RISK IDENTIFICATION TOOLS AND ANALYSIS TECHNIQUES

• Subjective/qualitative analysis- uses words as description for impact and

probability (high, medium and low) often where numerical data is
insufficient, inadequate or too costly to collect.

• Risk mapping- involves illustrating the high, medium and low

description in relation to impact and probability of a risk by use of traffic
light coloring for the risk at various levels

• Scenario Analysis- involves evaluation of the outcome of three possible

Scenario; optimistic, normal and pessimistic

• Auditing- involves auditing of a process or supply chain by reviewing

the quantitative data in terms of compliance, variances, accuracy, of data
and so on, to identify possible risks in the process

• SWOT analysis- A tool that identifies the strengths, weaknesses,

opportunities and threats of an organization TO help determine the likely
risks and rewards

• External environment (PESTLE) analysis - a macro environmental

framework used to understand the impact of the external factors on the
organization and is used as strategic analytical technique to determine the
potential risks arising from the external environment

• Decision tree analysis-a graph of decisions and their possible

consequences (including resource costs and risks) used to create a plan to
reach a goal that help to form a balanced picture of the risks and rewards
associated with each possible course of action

• Fault tree analysis-Similar to the decision tree analysis, fault tree analysis
is graphical technique that provides a systematic description of the
combinations of possible occurrences in a system, which can result in an
undesirable outcome

• Network analysis-a Techniques applied as a means for ensuring that

decision making is well based and provide a documented means for
management to view project risks by use of critical path analysis (CPA)
and programme and evaluation review technique (PERT)

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 • Hazard and operability analysis (HAZOP)- The technique, uses a
systematic process to highlight possible deviations from normal thereby
illustrating where safeguards should be in place

• Dependency modeling (DM) -Involves the use of goal-oriented logic to

help build realistic business models by identifying single points of
failure. It shows how the organization is exposed to risk, the effects of
that vulnerability and indicate which countermeasures will prove most
effective

• Expected value – acts as a tool for risk analysis and evaluation by

relating probabilities in decision making to the expected Values of
particulars outcomes. It can be used to identify those risks which require
the closest management attention and action and could also be used to
consider contingent liabilities when decisions are being made about
prospective suppliers.

• Ratio analysis -Applying ratios to financial data to give information

which assist in assessing how risky a prospective supplier company or
potential customer is

• Linear regression - a graphical mathematical analysis which can forecast

the behavior of a variable based on historical data by use of two data sets
of data, each dependent on the other in risk term

• Monte Carlo method (simulation) – involves analysis of large volumes of

Variable data while producing relatively simple and understandable
results. The Monte Carlo method is extremely complex and is best used
and understood by investigating its application to the assessment of
financial market risk.

Advantages of portfolio analysis in supply chain risk management

• Management is encouraged to evaluate each of its businesses/operations individually,
allowing them to set goals and allocate resources to manage risks for each.

• Use of external oriented data is used to supplement management's intuitive judgment

in managing the risks.

• Issues of risk costs for each unit can be examined.

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 • Risky assets or operations can be identified and risk management initiatives can be
adjusted.

• Performance of the risk management initiatives over time can be examined.

• An attempt can be made to identify the relative risk of each unit/ operation in the
portfolio over time facilitating comparison and ranking.

• Areas in which risks are concentrated can be identified in order to give the firm an
idea of where it might be exposed.

The advantages of Scenario analysis in supply chain risk management

• Management is encouraged to evaluate each of its businesses/operations
individually, allowing them to set goals and allocate resources to manage risks
for each.

• Use of external oriented data is used to supplement management's intuitive

judgment in managing the risks.

• Issues of risk costs for each unit can be examined.

• Risky assets or operations can be identified and risk management initiatives
can be adjusted.

• Performance of the risk management initiatives over time can be examined.

• An attempt can be made to identify the relative risk of each unit/ operation in
the portfolio over time facilitating comparison and ranking.