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Basic Risk Analysis

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Managing risk is a critical part of business and is particularly relevant to quality management, where reducing the risk of errors and handling issues that occur is a part of the standard job.

Risk analysis typically identifies risks through brainstorming and examining plans, then maps risk along two dimensions, probability and impact, assigning scores (typically up to 3, 5 or 9) to each. Probability is the chance or likelihood of the risk occurring. Sometimes these are multiplied together to give an overall risk severity figure.

Risks are often listed in a Risk Register, which is then used to manage and track the risks. This can have many columns, but for simplicity the example below shows the just main items discussed here.

 

Risk description

Probability

(1-3)

Impact

(1-3)

Severity

(P x I)

Action

Eg. Failure to deliver to schedule

Medium (2)

High (3)

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Weekly risk reviews. Code buddies.

 

 

 

 

 

 

 

 

 

 

 

Risks can then be plotted on a matrix, as in the diagram below, which typically has Red, Amber and Green (RAG) zones to flag the severity of the risk. When working in a team session, this can be done on the wall with flipcharts and post-it notes. Risk planning may then continue by working out how to reduce the probability or impact of selected risks. Moving any risk will require mitigation action and will have a cost associated with it. A cost-benefit assessment can hence be done to determine the most effective actions to take.

 

 


In business, risk analysis is common in projects, where planned activities are assessed. In quality risk management, rather than examining the project plan, it is useful to identify risks through analysis of the process diagrams. At each process step ask ‘What could go wrong? How? How likely is this? What would be the impact on the business?’

Typical risks include:

  • Inputs and materials are not to specification
  • Instructions, training or management is inadequate
  • Actions are not completed to time or unexpected delays occur
  • Human error or inadequate motivation results in defects, damage and other problems

This method is quite common but relatively simple. The real secret of success with it is in getting people to face the possibility of things going wrong, which can be quite tricky. It is important as well to continue the dialogue on an ongoing basis, ensuring actions are completed and re-assessing risks for changes in impact and probability.

 

Next time: Advanced Risk Analysis

 

This article first appeared in Quality World, the journal of the Chartered Quality Institute

 

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