Qualitative and Quantitative Risk Analysis Techniques

Qualitative and Quantitative Risk Analysis Techniques The oxford dictionary defines a risk as a situation involving exposure to danger. In business, an occurrence is said to be risky if it has the probability of an adverse outcome. Others words typically used in association with risks are words such as hazards and threats. In most cases, were mitigation controls are not implemented, a risk could result in the loss of financial or material assets, or more critically, it could lead to loss of life. Organisations therefore need a technique to assist in the identification and classification of risks; hence the relevance of Risk analysis. Risk analysis assists in defining preventive measures to reduce the probability of identified threats occurring. Information Technology (IT) managers are able to add value to organisations by using the principles of risk analysis to ensure that businesses remain existent in the face of a risk. The risk analysis process involves three processes: Hazard identification, Risk assessment and Risk evaluation. Hazard identification is the process of identifying undesired or adverse events that lead to the materialisation of a hazard []. Risk assessment is the process of determining the size and magnitude of a risk. Finally, Risk evaluation is the process of assessing the risk in terms of its significance, gravity, or seriousness. [] Mathematically, the risk equation can be expressed as: Risk = (Impact * Likelihood) or Risk = (Probability * Likelihood) [] Impact measures the level of loss to the organisation. Loss can either be financial or operational and Likelihood measures the probability of feeling the impact. Risk Assessment Methodology Risk assessment is the systematic evaluation of the likelihood of an adverse effect arising from exposure in a defined population. The focus for IT security managers is risk assessment that is geared towards meeting the confidentiality, Integrity and Availability of information resources []. Risk Analysis Techniques Risk analysis techniques can be broken down into two broad methods: Qualitative Risk Analysis and Quantitative Risk Analysis. Regardless of the technique selected by an IT security manager, an understanding of the organisations process assets i.e. how risks were handled in the past, the scope of the project in question and plans that have been put in place to manage risks have to be clearly defined. Qualitative Risk Analysis Qualitative risk analysis involves the use of relative concepts to determine risk exposure [] thereafter, a relative classification system is employed where risks are classified as high, medium or low []. Qualitative risk analysis allows IT managers perform systematic examinations of threats and risks to the organisation. It also provides the opportunity for a review of proposed countermeasures and safeguards to determine the best cost-benefit implementation []. Using this technique requires IT managers to develop a scope plan, assemble a quality team, identify threats and prioritise threats. Advantages of Qualitative Risk Assessment Technique: Ease of calculation: when compared with quantitative technique, performing calculations using a qualitative technique is relatively simple. Monetary value of assets does not need to be determined: to perform a qualitative risk assessment, IT managers dont need to come up with a monetary value assets identified during the initial asset identification phase. It is not necessary to quantify threat frequency: because this technique does not require complex calculations, IT managers do not have to quantify the number of times a certain threat is likely to It is easier to involve non-security and non-technical staff: though it is important to select as risk assessment team members, this technique does not require that selected team members consist solely of technical members. Flexibility in process and reporting Drawback of Qualitative Risk Assessment Techniques Below is a discussion on the drawbacks of qualitative risk assessment techniques Qualitative techniques are subjective in nature- i.e. rather than relying on statistical data or evidence for its results, it is dependent on the quality of the risk management team that created it. The Cost-benefit analysis technique which assists in justifying the need for investing in controls is not used in qualitative risk assessment. It does not differentiate sufficiently between important risks. Attributes of Qualitative Risk Assessments: Qualitative risk assessment techniques offer a relatively faster process when compared with quantitative techniques; its emphasises are on descriptions as against statistical data, as such, teams members need not be overly technical to take part in a qualitative analysis process. In addition, values from a qualitative risk assessment are not actual values. In other words, they are perceived valued. Finally, its findings are simple and expressed in relative terms understandable by non-technical people therefore requiring little or no training before its results can be understood. Qualitative Risk Assessment Tools / Techniques: A number of tools are available for carrying out qualitative risk assessment a few of them are discussed below: Probability and impact matrix: the probability and impact matrix illustrates a risk rating assignment for identified risks. Each risk is rated on its probability of occurrence and impact upon objective. Risk probability and impact assessment: using this tool involves the risk analysis team rating the projects risks and opportunities []. Ishikawa (Fishbone cause and effects diagrams): the cause and effect diagram can be used to explore all the possible or actual causes (or inputs) that result in a single effect (or output). This tool can be used for identifying areas