The assessment must differentiate the areas of higher risk (threats) from those that represent chances for improvement
(opportunities). The operative tools necessary to identify risk areas are then finally presented to define the value (risk
analysis) and to attribute the level of gravity and acceptance for business (risk assessment), the possible need for remedial
actions, and the resolution time and responsibilities (action–remediation plan).
Figure 2
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Weight-up.
Risk weight-up considers the effect and probability of threats and opportunities enumerated in the risk identification phase;
these can be weighted using the different levels shown in each quadrant in Figure 2. The levels are defined as follows: very
high (VH), high (H), medium (M), low (L), and very low (VL). Because the defined levels are five in the ordinate and five
in the abscissa of each quadrant, the worst-case risk is associated with the couple VH–VH (5 × 5 = 25). Similarly, the best-case
risk is associated with the couple VL–VL (1 × 1 = 1).
The quadrants are highlighted in colors corresponding to probability and impact-level combination. The yellow areas are where
the risk is acceptable for threats and opportunities. The red and pink areas are associated with the unacceptable risk for
threats and opportunities.
For example, if you must transfer an industrial process in an emerging country in which partner knowledge (or experience,
etc.) may be very low and the cost is very low, then the evaluation of the risk is:
threat: impact VH(5) × probability VH(5) = risk 25
opportunity:impact VL(1) × probability VL(1) = risk 1
Example of a supplier evaluation questionnaire
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Therefore, there is a big threat to transfer the industrial process, with a very low confidence level and a very big economic
opportunity. In this case, management must decide whether the economic opportunity is acceptable while considering the risk
associated with the partner's inexperience or whether it is better to partner with another more knowledgeable service provider
for an acceptable increase of cost. In this alternative case, the threat risk may be considerably less, and the opportunity
could be less interesting.
Essential elements of a preliminary evaluation protocol
The evaluation of a selected partner may involve several financial and industrial aspects (see sidebar, "Example of a supplier's
evaluation questionnaire"). The evaluation should also contain information about the following:
- Identification of the designated contact person
- Date of the company's foundation
- Company turnover during the past three years and turnover percentage connected to exportation(availability of the company's
financial statements)
- Number of employees, their turnover and distribution on the basis of the competence areas (e.g., logistics, administration,
production, control)
- Organization chart, roles, and responsibilities
- Analysis of the processes and activities performed internally and externally
- Main products and customers and their percentage division
- Proprietary products registrations
- Problems from natural disasters (earthquakes, typhoons) in the contract manufacturing areas and protective actions
- Dimension and layout of the property (covered and open warehouses, production, offices, etc.), including their building standards, age, and possibility of expansion
- Management of main energy resources (electricity, water, etc.)
- Protection of the area against damages and fire
- Protection from intrusions and terrorism
- Protection and backup of critical and reserved information
- Production organization (e.g., number of shifts)
- Costs for developing starting materials into the finished product
- Saturation level of the most important systems (free capacity) and their age
- Activities automation and information-technology levels
- Existence of management procedures for major good manufacturing practice processes (e.g., review and release of the batches,
complaints, market's traceability and recall, deviations, changes, staff education, and training)
- Manufacturing management and product control (e.g., written specifications defined for each product and its components, equipment,
and critical validated processes; written analytical methods; batch documentation; and functions dedicated to the planning
of productive activities and to materials stocks)
- Main customers, their qualification, and reliability
- Materials management and its status (e.g., conditions of preservation, quarantine status approved and rejected, cleanliness
of the areas, shipment conditions and related documentation)
- Local authorizations, licenses, and voluntary certifications (ISO, etc.)
- Preventive-maintenance programs
- Calibration and validation scheduling for control devices and critical equipment
- Materials control and approval levels of the various stages of the manufacturing cycle (e.g., raw materials and packaging
materials, bulk and finished product).
- Management of company safety, contingency, and emergency plans
- Control of emissions in the atmosphere and of environmental compatibility
- Company politics in human resources (e.g., no discrimination, equal opportunities, rights, and duties).
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