RISK MANAGEMENT IN LEAN ENTERPRISES

LEAN SIX SIGMA PART…. 7 MARATHON STUDY

In my last article, I talked about IMPLEMENTING LEAN MANUFACTURING”

Please read along as we attain another height in PART..8..

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RISK MANAGEMENT IN LEAN ENTERPRISES

All ventures that an organization undertakes have risk, that is, uncertain opportunities and threats. The risk management (RM) methods encourage a deliberate and integrated consideration of both these outcomes. Various standards have defined risk in the sense of both negative and positive aspects. Other core concepts in the RM method are the partitioning of the problem into two variables, consequence and likelihood. Thus the analysis task reduces to determining first the magnitude of the outcome, which may be positive or negative, corresponding to opportunity or threat, respectively, and then the likelihood of that outcome.

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The magnitude of the outcome may be represented quantitatively or qualitatively. Likewise, the likelihood may be quantified in a probability or expressed as a subject qualitative statement (very rare…almost certain). These two variables are then combined to give an overall score for the risk. If the variables are all quantitative then a simple product operation is used, but qualitative variables require a mapping process. The process is repeated for several scenarios under consideration and the RM method assists the decision making by identifying the scenario with the highest risk (or lowest as the case may be).

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The risk management method is particularly effective for quantitative variables and has therefore found widespread adoption in engineering, finance (particularly insurance), and project management situations. Although the method as a whole claims to be applicable to strategic decision-making even at the highest level of the organisation and examples of this are available, this is not a particularly well-developed capability of RM. In lean implementation, we are particularly focused on what is desirable in terms of lean success and sustainability and undesirable in terms of failure of the implementation.

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Intersection between Lean Implementation and Risk Management

There has been some prior work at the intersection of these two bodies of knowledge. One line of enquiry, although perhaps not risk management per se, has been to identify critical success factors for lean implementation Innovative frameworks and manufacturing techniques, for example, core competency-based framework and emergent manufacturing methods, have been applied to reduce specific “risks.” The two methodologies have been compared and applications in lean itself have been used to identify and treat uncertainties (risks) in construction projects. Processes including supply chain modelling have been used to support the mitigation of risks. The applicability of RM in selecting lean Six Sigma projects has been identified.

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Regarding the specific question of how to manage the risks in the implementation of lean, there has been work on matching of lean systems strategy to risk identification, using a systems engineering approach, and use of project management methods. It has been suggested to merge lean thinking and “high reliability” to balance the nonbuffered, “fragile” nature of lean. There is a lack of methods to improve the reliability of lean implementation. In summary, reviewing the literature we found little to no application of a standardised risk assessment to a lean implementation project.

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Two other methodologies have some relevance. These are Agile Manufacturing and Theory of Constraints. However, neither of these has shown any major integration with risk management, though some movement has been made in that direction.

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While the lean and risk management practices each have well-established literature, there is currently no integration between the two. This is despite the fact that the implementation of lean is full of risks: both the opportunities that the managers seek to capture and the threats and failed implementations that too frequently result.

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The purpose of this paper is to develop a methodology for assessing the risks—both the threats and the opportunities—of the lean methods. The particular area of interest is contextual decision-making: we wish to be able to better identify the lean tools that are relevant to specific situations. The area under examination is SME manufacturing firms, because lean is particularly difficult to implement in such organisations. This is worth attempting, for the potential to avoid failed lean implementation, the attendant wasted organisational effort, and resistance against future attempts.

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Key Takeaways from Lean Enterprises

??Lean enterprise is a business term describing the practice of reducing or eliminating inefficiencies in the production process.

???The underlying principles behind lean enterprise were originated from Toyota Motor Corporation's Toyota Production System (TPS) and by Motorola's Lean Six Sigma program, both of which stress removing wasteful production elements.

?? The main goal is to recognize and increase the value of products or services for customers, whose perspectives and consumer habits ultimately dictate lean enterprise directives.

