2017

ONE GOOD IDEA

Risky Business

Evaluating potential risk through a prioritization matrix

By Matthew Barsalou

The prioritization matrix is used to compare several different options, such as when choosing a manufacturing method for a specific product.

Generally, criteria pertaining to the factors being considered are listed and assigned a weighted value in comparison to one another. The factors are evaluated according to each criterion and given a score, which is multiplied by each criterion’s weighted value. The factor with the highest sum of these scores is considered the top candidate.

Incorporating risk

Risk identification and mitigation is an important aspect of ISO 9001:2015.If a color-coded table for risk factors is added to the prioritization matrix, it can be used to help make decisions while considering the associated risks.

An organization must first assess the potential risks and related consequences. The risks are listed in the prioritization matrix and each option is evaluated according to potential risks, ranging from acceptable to completely unacceptable. Options with an unacceptable risk level are removed from consideration, unless the risk can be reduced.

An example of a prioritization matrix that includes risk factors is shown in Figure 1. Here, a hypothetical manufacturing company must decide how to produce a new design that has been patented and could be financially rewarding for the company.

Figure 1

The prioritization matrix indicates that licensing to a third party is the best option, but is it really the option that should be selected?

Assessing the options

The company could outsource the complex manufacturing of the new design. Outsourcing would have the advantage of reducing the need to invest in capital equipment that a subcontractor already possesses. It does, however, reduce the organization‘s control over the design.

Other options include licensing to a third party and forming a partnership. Licensing would appear to be the ideal candidate due to the high initial evaluation in the matrix. However, it has been identified as having an unacceptably high level of risk due to the possibility of the partner gaining a technology that could be used to make it the new market leader.

The design could be manufactured in-house, which has many advantages, but there are risks associated with investing in capital equipment for a project that may fail.

The company also could produce the design in-house with support from an external consultant experienced in related operations. The risks are the same as simply producing in-house, but the implementation difficulty would be significantly reduced due to the consultant’s expertise.

The traditional prioritization matrix can be useful when deciding between options, but it fails to consider the risks associated with the various options. Adding a risk evaluation table to the matrix provides decision makers with the additional information needed to make the best possible decision, while considering the level of risk they are open to accepting.


Matthew Barsalou is a statistical problem resolution Master Black Belt (MBB) at BorgWarner Turbo Systems Engineering GmbH in Kirchheimbolanden, Germany. He has a master’s degree in business administration and engineering from Wilhem Büchner Hoschschule in Darmstadt, Germany, and a master’s degree in international business and global political economy from Fort Hays State University in Hays, KS. An ASQ senior member, Barsalou is an ASQ-certified quality technician and engineer, Six Sigma Black Belt, and manager of quality/organizational excellence. He is a Smarter Solutions-certified lean Six Sigma MBB, a technical reviewer for QP, editor of the Statistics Division’s Statistics Digest and the ASQ country counselor for Germany.


Average Rating

Rating

Out of 0 Ratings
Rate this article

Add Comments

View comments
Comments FAQ


Featured advertisers