where there maybe problems and to examine causes of risks. Failure Mode and Effect Analysis (FMEA): the FMEA method starts by considering the risk events and then proceeds to predict all their possible effects in a chart form. [] Quantitative Risk Assessment IT security managers as decision makers are susceptible to biased perception. as such, they require a means of accurately determining risks such that potential risk factors are not overlooked this hence the need for quantitative risk assessments. Quantitative risk analysis generally follows on from the qualitative risk analysis process. It aims to numerically analyse the probability of each risk and its consequence on the project objectives as well as the extent of overall project risk. Quantitative Risk Assessment Techniques In quantitative risk analysis processing, techniques such as Monte Carlo'[] and Bayesian simulations can be employed because they provide indispensible tools to the risk assessment team. These tools assist the team in determining the probability of achieving a specific project objective. They are equally used to quantify the risk exposure for the project and determine the size of cost and schedule contingency reserves that may be needed. Additionally, they identify the risks which require the most attention by quantifying their relative contributions to project risk. Advantages of Quantitative Risk Assessment Using quantitative assessments IT managers are able to present the results of risk assessment in a straight forward manner to support the accounting based presentation of senior managers. [] As results are statistical in nature, it aids in determining whether an expensive safeguard is worth purchasing or not. The process requires the risk assessment team to put great effort into assets value definition and mitigation as a result; its results are based substantially on independently objective processes and metrics. Finally, carrying out a quantitative risk analysis is fairly simple and can easily follow a template type approach. Drawbacks of Quantitative Risk Assessment Calculations involved in quantitative risk assessments are complex and time consuming. Its results are presented in monetary terms only and as such, may be difficult for non-technical people to interpret. The process requires expertise so participants cannot be easily coached through it. Impact values assigned to risks are based on opinions of participants.[] Attributes of Quantitative risk assessment Accuracy of results from quantitative risk assessment tends to increase over time as the organisation builds historic record of data while gaining experience. Results generated from a quantitative assessment are financial in nature, making quantitative techniques useful for cost benefit analysis. Quantitative Risk Assessment Tools Decision Trees Analysis: the decision tree is a useful tool for choosing an option from alternatives. It is used to explore different options and the outcome of selecting a specific option. Sensitivity Analysis: This technique is used to determine the risks which are likely to have the highest impact on the project. In sensitivity analysis, the effect of each risk is examined while keeping all other uncertain elements at baseline values.[] Striking a Balance As already highlighted above, both approaches to risk management have their advantages and disadvantages. Certain situations may call for organisations to adopt the quantitative approach. Conversely, smaller organisations with limited resources will probably find the qualitative approach better fitting. Furthermore, in selecting a risk analysis technique, IT security managers should select a technique that best reflects the needs of the organisation. The decision on which risk analysis technique to use should depend on what the manager is attempting to achieve. It is this suggestion of this paper that an integration of qualitative and quantitative risk analysis techniques be adopted by IT security managers to create a more comprehensive analytical approach. This can be understood as a Hybrid Risk Analysis Approach. Capturing risks and selecting controls are important, however more important is an effective risk assessment process establishing the risk levels. Before an organisation can decide on what to do, it must first identify where and what the risks are. Quantitative risk analysis requires risk identification after which both qualitative and quantitative risk analysis processes can be used separately or together. Consideration of time and budget availability and the need for both types of analysis statements about risk and impact will determine which method(s) to use.[ ]

Eastern Gear

1. What are the major problems being faced by Eastern Gear? The major problem’s Eastern Gear is facing is that they are accepting large orders to help pay their overhead, also, their sales group is not part of the business, there is no link between them and manufacturing. Their order entry is inefficient; the tolerance on products is not firm. The layout of their shop is set up to make mistakes and increased lead time has resulted in the need for an expeditor. Lastly, they are hiring too many employees for the company’s needs. 