By Tom Gordon (MSc., CFPIM), Missouri Enterprise Project Manager
The treatment of Risk [and its bedfellow, Opportunity] can be classified in 3 areas: What we can control through mitigation, what must be accepted because there is nothing constructive that can be done and still stay in business, and what can be covered by insurance.
Mitigation can cover many areas. If the business model, for example, involves access to the internet, mitigation can be in the form of firewalls, anti-virus etc. and preventing the rogue employees from accessing questionable web-sites. However, even the most stringent precautions cannot be 100 percent effective, so the only real way to guard against hackers is not to go online. For many organizations today, this is not a practical option, therefore a certain degree of risk remains – this is termed “Risk Appetite”, what Top Management accepts in the way they do business. This ‘Risk’ provides a great Opportunity for those inclined to exploit the Risk – Risk and Opportunity are really the two sides of the same coin!
Whether it is accessing questionable websites or stealing intellectual property “people” present the greatest risk to any organization. It is axiomatic that no organization can function without people, however automated the processes may be. Careful screening and selection is a risk mitigation exercise, but a disgruntled employee can cause massive mischief. Politics appears to be a breeding ground for disloyalty at this moment in time! Again, the risk appetite. Top Management must create a culture and environment that promotes loyalty and responsibility but the ‘duck eggs’ have a disturbing habit of slipping through. The old axiom, “There is no such thing as a bad soldier, only a bad officer” applies to management and the workforce, too. Kiichiro Toyoda, founder of the Toyota automotive company, in his visit to FORD in 1950, saw these issues and that is why we have the Lean Philosophy!
Insuring against risk is something that everyone does to some extent. Steady Eddie in his pickup crashing into us on the highway is a risk that must be taken to get from A to B, unfortunate but at least the financial burden can be reduced. Business can insure against a wide range of foreseeable risks, but it is costly. There lies the Opportunity for the insurance companies because they are not altruistic!
The category that can destructively impact an organization is termed a “Black Swan”. A Black Swan is an event that is deemed improbable yet causes massive consequences. Black swans were thought not to exist but, although very rare, they do exist. In risk analysis a ‘black swan’ event is a metaphor for a major effect, which comes as a complete surprise; with the benefit of hindsight we can often ‘kick ourselves’ because we did not see it coming. The major black swan in the 20th Century was World War I. Two super-power blocks developed in Europe to prevent war but, in this year that remembers the end of that disaster, we can see, with the benefit of hind-sight, that this ‘theory’ was nonsense and more likely to cause what it was designed to prevent. Potential black swans abound in industry, modern business can be typified as an aviary of black swans. Mentioning Toyoda earlier brings to mind a major black swan. The Toyota company suffered because of a geographical concentration of their brake component suppliers through a lack of foresight, or rather the lack of a time machine, which could convert hindsight into foresight. For most organizations, black swans abound in their supply chains, or rather the lack of supply chain orchestration. A basic supply chain map can go some way towards warding off the black swans in the chain but Jeeves, with an umbrella, cannot always be around!
The Missouri Enterprise Supply Chain methodology kicks off with a Supply Chain map and an analysis of the critical components. It is based upon the APICS SCOR™ methodology, requirements of ISO 9001:2015/AS 9100D, AS 9134 and the practical experience gained over many years in industry. The basic mantra is, “Know your suppliers’ networks as well as you know your own”! Identification of Risk and potential black swans in your network have the potential for great opportunity and cost saving.
Learn more about some of our supply chain development solutions or how we can help reduce risks to your system.