Downside Up – Risk Management, Part 2



Risk Management for Smaller Manufacturers




The previous post to this blog offered some general ideas on risk management. This post addresses risk and the smaller manufacturer. To begin, two points need be clear:




>> Risk Management doesn’t necessarily mean the elimination of risk. Risk is a fact in business, and risk is often the flip side of opportunity. Consider the insurance industry. That industry exists due to risks. Insurance carriers assume risks from others (that is, they sell insurance coverage), and they invest the premiums they receive. Insurance carriers manage risks on both ends: on underwriting and on investment. You can be sure that risk-based industries like the insurance industry understand the risks they take.



OSHA Incidence rate Graph
>> Look at this graph of manufacturing employee job related injury / illness incidence rates over the past 17 years. The rate at which the incidence rate has improved blows me away. The point here isn’t about safety or OSHA Recordables. The point is that sustained efforts to reduce risk work, sometimes dramatically.




Failure Mode Effects Analysis




FMEA, Failure Mode Effects Analysis, provides a powerful tool for identifying, assessing and addressing risks. FMEA can be applied to products, processes and projects. In essence, FMEA provides a framework for looking at possible failure modes (meaning risks), determining the probable frequency of occurrence of each, then the likely severity, then the potential for detecting symptoms of each mode. From these considerations, a risk priority is calculated, so that risk management actions can be prioritized.



FMEA Diagram
FMEA can also be applied to organizational – level matters, including strategic planning.  In particular, FMEA can be used when setting Objectives. By applying FMEA, particularly in conjunction with Ishikawa (“fish-bone”) diagrams, possible impediments to achieving your objectives can be determined and prioritized for pre-emptive actions. A prior post to this blog outlines how this can be done [1].




Basic introductions to FMEA are available on the web from the American Society for Quality [2] and from Wikipedia [3]. Also, there are many books available, starting with an inexpensive 90 page “primer” [4]. If you prefer to use a qualified consultant, you might call your nearest Manufacturing Extension Partnership office for a local referral [5]  .




As you may have guessed, FMEA is, in my view, one of the best general purpose tools for managing risk in manufacturing organizations. And managing risks is a key component of navigating the future. There are persistent rumors that the next version of the ISO 9001 standard [6] will explicitly include risk management.





Thoughtful comments and experience reports are always appreciated. Click on the title of this post to open the comments section.



…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)




P.S
. — When it is time for your firm to seriously pursue Sustainability, contact me — C.H.


 


Note: This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on Wednesday evenings.




Images
: OSHA incidences graph – Jera, using data from the Bureau of Labor Statistics, www.bls.gov. FMEA graphic – Dieter Vanduen, in the public domain, via Wikipedia




A .pdf version of this post is available at: http://app5.websitetonight.com/projects2/4/9/9/4/2164994/uploads/Blog_Post_-_Downside_Up_Part_2-_13_September_2012.PDF 











[4]  Mikulak, R. and R. McDermott and M. Beauregard, Basics of FMEA, Second Edition, Productivity Press, New York (2009)


 



[5] For the MEP, go to www.NIST.gov/MEP. There is a map of the U.S. Click on your state for local contact information.


 



[6] The ISO 9001 Standard for Quality Management Systems is expected to be significantly revised by 2016.