2. What action should Rhodes take to solve his problems? First, Rhodes needs to stop accepting large orders at discounted prices to help cover overhead, doing this will not cover overhead and should only be done if the company is facing bankruptcy. Accepting the large orders causes some of the small orders to wait for processing and in-turn, are late. Also, the sales group is not part of the business, there is no direct link between them and manufacturing. Therefore, no one is paying attention to the order size. This needs to be corrected by putting a direct line of communication between sales and manufacturing. Second, the order entry system needs to be more efficient. A customer is able to request a change in design after the order has already been placed, it may be necessary to stop production on these orders and wait for the new raw materials or for the new design to be clarified. They do not have a process that charges back the variance on these orders; they need to input a system where if the customer wants a design change, they have to pay for it. Also, the customer’s prints submitted with the order do not always contain the tolerances required during machining. This is a discipline issue within the organization that needs to be eliminated; the customer must sign off on the tolerances before the order begins processing. Third, Eastern Gear needs to change the layout of the shop. Lead time has recently increased from 2 to 4 weeks, which made it necessary to hire an expeditor, there is a concerning amount of bottlenecks in the production process and inspection of the products is not done until the order is completed. The shop is set up to make production errors and ship unfinished product. The tools need to be central and equipment should not be set up by type but placed in proper sequence so that the product moves sequentially from the beginning of production to the end, and quality checks and inspection should be incorporated in the production process. Also, Eastern Gear needs to change their order fulfilment approach from made-to-order to made-to-stock. Changing the layout of the shop and order fulfilment approach will help reduce bottlenecks and lead time as well as eliminate the need for an expeditor. Lastly, Eastern Gear has a workforce of 50 people and is managed using a family- type approach. They have hired 10 new employees within the last quarter. The typical order spends 90% of the time waiting for a machine to become available, and only 10% of the time is actually spent processing the order, they should not hire more employees. 3. How can this case be related to operations strategy and process design concepts? This case related to operations strategy and process design concepts because having a good operations strategy and process design are key to running a successful manufacturing company. As witnessed in this case, the operations strategy and the process design need adjustments in order to be successful. Eastern Gear 1. What are the major problems being faced by Eastern Gear? The major problem’s Eastern Gear is facing is that they are accepting large orders to help pay their overhead, also, their sales group is not part of the business, there is no link between them and manufacturing. Their order entry is inefficient; the tolerance on products is not firm. The layout of their shop is set up to make mistakes and increased lead time has resulted in the need for an expeditor. Lastly, they are hiring too many employees for the company’s needs. 2. What action should Rhodes take to solve his problems? First, Rhodes needs to stop accepting large orders at discounted prices to help cover overhead, doing this will not cover overhead and should only be done if the company is facing bankruptcy. Accepting the large orders causes some of the small orders to wait for processing and in-turn, are late. Also, the sales group is not part of the business, there is no direct link between them and manufacturing. Therefore, no one is paying attention to the order size. This needs to be corrected by putting a direct line of communication between sales and manufacturing. Second, the order entry system needs to be more efficient. A customer is able to request a change in design after the order has already been placed, it may be necessary to stop production on these orders and wait for the new raw materials or for the new design to be clarified. They do not have a process that charges back the variance on these orders; they need to input a system where if the customer wants a design change, they have to pay for it. Also, the customer’s prints submitted with the order do not always contain the tolerances required during machining. This is a discipline issue within the organization that needs to be eliminated; the customer must sign off on the tolerances before the order begins processing. Third, Eastern Gear needs to change the layout of the shop. Lead time has recently increased from 2 to 4 weeks, which made it necessary to hire an expeditor, there is a concerning amount of bottlenecks in the production process and inspection of the products is not done until the order is completed. The shop is set up to make production errors and ship unfinished product. The tools need to be central and equipment should not be set up by type but placed in proper sequence so that the product moves sequentially from the beginning of production to the end, and quality checks and inspection should be incorporated in the production process. Also, Eastern Gear needs to change their order fulfilment approach from made-to-order to made-to-stock. Changing the layout of the shop and order fulfilment approach will help reduce bottlenecks and lead time as well as eliminate the need for an expeditor. Lastly, Eastern Gear has a workforce of 50 people and is managed using a family- type approach. They have hired 10 new employees within the last quarter. The typical order spends 90% of the time waiting for a machine to become available, and only 10% of the time is actually spent processing the order, they should not hire more employees. 3. How can this case be related to operations strategy and process design concepts? This case related to operations strategy and process design concepts because having a good operations strategy and process design are key to running a successful manufacturing company. As witnessed in this case, the operations strategy and the process design need adjustments in order to be successful.

