEPARATE FUTURE ARTICLE)

Create a RISK REGISTER:

• It consists of:
  • Date identified/experienced
  • Description & type
  • Likelihood of occurrence
  • Severity of effect
  • Countermeasures – actions to be taken
  • Owner
  • Status – being fixed, fixed, or to be fixed

RISK ANALYSIS & EVALUATION: (STAGES 2 & 3 OF PROCESS)

As can be seen in the graphic above, there are both qualitative & quantitative analysis happening. There is an analysis regarding the probability and consequence of each risk – this is depicted in the next graphic denoted below entitled "RISK LEVEL".

This would be used to prioritize which risks should be acted upon – NOTE THAT THOSE FALLING INTO THE UPPER RIGHT QUADRANT would get the priority & then the one to its’ left the next.

ACTION PLAN & MEASUREMENT: (STAGE 4 & 5 OF PROCESS)

The basic Risk Responses/Plans are:

• Avoid – Changing a plan to eliminate risk or its impact
• ACCEPT – Take no action or unable to form a plan
• TRANSFER – Insurance or contractual transfer to supply chain partner
• MITIGATE – Preventative measures to reduce the probability or severity of risks

The management of the risk and the respective plan is best depicted by the final chart/process step of measurement:

This completes the series of articles on RISK MGT. in Procurement. Look for more articles to help address issues in Procurement!