Risk Assessment

May 31, 2007 0 comments

The Concept of Risk

The hazards associated with product design and development are many and complex. Interviews conducted with entrepreneurs, product design teams, quality managers, general managers, enterprise agency staff and fund managers, revealed a broad interpretation of the word risk. For example entrepreneurs tend to see risk as just another hurdle which they must cope with, at the one extreme there are tendencies to view it as the gambling stake to be borne, while at the other extreme there are only researched probabilities to aid decision making. Attempts to define the word risk examine its origins, Arabic has the word risq while Latin provides the word risicum (Kedar, 1970). Arabic risq signifies 'anything that has been given to you [by God] and from which you draw profit' and has connotations of a fortuitous and favourable outcome. On the other hand the Latin risicum, originally referred to the 'challenge that a barrier reef presents to a sailor' with connotations of dangerous hazards and fortuitous outcomes (Ansell 1992). French use risqué with mainly negative but occasionally positive connotations as for example in 'qui ne risqué rien n'a rien' or 'nothing ventured nothing gained' whilst in common English usage the word risk has very definite negative associations as in 'run the risk of...' or 'at risk' meaning exposed to danger. (Ansell 1992) The Oxford Dictionary (1991) refers to '1. Chance of or of bad consequences, loss, etc., at risk, exposed to danger' and '2. Expose to chance of injury or loss; venture on, accept the chance of ..'

In common usage the meaning of the word risk includes: gamble - to take a chance on something or trust in luck; venture - to invest with exposure to loss or gain; endanger - expose rashly; danger - put in jeopardy, the state of being exposed to injury, pain, or loss. Collectively risk is used to describe the chance of occurrence of any undesirable outcome due to a decision or course of action. Gamblers tend to evaluate risk against reward, whilst to scientists the word risk is used to imply a measurement of the chance of an outcome, the size of the outcome or a combination of both.

The Perception of Risk

The measurement of risk before the event is the source of much debate, mainly because the majority of risks are perceived and not necessarily actual. (Ansell 1992) When assessing risks designers should bear this in mind to avoid over reliance on numerically based data as there is a chance of promoting or validating misconceptions

Often complex formulae based on historical data are employed to project events and assess future risks. As much of risk assessment is subjective there is a real danger to found in placing high levels of reliance on mathematical models which convert subjective data into objective data. Thus providing credibility for spurious or incomplete data. Some ranging processes need to be employed to develop perspective and avoid over reliance on microscopic analysis. In short there is a need to first be effective before developing efficiency, in that way the right direction can be ascertained before committing valuable resources.

'Missed and misconstrued perceptions of the consequences of decisions are of themselves a major, arguably the greatest, source of risk in decision making and any responsible decision maker will make every effort to obtain a complete and accurate perception of the risks faced before attempting to undertake an analysis and assessment.' (Ansell 1992)

The purpose of risk analysis is the identification of all possible outcomes of decisions, whilst the estimation of probabilities and the size of the outcomes is the subject of risk assessment.

Model for Risk Assessment

This model examins risk from a producers viewpoint, the techniques from the first model prove data for consideration here. There is also a need to increase the intensity of investigation to include quality management, quality assurance and control techniques. The 'Feature to Benefit Score Card' provides data which is then assessed in the 'Design Rating Score Card' and Criticality Factors are then identified. These can then be prioritised using 'Pareto's Principle' otherwise known as the 80/20 rule where 80% of the value is normally to be found in 20% of the features of the product. By identifying the essential few features designers can then target effort to maximising satisfaction and risk reduction. The other 80% of features may then be managed to enhance the product and elevate customer satisfaction in an effort to delight the customer. Each Key Success Factor will have a fundamental bearing on implications for excellent production capabilities, attention to these factors will drive operations management towards continuous improvement initiatives and raise the organisations effectiveness, flexibility and efficiency.

The concept of Failure Mode and Effect Analysis (FMEA) can provide an intensive focus for risk assessment where a high degree of product integrity is required, and where the consequences of failure could be catastrophic such as in defence industries. Aircraft designers and manufacturers as well as the automotive industry find this technique highly effective in risk assessment and reduction. The American Department of Defense recognised the value of the technique and produced a Military Standard MIL-STD-1629 (SHIPS) 1 NOVEMBER 1974 later superseded by MIL-STD-1629A 24 NOVEMBER 1980 entitled 'Procedures for performing a Failure Mode, Effects and Criticality Analysis'. Service industries use the technique to identify good practice, often adopting manufacturing quality management techniques modified to suit service organisation requirements.

FMEA when employed at the design stage identifies possible shortcomings of the design of a product, service or process operating system to determine what could fail, where and what effect would be created so that corrective action can be initiated and problems avoided. Brainstorming is employed to identify all possible modes of failure and their related effects on performance. It is a factual analysis of the design which can enable numerical values to be assigned to help overcome subjective opinions. When the results of an FMEA are ranked in order of seriousness we can identify the CRITICAL modes (FMECA) so that action can be taken to reduce failure and avoid risk.

As FMEA aims to avoid failure occurring it should be carried out at the design stage of a product or service. As a communication tool it is useful throughout every level of an organisation to increase awareness of the consequences of operational procedures and is effective in product and service design development. It provides the analysis team with a valuable insight into issues which are normally outwith their normal range of interest, e.g. the effect of operational procedures on their downstream customers, likely consequential damages, sources of customer complaints, etc. and provides a valuable resource for analysing strengths and weaknesses, as well as sources of opportunities and threats for product or service development.

FMECA analysis steps of are:

  1. Assemble a team of 3 - 5 and elect a chairperson.
  2. Clearly state the product, service or process function to be analysed. It is essential that the scope of the analysis is clearly defined to avoid confusion.
  3. Brainstorm to generate a list all possible failure modes of the subject.
  4. Identify and list the effects that each mode of failure would create.
  5. Brainstorm to generate a list all the possible causes of each failure mode.
  6. Agree a numerical value of each failure mode on a scale from 1 to 10.

    P = probability of each failure (1 = low, 10 = high).

    S = seriousness or criticality of the failure (1 = low, 10 = high).

    D = difficulty of detecting the failure before the product or service is used

    by the consumer (1 = easy, 10 = very difficult).

  7. Calculate the product of the ratings, C = P x S x D
  8. This is known as the criticality index or risk priority number (RPN) for each failure mode. It indicates the relative priority of each mode in the failure prevention activities.

  9. List the RPNs according to severity in descending order.
  10. Create an action plan and estimate resource requirements, availability, and probability of completion.
  11. Agree an action plan and briefly state the corrective action required, by whom, where, when, and the expected completion date.

Posted by Lisa
Categories: Business Entrepreneurship Product Innovation


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