Question

How to answer to the questions based on the case below?

You are the newly appointed Purchasing Director for an international company sourcing material from suppliers in different continents. You found that in recent years, there has been a number of incidents happened that caused significant disruptions to the supply chain. A consultant hired by the company recommend using a probability/impact model to analyse supply chain risks and plan appropriate responses.

1. Explain the risk probability/impact analytical model
2. Provide an example of a high probability / low impact risk and recommend a response
3. Provide an example of a low probability / high impact risk and recommend a response

Answer 1

Risk Probability/Impact analytical Model:

Risk impact are defined as consequences of risk whereas Risk probality are defined as possibility of occuring risk event.

• Low Impact - Low Probability : Risk which are very low in nature have both low impact and low probability of occurence. Risk that have negative impact such as Threat is included in risk register and consider for future monitoring. Risk that have positive impact such as Opportunity and acceptance of opportunity means gaining advantage from opportunity but not pursuing it more actively.

The most commonly response are ACCEPT. In every project there is some risk involve in it and accepting risk is a strategy to gain adavantage from a opportunity at a time.

• High Impact - Low Probability : Risk that have high impact but low possibility of occuring are categorize as Moderate risk. The characteristics of risk depend on organisation Threshold and these risks are occur rarely. In this determining probability through historical is difficult due to lack of data therefore Probability determine through Subjectively.

The most commomly response are TRANSFER. Move the risk to someone else, it means transfer risk to the third party who can handle the impact of risk.

• Low Impact - High Probability : Risk that have low impact but high probability of occurence are also categorize as moderate risk. These risk are occur mostly due to uncertanity of various elements. These uncertainity can be actual cost of project or duration of a project etc. that have a little imapct.

The most commonly response are TREAT. Try to reduce the cost or impact of risk.

• High Impact - High Probability : Risk that are characterized as High risk have both high impact as well as high possibility of occurence. Risk that have negative impact such as Threat need prior action and forceful response. This action can be termination of a project. Risk that have positive impact such as opportunity should be targeted first to gain adavantage.

The most commonly response are Terminate/Avoid. eliminate the threat or protect it from the impact.

Example of High Probability/Low Impact: Weather makes sourcing material from supplier impossible come under this that have high possibilty of occurence but cause low risk. The most Commonly Response to this type of risk is to reduce the cost or impact of risk.

Example of Low Probability/High Impact: Supplier call in sick, this risk have low possibility of occuring but leads to high impact. The most commonly response to this type of risk is to transfer it to the third party who can handle this risk.