Hey Arthur

…..don’t forget to
start recording!!

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BM5723 - Creating & Delivering Operational plans

BM5723
Risk management

Session 12 – 11/12/23
Module overview – Where are we………
W.c. Lecture/Seminar (2hr)
25 Sep 1. Introduction to module & operations management - Arthur
02 Oct 2. Operations process design - Ian
09 Oct 3. Capacity management - Ian
16 Oct 4. Inventory control - Ian
23 Oct 5. Supply chain management - Arthur
30 Oct 6. Quality management - Arthur
06 Nov 7. Lean Operations - Arthur
13 Nov 8. Assessment Workshop (1) - Arthur
20 Nov 9. Creating an operational plan & measuring performance - Ian
27 Nov 10. Leading & managing delivery of an operational plan - Ian
04 Dec 11. Assessment workshop (2) - Ian
11 Dec 12. Risk Management - Arthur

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 Business Improvement & Operations management
Session 7: Lean operations

Operations
improvement
Operations
Operations
strategy process
improvement
makes processes
N.B. Operations Total quality
better
But can also design management management
Design Improvement organises
for ‘Lean’, ‘Quality’ & process
improvement Failure
‘Risk’ Management prevention and
at the outset Planning recovery stop
processes
and control becoming
worse

Session 12: Risk Management

Session 6: Quality management
Source: Slack et al. (2016)

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Learning agenda

Systematic Risk Management

 Why do it?

 Identifying threats (‘six factors of risk’) & consequences

 Risk assessment

 Methods of controlling risk

 Documenting procedures

 Monitoring and reviewing

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Thinking about ‘risk’

BP – Gulf Oil Spill 2010

Background:
https://youtu.be/qoNM-GrRvRk
1:21

Testimony:
https://youtu.be/HjXSuQiJKKE
8:52

Why did this happen?

Risk management
A systematic approach to protecting a business & helping it to improve through
learning
It facilitates:
• clear understanding of crucial weaknesses in operations
• design of suitable mitigation controls and disaster recovery plans
• clarity about responsibility and accountability lines
• reporting against critical success factors and key performance indicators
• formal reviews of incidents to learn lessons for operations
Effective risk management can be a matter of corporate survival
(e.g. Deepwater Horizon disaster cost BP over $65b)
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Five Steps of effective operations risk management

Step 1: Identify the possible risks

Step 2: Risk assessment

Step 3: Risk control

Step 4: Documenting the process

Step 5: Monitoring and reviewing

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 Step 1: Identify the possible risks

What forms of risk (failure) are possible here at

Amazon?

https://youtu.be/Y-lBvI6u_hw
4:51

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6 main factors of risk

1. IT failure 4. Employee failure

e.g. hardware fault, software fault, cyber e.g. unknowledgeable staff, unskilled staff,
attack inattentive staff, poorly managed staff
2. Facilities failure 5. Supplier failure
e.g. mechanical breakdown, power- e.g. supplier bankruptcy, supply-chain
outage, building closure disruption, unethical supplier practices
3. Environmental failure 6. Customer failure
e.g. fire, earthquake, extreme weather, e.g. over-usage, incorrect usage, lack of
pollution, global warming, pandemic servicing

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Having identified their risks
(failures), how should Amazon go
about prioritising which risks to do
something about (‘mitigate’)?
BUSINESS
SCHOOL Risk Assessment
Risk Quantification – Looks at
(1) Potential frequency/likelihood and
(2) Impact on objectives

Open for Business Apprenticeships | Training | Talent | Research | Innovation | Incubation 12

 Risk Quantification
BUSINESS
SCHOOL

Quantifies the impact or consequence of a risk happening to the project, and the
frequency or probability of the risk occurring.
Impact of Risk
Quantitative – Numbers / Statistics
Qualitative – Educated opinion / expert judgement.
Frequency of Risk
Likelihood of occurrence
Priority
Combination of Impact and Frequency
Open for Business Apprenticeships | Training | Talent | Research | Innovation | Incubation 13
 Step 2: Risk assessment
a) Probability of failure

• Just because a risk of failure exists for an operations process doesn’t mean it’s
going to happen.

