Risk Management

Why Risk Management?
The Capital Project Risk Management Process, described in this handbook, is intended to result in the effective management of project risks and opportunities. The project manager, project sponsor, and project team members jointly develop a written plan that enables them to identify, assess, quantify, prepare a response to, monitor, and control capital project risks.

Definition
Project risk is an uncertain event or condition that, if it occurs, has a positive or a negative effect on a project objective. A risk has a cause and, if it occurs, a consequence.
Risk management is the systematic process of planning for, identifying, analyzing, responding to, and monitoring project risk. It involves processes, tools, and techniques that will help the project manager maximize the probability and consequences of positive events and minimize the probability and consequences of adverse events. Project risk management is most effective when first performed early in the life of the project and is a continuing responsibility throughout the project.

Objective
The project risk management process helps project sponsors and project teams to make informed decisions regarding project alternatives. Risk management encourages the project team to take appropriate measures to minimize:

1. Adverse impacts to project scope, cost, and schedule
2. Management by crisis

Risk Management Planning
Before starting project studies, the project manager establishes a PDT in accordance with Department policy. For details, see the “PDT Formation” sub-section of the Project Development Procedures Manual

As part of workplan development, project development team (PDT) members assign project team members to create a project risk management plan.
At this point, the assigned project team members begin to create the risk management plan. The risk management plan identifies and establishes in the project plan the activities of risk management for the project.

If the project will undergo a value analysis (VA), the VA team assists in preparing the risk management plan. If the risk management plan is prepared with a VA study, the risk management plan is included in the VA study report.

To prepare the risk management plan, the assigned project team members use a spreadsheet that shows the risks and responses in an abbreviated form. For a sample of what this spreadsheet might contain, see “Appendix B: Sample Risk Management Plan Spreadsheet” on page 22. An electronic version of the sample spreadsheet is available on the project management guidance Web site at http://www.dot.ca.gov/hq/projmgmt/guidance.htm

Risk Identification
Risk identification involves identifying potential project risks and documenting their characteristics. Risk identification results in a deliverable — the project risk list.
The assigned team members identify the potential risks and opportunities, using:

1. The sample risk list provided on page 18
2. Their own knowledge of the project
3. Consultation with others who have significant knowledge of the project or its environment

The team considers:

1. Risks — what might go wrong
2. Opportunities — better methods of achieving the project’s purpose and need
3. Triggers — symptoms and warning signs that indicate whether each risk is likely to occur

Qualitative Risk Analysis
Qualitative risk analysis assesses the importance of the identified risks and develops prioritized lists of these risks for further analysis or direct mitigation. The team assesses each identified risk for its probability of occurring and its impact on project objectives. Sometimes experts or functional units assess the risks in their respective fields and share these assessments with the team.

Team members sort the identified risks into high, moderate, and low risk categories for each project objective (time, cost, scope). They rank risks by degrees of probability and impact, and include their assessment rationale. For more information and a sample, see “Appendix C: Risk Probability Ranking” on page 25.

Team members revisit qualitative risk analysis during the project’s lifecycle. When the team repeats qualitative analysis for individual risks, trends may emerge in the results. These trends can indicate the need for more or less risk management action on particular risks, or whether a risk mitigation plan is working.

Quantitative Risk Analysis
Quantitative risk analysis is a way of numerically estimating the probability that a project will meet its cost and time objectives. Quantitative analysis is based on a simultaneous evaluation of the impact of all identified and quantified risks. The result is a probability distribution of the project’s cost and completion date based on the risks in the project.
Quantitative risk analysis involves statistical techniques that are most easily used with specialized software. The Department has specialists trained in these techniques and equipped with the necessary software. A specialist is assigned to assist each value analysis team. The team provides the specialist with the data needed to perform the analysis.

When to Use Quantitative Analysis
The Department does not require quantitative analysis for projects; however, it strongly recommends that projects requiring VA, or those projects with an extremely high risk identified from the qualitative analysis, undergo quantitative risk analysis.
Deputy District Directors for Project and Program Management are responsible for identifying which of their projects will undergo VA during the following fiscal year, and for submitting a list of these projects to the District VA Coordinator. Project managers must arrange for appropriate resources through the functional mangers, consultants, and design centers, and must include VA in the project schedules.
For more information about implementing VA, see the following Web site. http://www.dot.ca.gov/hq/oppd/pdpm/chap_htm/chapt19/chapt19.htm

Risk Response Planning
Risk response planning focuses on the high-risk items evaluated in the qualitative and/or quantitative risk analysis. It identifies and assigns parties to take responsibility for each risk response. This process ensures that each risk requiring a response has an owner.
The project manager and the PDT identify which strategy is best for each risk, and then design specific actions to implement that strategy. These strategies and actions include:

1. Avoidance. The team changes the project plan to eliminate the risk or to protect the project objectives from its impact. The team might achieve this by changing scope, adding time, or adding resources (thus relaxing the so-called “triple constraint”). These changes may require a PCR.
2. Transference. The team transfers the financial impact of risk by contracting out some aspect of the work. Transference reduces the risk only if the contractor is more capable of taking steps to reduce the risk and does so.
3. Mitigation. The team seeks to reduce the probability or consequences of a risk event to an acceptable threshold. They accomplish this via many different means that are specific to the project and the risk. Mitigation steps, although costly and time-consuming, may still be preferable to going forward with the unmitigated risk.
4. Acceptance. The project manager and the project team decide to accept certain risks. They do not change the project plan to deal with a risk, or identify any response strategy other than agreeing to address the risk if and when it occurs.

Risk Monitoring and Control
Risk monitoring and control keeps track of the identified risks, residual risks, and new risks. It also ensures the execution of risk response plans, and evaluates their effectiveness.
Risk monitoring and control continues for the life of the project. The list of project risks changes as the project matures, new risks develop, or anticipated risks disappear.

Periodic project risk reviews repeat the tasks of identification, analysis, and response planning (see previous tasks). The project manager regularly schedules project risk reviews, and ensures that project risk is an agenda item at all PDT meetings. Risk ratings and prioritization commonly change during the project lifecycle.
If an unanticipated risk emerges, or a risk’s impact is greater than expected, the planned response may not be adequate. The project manager and the PDT must perform additional response planning to control the risk.

Risk control involves:

1. Choosing alternative response strategies
2. Implementing a contingency plan
3. Taking corrective actions
4. Re-planning the project

The functional manager assigned to each risk reports periodically to the project manager and the risk team leader on the effectiveness of the plan, any unanticipated effects, and any mid-course correction that the PDT must take to mitigate the risk.

Strategic Finance

Long term financing strategy is used by a firm to meet :
Fixed assets requirements , Permanent working capital requirements , Portion of fluctuating working capital requirement

Every business requires funds on a continual basis for expenses incurred on for :
Purchase of raw material , Manufacturing costs , Administration

Where the management's estimate of the useful life of an asset of the enterprise is shorter than that envisaged under the provisions of the relevant statute, the depreciation provision is approximately computed By applying a higher rate

A company is prohibited to buy back its own shares in the following circumstances
Through any subsidiary company , Through any investment company , If a company defaults in repayment of deposits or interest due thereon

The main characteristics of CAPM are :
It is an equilibrium Model , It describes the pricing of assets as well as derivatives , Expected security return = Riskless return + beta x (expected market risk premium)

Supply Chain Management

Supply chain consists of all parties involved directly or indirectly in fulfilling a customer request. It not only includes the manufacturing and suppliers but also includes transporters, wholesalers, retailers and customers. Among the various functions the new product development, marketing, operations, distribution, finance and customer service. It is dynamic and involves the constant flow of information, product and funds between different stages. Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer.

Supply chain management involves coordinating and integrating these flows both within and among companies. It is said that the ultimate goal of any effective supply chain management system is to reduce inventory (with the assumption that products are available when needed).

It includes logistic and maintain the downstream and upstream relationships to ensure superior customer satisfaction to the organization. As we know about one of the main objectives of SCM is to lower cost. Although main objective is to lower the price, but incase of present situation of our country the price of necessary is hiking. Supply chain is a long process. If anywhere of this process fell to retain the cost under tolerated level without doing trade off then there will be an severe impact on the price of product. We are going to interpret the probable issues for price hike of necessary products.

Demand characteristics: the more the disposable income of population in an area, the more will be the demand of the product. Increase demand means there will be more distribution facilities available in these area and more distribution facilities will incur more costs. Ultimately price of essential product will go up. In case of Dhaka city we are facing this problem. And that affect the whole country.

Trade off: in case low value products, the marketers do not more about Trade-offs. There might be some area where they can reduce price of essential product which result in price hike of essential products.


Supply Chain is a sequence of processes and flows that take place within and between different stages. In our present situation it is like pull view processes where execution is initiated in response to customers demand. So everyone is charging extra charge (price). Because of failure of supply chain management to supply the necessary products on time or in large amount, the price of the necessary product is going up. 