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Lean Project Management

Lean Project Management is a concept for planning and controlling projects. Lean Project Management combines the instruments and methods of project management with the ideas of lean management. The range of approaches extends from the verbatim transfer of the methods and / or principles of the Toyota production system to project management to freer, contextual interpretations. If one follows the interpretation of the "Lean idea" by James P. Womack and Daniel Roos This is how the "Lean concept" can be summarized in five principles that can be transferred to project management. Some of these principles have to be implemented in time-limited, novel projects with the help of other methods than in permanent, repetitive production processes.

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Principles

Specify the optimal benefit/cost ratio from the customer's point of view

The first problem that “Lean Project Management” has to solve is that both external and internal projects are started without any clear benefit for defined customers. This is important for the “lean” idea insofar as it makes little sense to make the management of a project “lean” if the project as such is “waste”. The task of working out the benefits of a project before the start of the project is the task of the initiation phase in all standards for project management. In this phase, the first step towards "Lean Project Management" can be achieved through methods for specifying and validating the project benefit as well as for project selection.

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Define the minimum value-adding work packages and work processes

A second problem that "Lean Project Management" addresses is the increasing bureaucratisation of project management, which often means that customers, project results and value-adding activities are neglected. In this situation, “Lean Project Management” has the task of identifying the minimum value-adding work packages and work processes that lead to the optimal benefit-cost ratio for the customer and making them as clear, simple and transparent as possible. This can be achieved through a result-oriented design of project management activities and/or through a systematic reduction of bureaucracy in project management standards in organizations.

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Establish clear responsibilities, tasks and competencies at the lowest possible organizational level

A third problem to which "Lean Project Management" has to provide answers is the unclear assignment of responsibilities between project and line (client) on the one hand and between project manager and project staff on the other. In both cases, these ambiguities usually arise in conjunction with questions about the distribution of power. The demands of "Lean Project Management" at this point are, firstly, to establish clear responsibilities, tasks and competencies between the individual roles and, secondly, to place them as low as possible in the hierarchy. This can be achieved with the help of classical methods of organizational theory (role design or "job design" and coordination mechanisms) and leadership theory (delegation and control).

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The product, or result, of a project is created, maintained, adapted, updated, and demolished/retired by various projects during its life Ensure a continuous flow of results by limiting work in progress

A fourth problem with which " Lean Project Management" is confronted consists of long lead times, continuous interruptions, chronic quantitative and qualitative overloading of project employees and the associated risks for the adherence to deadlines, budgets and quality of projects. The main reason for this is to be found in too much work in progress or in progress ("work in progress") in an organization or in a project. In this situation, “Lean Project Management” has the task of significantly reducing the amount of open work in a project-oriented organization and in the projects themselves in order to enable a largely uninterrupted and continuous flow of results at a “sustainable speed”. Critical chain project management can be achieved with the help of "work in progress" limits (Kanban) or "time boxing" (Scrum).

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Identify errors immediately and eliminate them sustainably

A fifth problem area to which “ Lean Project Management” approaches are expected is the optimization of measures for project quality assurance. Analytical measures, such as "lessons learned", are in part either not carried out, do not analyze the benefits of the project for the project customers and/or are not used as a basis for the design of further projects. Constructive measures of quality planning, assurance and control have positive effects on project planning and tracking, but not verifiable and repeatable on the realization of benefits for the customer. Firstly, this requires methods to identify "errors" in projects, since "project errors" are not synonymous with specification deviations in production. Second, methods are required to identify these in projects at an early stage and either to eliminate them or to solve them sustainably. Methods for this can be found in the "Daily Scrum" (Scrum) and in the service operation of ITIL .

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The principles show, first, that "Lean Project Management" is not a new or different project management, but seeks to free established standards and practices of project management from reactive power (a type of waste). Secondly, it becomes clear that in "Lean Project" management already established methods from project management, from agile approaches as well as from organizational and leadership theory are used, which makes it unnecessary to reinvent or relabel existing methods. Thirdly, the principles of "Lean Management" can be applied to both "classic" and "agile" or "hybrid" approaches, which makes the approach independent of the process model chosen.

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