The Role of Risk Analysis in Expanding Business Activities

Risk management is essential in any successful outsourcing partnership. The author outlines the steps toward identifying, understanding, and controlling risk in key manufacturing areas.
Aug 01, 2007
Volume 2007 Supplement, Issue 3

Selecting the right partner is the key factor in every outsourcing relationship. Risk analysis can be the ideal instrument for obtaining preliminary information when evaluating a potential contract service provider and can become an integral part of the sponsor's supply chain. This article describes the main factors in risk analysis when transferring drug-manufacturing activities to a third party.

Initial evaluation

When evaluating a potential partner, the following factors should be taken into account:

  • Partner's knowledge, experience, professionalism, and technology
  • Cost analysis; verification that requirements are met (e.g., regulatory, qualitative, technological, safety and environment, backup, and disaster recovery)
  • Clear definition of the critical steps of the process and allocation of responsibilities (e.g., supply and analysis of raw materials, in-process controls, analytical controls on the finished product and release, preservation and shipment of the finished product)
  • Activities planning and intermediate testing
  • Formalization of the relationships (e.g., legal supply contract, secrecy agreement, quality agreement)
  • Continuous communication

Collaboration between the customer and the partner during risk analysis allows an integrated and shared evaluation of risks and benefits. The key element of this process is to identify and understand risk and to determine how much investment is needed to reduce each existing risk.

Acceptance level and control

The acceptance level of risk and the margin of control must be determined. In addition to risk understanding, the main factors are identification, management, and weight-up.

Figure 1
Identification. Risk analysis is a continuous process that begins with the identification of all risks. During the first phase of analysis, opportunities and threats should be identified (see Figure 1). The probability of each opportunity and threat is determined, as well its their consequences, to assess the effect and benefit of each item.

Management. The results of the identification phase determine the level of risk management (see Figure 1). First, one should plan activities by taking into account the availability of various resources (e.g., economic, number of personnel, experience, knowledge). Risk-management planning must be continuously monitored and documented, and a periodic follow-up of the status should be performed. The management-reviewing step can be a learning process because it provides an opportunity for partners to share knowledge and experiences and exchange analytical data.

The last phase of the continuous review process—understanding—is the most important because it involves shareholders in the activity, uses the analysis performed in the previous phases, and helps set the boundary conditions of subsequent steps in the process (see Figure 1).

Useful instruments in risk analysis. An important instrument in risk analysis is the protocol of the preliminary evaluation. To analyze the risk of the suppliers and contract service providers, it is necessary to resort to a predefined instrument, adaptable to the demands of each partner, in which it is possible to include all the activities in the preliminary evaluation. The protocol document should include the following chapters: technical aspects; qualitative aspects (prerequirements); logistical aspects; organizational aspects and communication; vulnerability; safety; and environment. Elaboration of this protocol document is up to the contract provider. The compilation of various questions to be answered is up to the contract acceptor.

Another important instrument is the inspection audit and the checklist of risk analysis. These documents are prepared by the sponsor, using the evaluation's protocol as a basis. They help the contract service provider verify all the risk elements and their weight.

The final instrument is the evaluation's report, including the risk's weight-up and the action plan. The final report preparation is submitted to the sponsor. The report's basic chapters are the risk assessment, formulated starting from the compilation of the checklist indicated above, and the remediation and action plan that describes the interventions necessary to reduce the risk factors in the exposed analysis areas.

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