Risk Management Model Development by Integrating House of Risk Model and ANP Model

Abstract

Nowadays business communities are vulnerable to risk, because risk is not only inherent in every activity or business process of the company but also arise in various forms and types. Risks that occur in each company might be different and can present in various forms and cause negative impacts. Thus it is essential for companies to have a proper SC risk management in order to survive in a risky business environment. In this study, integration of the supply chain risk management model will be carried out by using HOR and ANP model. HOR is an innovative model for proactive SC risk management which combines the basic ideas of two well-known tools: the house of quality of the quality function deployment and the failure mode and effect analysis. HOR phase 1 is used to determine which risk agent will be prioritized in advance for precautionary measures and ANP to obtain the best alternative action. There are several steps of the integration method. First of all is mapping business processes. Second, identifying risk events and risk causes. Third, conducting risk assessments and determining the Aggregate Risk Potential (ARP), which risk agents are need to be prioritized based on the ARP value from HOR 1. Fourth, identifying which actions are appropriate to minimize risk agents by ANP modeling and each of these actions will be given weight to obtain the best alternative action. ANP is a tool to determine correlation between risk mitigation and hence rank those mitigation based on the priorities. The second phase of HOR is used to determine correlation between risk mitigation and the event risk and also its effectiveness based on its degree of difficulty to be applied. The output of this phase is a list of priorities on the mitigation risk which is relatively possible and feasible to be applied and capable to mitigate the risks. This study is conducted on 3 reputable manufacturing industries to be compared and analysed. HOR2 is intended to prioritize the proactive actions that the company should pursue to maximize the cost-effectiveness of the effort in dealing with the selected risk agents in HOR 1. This research shows that risks apply differently on each company. Hence, the ANP ranking is different. Mitigation risk’s rank is determined from the second phase of HOR as it has considered correlation aspect of risk agents and its degree of difficulty to be mitigate. Finally, special actions are applied to various risks such as performance appraisal to the staffs. Further study is needed such as by ISM method in order to make mitigation actions are focused on the companies.