Multinational Enterprises

Globalization is changing the way of doing business in the world today. It is the new era of business opportunity. For many major companies, going global is a matter of survival, and it means radically changing the way they work. Economic globalization changes both spatial dimension of MNE†s (Multinational Enterprises) and creates a need for more flexible production of marketing systems and new forms of organization. Firms trying to position themselves as global players face problems such as the cost of building a simultaneous presence in several product areas and foreign markets. They must also be able to manage cultural difference and be able to carry out effective cross-cultural communication. Global skills must be an integral part of an enterprise; these skills must be integrated throughout all operations of the company. Managements handling of diversity will be the most significant factor affecting MNE†s success in the global marketplace. Whether a company is concerned about the supervisors of minority employees, world trade, joint ventures or global economic cooperation, culture will have a great impact on the relationships and the operations. Edward H. Schein states it perfectly: Consider any complex, potentially volatile issue-Arab relations, the problems between Serbs, Croats, and Bosnians, corporate decision-making, getting control of U. S. deficit or health care coasts, labor/management relations, and so on. At the root of the issue we are likely to find communication failures and cultural misunderstandings that prevent the parties from framing the problem in a common way, and thus make it impossible to deal with the problem constructively (Schein 40). Every company that becomes global should have global leadership. Culturally skilled leaders are essential for the effective management of emerging global corporations. They should have persons in management that are capable of operating effectively in a global environment and they must be respectful of cultural diversity. In China, the conflict in management has been addressed as a major problem for the global-player, such as US and Chinese joint ventures. Joint ventures are designed to improve and eliminate misunderstanding of global-culture differences in management. Some Chinese and American companies try to adapt to one another, but it is not easy. Both sides have found that cultural difference is difficult to control. For example, Babcock & Wilcox joint-ventured with Grub and Lin. Workers evaluated Chinese managers by a simple standard: who ever quarreled with Americans the most aggressively would be considered comrade in arms, and whoever cooperated with the Americans would be nicknamed â€Å"Er Gui zi† (fake foreigners). The atmosphere became so tense that even the most trivial business dealings between the American and Chinese became bogged down in charges and counter charges (Tse 32). Differences in customs, behavior, and values result is problems that can be managed only through effective cross-cultural communication and interaction. All employees should learn about the about the influence of culture and be effective cross-cultural communicators if they are to work with minorities within their own society or with foreigners encountered home or abroad (Harris and Moran 59). Globalization involves doing business around the world in a new way giving companies an opportunity to explore the world market. The idea of a global-player involves low-cost and new customer. In Asia, Europe, and many other parts of the world, there are thousands of service and product markets waiting to be filled. The Chinese consumer market is one of the most attractive countries for the global-player. The Chinese economy has been growing rapidly in past decade under its â€Å"open-door† policy on foreign trade, investment and finance For example, China is one of the most discussed topics of a business opportunity for global-player around the world. This is because China has a huge and fresh consumer market waiting to be filled; â€Å"China is a major imperative for most big multinationals†. Indeed for some, such as Coca-Cola, Ericson and Procter & Gamble, the country has become one of their largest markets in Asia or even the world† (Edward Tse, 11). China is the third largest country in the world and its population is about 20 percent of the world's population. Since 1979, China has entered the new era of creating an open-door policy to carry out the construction of modernization. Opening the door to the outside world has developed a newly established special economic zone, which is on the coastal area and the area along the Changing River and much more. With the progressive improvement of the investment environment and the completion of laws and regulation concerning foreign affairs, more and more foreign investors have come to China† (Fumio ltoh, 5). As a result, import and export have increased from $20. 