Risk Management – Part 1: Overview
Posted: June 2017
Successful LSS practitioners must know not only specific tools and methods for solving problems (e.g., control charts, ANOVA, setup reduction, etc.) but also project management. And from a project management standpoint there are three major overarching goals:
- Quality: Was the solution effective?
- Time: Was it completed on time?
- Cost: Was it completed on budget?
Or stated differently: Was the project good, fast, and cheap?
Effective GBs/BBs set aside time to identify project risks in each of these three areas. They also take action to be proactive in mitigating risk. The alternative is to be reactive in terms of risk.
Those LSS practitioners who ignore project risks are stuck in this reactive mode. They tend to wait until a problem has occurred before responding. This reactive approach can result in project failure in terms of time, cost, and/or quality. This approach is like fire-fighting and is an unending battle that can’t be won.
We will cover a simple, easy-to-use risk management tool. In Part 2 we will also provide examples of the most common risks associated with Project Delays and share countermeasures to address those risks. In Part 3 we will discuss risks which can impact Cost and Quality.
Before discussing tools here is a question: In what DMAIC phase is it appropriate to use Risk Management? The short answer: All of them. The longer answer: While project risks exist in all phases of DMAIC the greatest opportunity for Risk Management is in the Define and Improve Phases. This is because the majority of potential causes of project failure can be traced to decisions made in those two phases.
What LSS tools can be used to identify and manage project risks? Two basic tools can be very effective:
- Risk Prioritization Grid (Risk Management Matrix)
- Failure Modes & Effects Analysis (FMEA)
Both tools can be effective, and can be used in a complementary manner. Conversely some practitioners prefer to use just one of these tools. Either approach is acceptable. The important thing is that time be set aside for the activity of Risk Management. Our focus in this blog will be on the Risk Prioritization Grid.
For both tools the following questions are asked:
- Identify Project Risks: What could go wrong? That is, in terms of the project achieving its goals, on time, and on budget.
- Assess Risk Likelihood: How likely is the risk to occur?
- Assess Risk Impact: What is the effect on project success if the risk occurs?
- Determine Risk Response: What will be done to mitigate the risk?
Here is an example of a Risk Prioritization Grid:
The information on the grid incorporates steps 1, 2, and 3 as shown above. It is important to note that not all risks warrant a response. Only the risks deemed to be most likely to cause major project problems should be addressed. On the grid shown above we would recommend the following:
- Green – Response should be minimal, or possibly ignore
- Gray – Response should be planned, but basic
- Red – Response should be highly planned, and more sophisticated
The challenge for new LSS practitioners is to identify potential project risks. If you have never led a LSS project team before how would you know? We recommend involving an MBB or experienced BB in this activity. Someone with experience can help identify these risks. You can also read Part 2 of this blog on Causes of Project Delays for insight on the most common issues associated with this problem.