• Need to estimate the Reliability rate (Failure rate) of different parts of the operations
process

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Process Reliability Rates

• Automated pizza making process in a food manufacturer consists of 5 key stages

• The reliability rates for each stage are as follows:

i.e. 0.05 failure rate (or 5%)

The more process stages

How would you calculate the overall required in a system, the
reliability rate for this whole greater the risk of failure and
the lower the overall system
operational process of making a
reliability rate
pizza? 15
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b) Degree of severity if risk materialises
e.g. Consequences of one of Amazon’s fulfillment centres burning down are…??
• Injury & loss of life Suggestions?
• Cost of re-building
• Cost of lost stock & equipment
• Cost of idle time (wages and other overheads still need to be paid)
• Value of lost customer business
• Compensation to third parties
• Reputational damage

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Failure Mode & Effect Analysis (FMEA)
Transportation company identifies 3 reasons why goods may arrive damaged at the point of delivery
• Good not secured (Failure mode 1)
• Good incorrectly secured (Failure mode 2)
• Goods incorrectly loaded (Failure mode 3)
After analysis, relative risk ratings for Occurrence, Severity & Non-detection are agreed:

Probability of occurrence

FMEA balances likelihood of

failure and detection with the
severity of impact on the Severity of failure

business. Risk rating

1-10 (10 = highest)
Probability of non-detection
Otherwise organisations tend
to focus on high severity risks
(failures). ‘RPN’ = Risk Priority Number

Low severity failures with

high likelihood tend to get
overlooked. Priority given to Failure mode 3 for risk mitigation actions 17
Step 3: Risk control

Strategies for managing risks

Low risk rating
1. Accept the risks and change nothing
2. Attempt to reduce the risks (‘mitigation’)
3. Attempt to reduce the risks and make plans for disaster recovery
(AKA ‘business continuity’)
4. Cease the activity altogether
High risk rating

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BUSINESS
SCHOOL

Step 4 – Document Risk

Open for Business Apprenticeships | Training | Talent | Research | Innovation | Incubation 19

Step 5: Monitoring & reviewing

Failure is an opportunity to learn

• Accident/complaint investigation – what happened, what were the consequences?
• Failure traceability – how did we find out?
• Failure accountability – who was responsible?
• Failure mitigation – how well did our risk controls work?

But don’t need to wait for failure.

• Test adequacy of controls regularly and update as required

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Application of lean operations learning
Task
As a group:
• Re-familiarise yourself with the ‘Aspire’ gym business scenario.
• Identify one possible operations risk for this business for each of the 6 main
factors of risk.
• Suggest a way for ‘Aspire’ to mitigate each of the risks you’ve identified.

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Key learning points
1. Risk management is a matter of business survival
2. Risk management is a systematic process
3. Risk management assesses risk of failure, risk of detection and
consequences of failure to determine the overall level of concern
4. Risk management strategies depend upon the level of concern
5. Disaster recovery / Business continuity plans need to be co-ordinated across
the whole organisation
6. Risk controls need to be tested regularly
7. Failures need to be analysed carefully to learn lessons

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 What’s the question? (A. Risk management)

1. What are the 5 stages of a systematic approach to risk management?

1. Risk identification, 2. Risk Assessment, 3. Risk Control, 4. Process documentation, 5.
Monitoring & reviewing

2. What are the 6 main factors of risk?

1. IT failure, 2. Facilities failure, 3. Environmental failure, 4. Supplier failure, 5. Employee
failure, 6. Customer failure.

3. What is Failure Mode & Effect analysis?

A risk assessment method that measures the significance of a risk based upon the
probability of occurrence, the probability of non-detection, the severity of consequences.

4. What is a Disaster Recovery or Business Continuity plan?

A plan of action for the business to take if a very substantial risk materialises, e.g.
premises destroyed by fire. 23
Module assessment - see Moodle

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A bit about my ‘Business Continuity’ role(s) in Zurich
Insurance
(Had the potential to be a ‘disaster’)
+ Key ‘Projects’ that involved Business Continuity;
+Y2K – who remembers this?
+Euro – was anyone involved in this?

+IT Service Manager responsibilities

+Disaster Recovery – Developing and updating plans
+(Never experienced an actual ‘disaster’ in first 24 years)

+Great Flood of 2011 in Dublin!

Y2K and EURO -

+Y2K – (Anyone remember this - What could go wrong here?)

