Risk Management as Methodology of Continual Quality Improvement in Enterprise

Risk Management as Methodology of Continual Quality Improvement in Enterprise MÁRIA HUDÁKOVÁ MÁRIA LUSKOVÁ Faculty of Special Engineering University of Zilina Ul.1.maja 32, 010 26 Zilina, SLOVAKIA maria.hudakova@fsi.uniza.sk, maria.luskova@fsi.uniza.sk Abstract: At present competitive business environment satisfied and steady customer is the biggest priority of each enterprise. Over the last years the customers in Slovakia are increasingly aware of the quality importance and this fact is visible in increased number of defective products claims. The aim of this paper is to propose integration of risk management into the process of continual quality improvement in enterprise. In the field of quality risk management should deal with existing risks as well as with potential risks to prevent nonconforming products production. Therefore risk management as quality improvement methodology should solve especially potential risks and their causes as preventive measures and not only preventive measures that bring financial losses and unsatisfied customers. Key-Words: quality, risk, risk management, quality improvement, enterprise 1 Introduction Production of poor quality product reduces efficiency of production from several aspects. It concerns time loss that could be used for quality product production, repair requiring further costs and liquidation of nonconforming products connected with loss of used material, energies and total production costs. It is well known that solving poor quality products (nonconforming) after process is expensive and ineffective. Each manufacturing enterprise should look for adequate tools to reduce nonconformity and ways of continual quality improvement in enterprise According to STN EN ISO 9000 quality improvement is understood as part of quality management focused on increasing the ability to fulfill quality requirements, e.g. effectiveness, efficiency or traceability. Improvement activities can range from small-step of continual improvements at working place to improvement within the whole enterprise. Based on data analysis the enterprises have to define the objectives for improvement of products, processes, structures and management systems [10]. Since the customers requirements are still developing the enterprises should not undervalue improvement processes. In quality systems improvement is focused especially on two fields: widening of the functions spectrum, increasing fitness for use, decreasing nonconformity range with customers requirements,. In accordance with standards STN EN ISO 9001 and 9004, the enterprise must continually improve effectiveness of quality management system through use of quality policy, quality objectives, results of audit, data analysis, corrective and preventive measures and management review. The enterprise should ensure that continual improvement becomes established as a part of enterprise culture by [11, 12]: providing the opportunities for people in the enterprise to participate in improvement activities, through their empowerment, providing the necessary resources, establishing recognition and reward systems for improvement, and continual improvement of the effectiveness and efficiency of the improvement process itself. Methodologies of quality improvement are as follows [5]: PDCA cycle, methodology of improvement through corrective measures, e.g. method Quality Journal, methodology of improvement through preventive measures, methods of successive quality improvement, e.g. Kaizen, Continuous Improvement, ISBN: 978-1-61804-123-4 335

methods of radical quality improvement, e.g. Reengineering, method Six Sigma, WV model of continual improvement, Methods and tools of continual improvement, Together with these methodologies we recommend to apply risk management process, too. Risk management is an important tool of quality improvement that contributes to management of not only existing risks but especially potential risks and it is a prevention that can ensure continual quality improvement in enterprise. 2 Problem Formulation In majority of the Slovak enterprises risk management is represented by one person who generally carries out complete risk assessment for all enterprise activities. Risk management in the field of quality is applied only very marginally and only in certain fields. The risk assessment usually includes only estimation, verbal evaluation without quantitative calculations. Usually it is a formal obligation resulting from following standards ISO, OHSAS and subsequent auditing. But production process is characterized by a lot of risks related to quality of products. Analysis of the causes of nonconforming products occurrence can be based on statistical evaluation of non-conforming products, statistical evaluation of checking lists and evaluation of claims for certain period. Management activities in enterprise, within the process of quality improvement, are focused especially on improvement of existing state. The measures are usually applied during the process and only the consequences of the risks are solved, i.e. corrective measures. The enterprises are without the way of products quality risk prevention. Poor quality of products can be caused by various reasons. Therefore it is necessary to monitor a lot of influences and functions in production process so that the real causes or causes of potential risks of products quality could be identified. Quality can be affected by workers, machinery, material, type of produced product, improper documentation, process causes (temperature, pressure, speed), environment, handling with products, etc. Negatives in the risk management in the field of quality can threaten enterprise image or its existence especially due to customers dissatisfaction. Presence of long term existing risks causing products of poor quality can have many negative impacts especially when their investigation and prevention are not accepted in enterprise environment. Therefore for each enterprise it is necessary to manage risks in quality field and have a team of workers managed by quality manager with relevant authority and responsibility. 3 Problem Solution Risk management as a part of quality management has two main principles [1]: risk investigation has to be based on scientific basis and focused on customer protection, level of made effort and documentation quantity must correspond to risk level. Risk management should be applied within the whole quality management process, in all phases of products development and production. Therefore all enterprise departments participating in this process should be involved in the risk management process. Team of responsible managers managed by quality manager should be established. These managers have to be able to identify and successfully manage risks, they should know the enterprise strategy, planning process, production process, inspection process, handling with products after manufacturing process and also requirements of final customer for quality, i.e. it is necessary to consider: marketing quality, quality of planning and control, development quality, quality of purchase, production quality, quality of logistics, quality of sale and service, quality of product. Tasks of the quality manager in the process of risk management in enterprise are: bring awareness of importance to manage risks in the quality field, establish team of responsible managers for all phases of product development and production, define and ensure observance of policy and objectives of risk management within planning, management and improvement of quality, early identify existing and potential risks, their causes affecting, analyze existing and potential risks affecting, create uniform system of risk assessment for quality of products, ISBN: 978-1-61804-123-4 336