Interpretations of Deming's 14 Points of Management

Introduction to Deming:
W. Edwards Deming conducted a thriving worldwide consulting practice for more than forty years. His clients included manufacturing companies, telephones companies. railways, carriers of motor freight, consumer researchers, census methodologists, hospitals, legal firms, government agencies, and research organizations in universities and in industry. Deming a U.S. business management expert used statistical analysis to formulate quality-control methods in industrial production. His methods, advocating and enlisting the cooperation of the workers in the achievement of high-quality results during the manufacturing process, instead of relying on inspection at the end of the process to find flaws, were credited with the success of Japan's spot-World War II economic boom. Deming's ideas of quality and continuous improvement were adopted and implemented by Japanese firms long before many U.S. firms acknowledged their importance. For this reason, a host of Japanese firms developed a competitive advantage in product quality that has been difficult for the U.S. to overcome. U.S. companies, which for many years complacently ignored Deming's methods, finally began to implement them in the 1980s. Deming's 14 points for managing and achieving quality have become a watchword in many current businesses globally. 

The Deming Method:
Deming was an advocate of ideas proposed in General Systems Theory used in engineering and applied to other academic disciplines. The General System Theory suggests that a unit of study as a system can be identified by a cyclical INPUT-PROCESS-OUTPUT-
FEEDBACK cycle. The difference that Deming applied to the systems concept for the Deming Method is the presence and importance of the customer as the ultimate definer of quality of a firm's products or services. Because of the systems nature of this method, the results of acquired feedback from the customer become criteria for modification of product design, changes in input (raw material) specification, alterations in production processes, or changes in output (including distribution). The goal is to ensure that the total product package is constantly monitored and improved to meet or exceed customers' changing expectations for product performance. 
For organizations to successful incorporate this method, Deming proposed and has refined his 14 POINTS. What follows is a listing of the 14 points with a basic interpretation of each 
Deming's 14 Points of Management:

1. Create constancy of purpose toward improvement of product and service, with the aim to become competitive and to stay in business, and to provide jobs. 
At this new economic era the key is competitiveness. The markets are global, are worldwide and if you intend to stay in business, you need to be competitive. To be competitive, the best way is to improve the products or services you offer. But not only improve one time, you need to be constantly improved in order to offer the best of a kind in products or services. Today, an American company competes against not only Japanese but Canadian, Mexican, European,etc. To be successful a firm must be competitive. 

2. Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, must learn their responsibilities, and take on leadership for change. 
The Western management certainly is behind the Oriental management. We are in a new economic era with more competition, Global markets, technology improvements, and the challenge is huge. American companies and American people need to adopt a new philosophy considering cost reduction, team work, quality and leadership. If we do not, we will see other countries taking advantage from us and our industry. 

3. Cease dependence on inspection to achieve quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place. 
The first thing we need to change is our thinking. To achieve quality does not mean inspection 100%. Inspection costs are high and we need cost reduction. Inspection takes timeand we are looking for better timing, better delivery. 
We have to think in quality on Product Design not at the end of the production process but at the very beginning: when a product or service is designed. Quality assurance must be considered since the first stage of production; and probably at the end of the process no inspection will be necessary. 

4. End the practice of awarding business on the basis of price tag. Instead, minimize total cost. 
Move towarda single supplier for any one item, on a long-term relationship of loyalty and trust. To be competitive it is very important to have lower costs. We have to minimize total cost; not only the price. Remember that defective units are cost; delay in delivery is cost, excessive inventory is cost, etc. To minimize total cost long-term relationship with suppliers is really important. If you as a customer help your supplier to develop, to improve the quality, you will receive better products so you will win and your supplier too. 

5. Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs. 
As discussed in the previous point, the total costs involved in the production/service system are high. Continuous improvements in the system will help lower costs through increased productivity and efficiency. This, in turn, should help keep the costs manageable. 

6. Institute training on the job. 
The Deming video noted that there is a difference between education and training. Management should recognize this and provide the necessary training to their employees. Training should also be ongoing. Continuous improvement of the work force will contribute greatly to the success of the organization. 

7. Institute leadership. 
The aim of supervision should be to help people and machines and gadgets to do a better job. Supervision of management is in need of overhaul as well as supervision of production workers. Leadership empowers everyone. It promotes excellence in everything "we" do. Deming suggests that through leadership at all levels, the organization will be able to achieve success. The old style of management is out. 

8. Drive out fear, so that everyone may work effectively for the company. 
Fear is both a motivator and de-motivator. Fear motivates, only to the extent that the "job" is done to avoid repercussions. it serves as a greater demotivator as it oppresses individuals creativity. Ultimately the organization suffers in such a negative atmosphere. 

9. Break down barriers between departments. 
People in research, design, sales, and production must work as a team, to foresee problems of production and in use that may be encountered with the product or service. Barriers impede sharing and cooperation. Organizations today should eliminate the "department barriers" that isolate employees. This isolation inhibits team play that is an essential element for organizational success today. The "team" philosophy can be used outside of sports to create the same cohesiveness within organizations that champion sports teams possess. 

10. Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. 
Such exhortations only create adversarial relationships, as the bulk of the causes of quality and low productivity belong to the system and thus lie beyond the power of the work force. Building quality into operation eliminates the uses of slogans and targets because of continuous organizational improvements. 

11. Eliminate work standards (quotas) on the factory floor. Substitute leadership. 
Improve operation skills and eliminating quotas will allow employees to experience different tasks on their job. By implementing some of these, employees will feel productive, therefore, will contribute more to the organization. Eliminate methods can improve product and services quality. Methods are operating systems used by the organization during the actual transformation process. 

12. Create Pride in the job being done. 
1. Remove barriers that rob the hourly worker of his right to pride of workers of his right to pride of workmanship. The responsibility of supervisors must be changed from sheer numbers to quality. All successful quality enhancement programs involve making the person responsible for doing the job responsible for making sure it is done right. Then employment involvement is a critical component in improving quality. 
2. Remove barriers that rob people in management and engineering of their right to pride of workmanship. This means, inter alia, abolishment of the annual merit rating and of management by objective.

13. Institute a vigorous program of education and self-improvement. 
Increasing the flexibility of an organization's work force by training employees to perform a number of different jobs. For instance, cross training allows the firms to function with fewer workers, because workers can be transferred easily to areas where they are most needed. 

14. Put everybody in the company to work to accomplish the transformation. 
The transformation is everybody's job. The involvement might range form an individual worker being given a bigger voice in how she or he does the job, to a formal agreement of cooperation between management and labor, to total involvement throughout the organization. Take action. 

AV-PR-SOP-002 Purchasing

1 Purpose:
This procedure is written to establish and maintain a documented procedure for the purchase of Raw Materials, Packaging Materials, Services, Engineering Components, Manufacturing Equipment and Accessories

2 Scope:
This procedure is applicable to the purchase of Raw Materials, Packaging Materials, Services, Engineering Components, Manufacturing Equipment and Accessories.

3 Responsibility:
HOD Commercial
Purchase Officer

4.Definition:
Raw Material
A material, which is used during the process of manufacture of finished product which may or may not be an active ingredient of the finished product.

Packaging Material
A material used for packing of the finished product which may or may not be in direct contact with the finished product, such as foils, monocartons, shipping cartons etc.

R & D Materials
Materials or chemicals purchased and used for the purpose of experiments, product or process development.

R&D Equipment
Any equipment or accessory or an instrument purchased and used for the purpose of experiments, product or process development.

Services
Calibration services, Pest Control services, Diesel Generator, Air Compressor & Chiller service, Consultants (Technical, Training), Fire services, transportation etc.

Engineering Components
All components or accessories used on equipment used for manufacturing processes only.

Manufacturing Equipment and Accessories
All equipment used in direct manufacture of the finished product.

Raw Material & Packing Material Purchase
A Rolling Production Plan is received from the marketing department for three prospective months at end of every month, which forms the basis for quantification of Raw material and Packaging material requirements

Based on the “Production Plan”, the Head Commercial or designate finds out the supplier or vendor for a given raw or packaging material as per the procedure AV/PR/SOP/003. Commercial terms and conditions are sent to the supplier separately and are updated whenever
changed

Services
The selection and authorization for following services is by the technical person of the concerned department:
• Pest Control Services
• Diesel Generator Maintenance
• Air compressor & Chiller Maintenance Services
• Fire Fighting and other Safety Services
• Truckers or Transporters
• Calibration Services
• Consultants on technical or regulatory matters
• Training
The Commercial Head’s responsibility is limited to commercial issues and documentation only for all of the above.

Engineering Components
The Maintenance Head is responsible for the Technical Specifications and Engineering drawings .The Indent is raised by Maintenance Head or designate and it is authorized by Unit Head. The Commercial Head’s responsibility is limited to commercial issues and documentation only.
Manufacturing Equipment and Accessories
Maintenance Head is responsible for the Technical Specification and Engineering drawings .The Indent is raised by Production Manager or designate and it is authorized by the Unit Head. The Commercial Head’s responsibility is limited to commercial issues and documentation only

R&D Materials and/or Equipment
There could be circumstances based upon development needs; to purchase materials and/ or equipment not listed in “Approved Vendor List” for the purposes of experiments towards continual improvement or product or process development. The Indent (PR) shall be raised by the requester and approved by the Unit Head. The Commercial Head is authorised to purchase materials not listed in the “Approved Vendor List” once the PR received clearly indicates that the material is for R&D use or “Trial Purposes” only