6 billion in 1978 to $195 billion US dollars in 1993. From the report of China Ministry of Foreign Trade and Economic Cooperation (MFTEC), â€Å"during the first seven months of 1997, there were 26 billion U. S. investment dollars flowing into China and it is 15. 5 % gain from last year† (â€Å"Chinoday. com†). China's G. D. P. has been growing at about 9 to 10 percent a year for last 15 years. Since the opening of China, people have been adapting to new cultural values. Chinese consumers are willing to spend more money on purchasing goods and services. Many international products and services have been able to succeed in this revolution because most of the Chinese consumer's decisions are influenced by promoti on, and advertising through television and magazines ads. There are increasing numbers of china's population that own their own televisions. By 1995, official statistics said that more than 80% of Chinese have their own televisions. The advertising spending in China has been growing at around 60% a year since 1990. In a survey, more than half of the people who responded, said that â€Å"television ads influenced their firs-time purchase of the brand they used most often for a home or care products† (Tse, 13). There are a lot of companies have been presented into China, such as Procter & Gamble, S. C. Johnson, Henkel, Unilever and Kao. I believe that companies going to China as a global-players need a powerful global vision to lead their organization into the future success. Arch McGill, the former president of AT&T Advanced Information System said that â€Å"Change in business starts with a vision† (Daniels, 18). Company should have a right global vision address such an important issue, such as how will they serve customer, finding local business partner and geographic concern.

Business Ethics Essay - 1202 Words

How to behave toward oneself and toward other individuals is a matter of making choices: whether to be friendly or unfriendly; whether to tell the truth or lie; whether to be generous or greedy; whether to study in order to pass an exam or to spend valuable study time watching television and cheat to pass it. These, and all other questions about how people act toward themselves and one another are dealt with in a field of study called ethics. Another name for ethics is morality. Because both words suggest customary ways of behavior, they are somewhat misleading. It had to do with what should or should not be done. Divide practical wisdom into two parts: moral philosophy and political philosophy. Theyre defined together as a true reasoned†¦show more content†¦In the daily scramble to get ahead, earn a profit, and outwit competitors, some people dont play by the rules. Sometimes the culprits are respected and ordinarily well-behaved persons even though they are accused of a cr ime or offense. Unfair and unscrupulous actions hinder the development of harmonious relationships between workers and co-workers, and between workers and supervisors. A person who cannot be trusted to do the right thing, fails to win the respect of others. It should be recognized, however, that ethical dilemmas are faced by people at all levels within an organization. Various firms have experienced breaches of ethics. The respected business firms suffer damage to their reputation when questions concerning ethical behavior arise. This is one of the reason formal codes of ethics, developed by many business organizations, and trade associations are popular today. Code of ethics is simply a compilation of the rules that are meant to govern the conduct of members of a particular organization or profession. A recent survey found that 94% of the fortune 500 service and industrial companies have a written code of ethics (American Marketing Association). Companies and trade associations exp ect their members to abide by such rules as a condition of their engaging in the profession. There are at least two noteworthy limitations to codes of ethics. First, the written rules are sometimes so vague and general they prove to be of little value.Show MoreRelatedBusiness Ethics : Ethics And Business943 Words   |  4 Pagesdiscussions in Business is Ethics. Some people believe that the decisions businesses make in interest of the business has no place in ethics and that they are essentially amoral. These businesses believe that their main objective is to simply make a profit and that it does not affect the success of the business. Whereas some businesses believe that they have to take ethics into consideration, in order for their business to be a success. Richard T. 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