+ First experience of potential ‘known’ Business Continuity challenge
+ Y2K Co-Ordinator duties;
+ Identify every business critical device with potential issue
+ Devise a ‘testing’ plan
+ Devise a ‘Contingency’ plan
+ Assign responsibilities

+Euro Switchover (from national currency – Irish Punt)

+ Euro Co-Ordinator duties;
+ Identify every business critical process with potential issue
+ Devise a ‘Conversion’ plan (which must include testing and a ‘Contingency’ plan)
+ Assign responsibilities
IT Service Manager - Disaster Recovery

+ Business Continuity & Disaster Recovery

+ Continuation/recovery of functions and services due to some interruption
+ We had a local Risk Manager for Zurich Ireland
+ BC focuses on critical business functions
+ Interruptions can be due to: staffing (illness/mortality), building access (fire/flood), IT-related, etc.
+ DR focus for me was on critical IT services only
+ Subset of BC

+ Critical IT systems and recovery objectives (RTO and RPO) specified in SLA with
Business (usually 24/48)

+ DR not an automatic response to loss of critical IT services

+ Incident management and impact assessment first
+ Decision to invoke DR based on business impact, available options, recovery time, etc.
+ Made by relevant stakeholders and/or Crisis Management Team
DR plan for IT (2006) – Bronze
(Departmental Level)
Table of Contents

1. Introduction 3

2. Objectives 3

3. Roles and Responsibilities 3

4. Applications 3

5. Disaster Recovery Support 3

6. How to inform Staff and Customers 3

7. Staff relocation 3

8. Teleworking Status of all IT Staff as at 21/3/2006 3

9. Mulhuddart Area Map 3

Business Continuity
II. VERSION CONTROL

VERSION ISSUE ISSUED REASON FOR ISSUE PAGES

NO DATE BY CHANGED
0.1 11/2004 CMcN First Draft
1.00 7/2005 CMcN ZIIL Update
2.0 7/2006 FC New Structures and All
responsibilities, Some
other revisions
3.0 3/2008 FC

4.0 5/2008 AM Review of accuracy

5.0 5/2009 AM Update

Business Continuity - Objectives

2. Objectives

The objectives of this plan are to ensure that:

 IT staff are aware of their roles and responsibilities,
 the necessary IT support is available to the Gold and Silver Control teams managing the recovery
process,
 support is available for the operational IT systems,
 support is available to facilitate the recovery of systems rendered unstable or unusable by the problem,
 the essential IT needs of both our internal and external customers are met, (this became HUGELY important in the
context of the example I will share with you)

 priorities short and long term are set and understood

 the required actions are managed effectively,
 appropriate channels of communication are identified and implemented and
+ the set objectives are achieved
Business Continuity – Applications and Teams

Core Applications (TL) Team (possible) 4. Applications

I/90 (Pauline Fitzpatrick) Greg Wilmot, Norman Whelan +The core applications are those that are essential
IDM (Pauline Fitzpatrick) Gareth MacCauley, Carl Wray
to support the on-going administration of the
Adobe* Bried Collins, Maureen Howe, Olivia McCabe
*may not be essential Day 1 company's business functions.
Web Technology (Michael Martin Scott, Philip O'Reilly, Terry Delahunt, Simon +The relevant Team Leaders are Michael Dolan,
Dolan) Hurley
Pauline Fitzpatrick, Irene Reidy, and Susan Craven.
HelpDesk (Frank Crummey) Michael Connell, Kevin O’ Meara, Veronica Cryan
The TLs will identify and assign specific personnel to
Security (Conal O’ Regan)
support the core applications. The following table
Non-core Applications (TL) Team (possible)
EDI (Stewart Harding) Kevin Ward, Bart O’ Connor
details the applications and the personnel who could
ECommerce (Michael Dolan) Martin Scott, Philip O'Reilly, Terry Delahunt, Simon
provide the required support. The TLs will identify
Hurley and contact the specific personnel required in the
MI (Susan Craven) SAS: Susan Craven, Nebil Campbell-Shaw. immediate aftermath of a problem being declared.
BO: Elaine O'Halloran, Peter Hegarty
Financial Applications (1. 1. SAP
+*The Adobe Document Production System may not
Stewart Harding, 2. Elaine 2. SAGE (historical GL data) be considered essential for Day 1 as print requests
O'Halloran)
generated can be stored and the associated
EIS System Dynamics documents produced at a later date.
Business Continuity
5. Disaster Recovery Support
The Shared Computer Centre (SCC) Liaison Manager should coordinate with the DR Team from the SCC to
determine which IT staff are required to support the DR effort. The SCC Liaison Manager should notify the
relevant staff as to when and where they are required. Refer to map contained in this document for directions
to the DR site.

6. How to inform Staff and Customers

The IT Staff phone list is available in DR plan (X:\MANAGEMENT\SCC Meetings\SCC Disaster Recovery\
SCC Disaster Recovery V2 Sept 03\Appendices\Appendix A_Staff Contacts.xls). Alternatively staff details are
available from HR. These details are stored off-site and are available by contacting the HR Manager.
The IT TLs will contact relevant IT team members and appraise them of the situation by phone and/or eMail. It
may also be feasible to use the DR site to post messages.
The Internet site, Extranet site and eMail will be used to keep customers appraised of the status.
Business Continuity

7. Staff relocation
In the event of Zurich House being
inaccessible it will be necessary to find
alternative accommodation. Some seats may
be available in the following sites:
Pembroke Road
ESL/SCC Blackrock
The DR site – an IBM site. (Note: IBM had
contracts with multiple organisations for use
of the DR site)
How seriously did we take Business Continuity / DR?
Very seriously!

Primarily to ensure Business Continuity.

Also – a major reputational issue for Insurance Companies (whose

whole purpose is to ‘manage risk’).

BC and DR plans routinely reviewed, tested and audited.

Regular simulation exercises involving senior staff

(e.g. Bird Flu in 2003 and senior staff mortality
scenario)
The Dublin flood of
2011………
https://youtu.be/HAozRKfTXjQ

https://youtu.be/uCYoGDu0VNE

+ Having worked in Zurich for 24 years I had never

experienced a ‘disaster’, but had spent hundreds of
hours preparing for one.

+ Enjoying the drama on Monday evening- watching

YouTube videos of flood. Some concern for my
colleagues in our Claims department.
At 23:30 that night, I received a call from my Line Manager to say our HQ offices had been flooded and may be inaccessible the next morning – Yikes!!

Exercise (in groups of 2/3).

If you were the CEO in this situation determine;

1. What immediate action would you take, if any?

2. What would be your first priority?
3. Who would you contact?
4. What plans, if any, would you follow?

(Take 10 minutes and let’s discuss your thoughts and the find out what
actually happened)
My perspective of what actually happened…….1

+ Received a call from my Line Manager – 23:30 – Yikes!!

+ “Be prepared for a Conference Call at 5am” (I didn’t know this time existed!!)

+ Call at 5am (which followed Gold Team meeting at 04:30am which triggered DR plan)

+ Informed my direct reports at 5:30am

+ Proceeded to ‘Life’ site at 6am (picked up my boss and colleague en route)

My perspective of what actually happened…….2
+Colleagues start arriving on Life site from 6am – clutching manual
DR plans
+CHAOS!!! – Gold, Silver and Bronze teams all ‘taking action’
+Plans were either out the window or uncoordinated!
+Some staff set off to our Wexford office (which was unaffected)
+Some staff (who ‘didn’t get the memo’!) turned up a flooded office
+Staff called back from travelling to Wexford.
+Staff sent back again to Wexford.
+Top question after informing staff – “How do we talk to our
customers and what do we say to them?”
My perspective of what actually happened…….3
As IT Systems were largely unaffected (although eMail (unrelated
issue) and File Servers had problems), the primary focus was on
maintaining customer support (particularly in the context of a
flood).
+Website – updated by contacting a contractor via Facebook!
+Phone System – PRIORITY #1 to divert calls to operational areas.
+Claims Registration – Calls outsourced to firm in Galway
(unaffected)
+Where do our staff go? – DR site prepared
+What about IT kit? – Access to office
My perspective of what actually happened…….4
My perspective of what actually happened…….5
So what happened then…………..

A ‘Business As Usual’ pattern developed quickly and effectively!

Why?
• Practice of DR scenarios (which led to DR site being invoked early),
• Engaged staff (particularly ‘Bronze’ co-ordinators),
• IT (largely) unaffected,
• Alternative sites available (a bit of luck!),
• Co-ordinated response (after initial ‘mayhem’)

Corporate Real Estate & Facilities Management worked to restore access to our
HeadQuarters

Detailed planning required for the ‘return’ – this wasn’t in our original plans so was a
challenge!

We were back working ‘normally’ within 4 weeks!!