create proposals and plans of corrective and preventive measures to improve quality in enterprise, ensure monitoring and regular inspections about fulfillment and efficiency of proposed measures, effectively communicate with responsible managers in all phases of product development and production, elaborate documentation about risk management process within the ensuring, regularly analyze risk management system in the field of quality. In accordance with STN EN ISO 31000:2011 the risk management process consists of five phases characterized by activities and outputs. In the process of continual quality improvement in enterprise through risk management we propose to modify the basic methodical process into this form: see Fig. 1: 1. Establish the context in quality field. 2. Identification of risks of. 3. Risk analysis of. 4. Evaluation of risks of. 5. Proposal and realization of corrective and preventive measures. 6. Monitoring and checking measures efficiency. 7. Communication with managers in all phases of product development and production. 8. Elaboration of documentation about risk management process of. RISK MANAGEMENT PROCESS IN QUALITY MANAGEMENT Establish the context in quality field Identification of existing risks of Identification of potential risks of Analysis of existing risks of Analysis of potential risks of Evaluation of risks of Evaluation of risks of Proposal and realization of corrective measures Proposal and realization of preventive measures COMMUNICATION WITH MANAGERS Monitoring and checking measures efficiency Elaboration of documentation about risk management process of Figure 1 Application of risk management in the field of quality management in enterprise ISBN: 978-1-61804-123-4 337

1. Establish the context in quality field. Establishing the context is the first step that is needed to be realized before risk management application in enterprise. The risk management policy in relation to quality at all enterprise levels and in all fields is defined. It concerns external and internal parameters that have to be considered in risk management of, specification of range and risk criterions. Knowledge and understanding external and internal enterprise environment is necessary for all enterprise activities as well as for risk management of. In this phase of the risk management process these documents should be elaborated: brief description of the enterprise quality objectives, characterization of interests of interested parties, basic file of criterions for achieving quality objectives and complete file of key activities where the risks will be identified. Among the methods for establishing the context that can contribute to better understanding of risk management of issues belong methods and techniques of environment analysis, e.g. STEP Analysis, Porter's Model of Forces, Analysis of Interested Parties, SWOT Analysis, Analysis of Critical Success Factors, Methods of Objectives Creation, etc. 2. Identification of risks of. The aim of identification of risks is to find out file of risk factors that can influence the during its development and production. It is process of search, recognition and describing the risks when their sources, causes and possible consequences of poor quality are identified. It is important to identify risks not only from the quality view but also from the enterprise system and process view. Possible conditions, under which analyzed system or product will perform required functions or process will be realized, have to be considered. Selected team of managers responsible for the single phases of product development and production led by quality manager (manager of marketing, planning and inspection, development, purchase, production, logistics, sale and service) identifies risk factors, causes and consequences in their fields that can be influenced and so they have impact on the. The suitable tool for identification of causes is cause-and-effect diagram (Ishikawa diagram). Importance of causes can be evaluated by team voting and the most important causes can be selected by Pareto analysis. Methods using brainstorming, e.g. affinity diagram, PDPC diagram, FMEA method can be applied in risk identification. 3. Risk analysis of. Each identified risk has to be analyzed i.e. expressed quantitatively. Risk analysis includes risk estimation, its understanding and assigning its level. Impact of existing or potential risks on final, their probability of occurrence and consequences are assessed. Risk analysis should be clear, based on facts, straightway, practical, based on clear presumptions and assumptions. In this phase it is possible to use various methods and techniques appropriate for risk analysis that enable to analyze risks consequences, probability estimation of risk occurrence with respect to effectiveness of existing inspections and risk level estimation, e.g. EFQM Excellence Model, benchmarking, Failure Mode and Effects Analysis (FMEA), decision trees, Hazard and operability study (HAZOP), Failure Tree Analysis (FTA), statistical characteristics of variability (e.g. dispersion, standard deviation, coefficient of variation), Monte Carlo simulation, CRAMM, RiskPAC, RiskWatch, @RISK, etc. 4. Evaluation of risks of Evaluation of risks of is process of comparison risk analysis results with the risk criterions. The result is risk rating and its acceptability or unacceptability. Selection of suitable evaluation method can help in decision making focused on risk treatment and measures for risk elimination. This phase should include quantitative expression of evaluated risks of analyzed existing and especially possible quality problems for subsequent defining the priorities. Quality mangers and other managers responsible for product development and production should participate in this phase of risk assessment. Selection of the most important risks in quality field can be based on voting of team members or comparison. Application of risk assessment used e.g. in FMEA method or similar analyses is more advantageous. 5. Proposal and realization of corrective and preventive measures. This step should include proposal of adequate risk reduction measures of analyzed and possible problem of poor quality. The most suitable form of risk reduction is elimination of possible causes. In case the cause cannot be completely eliminated, it is necessary to try for occurrence probability reduction and propose measures suppressing impact of the cause or decreasing problem importance. Risk analysis of unwanted accompanying events should be done before acceptation of selected corrective or ISBN: 978-1-61804-123-4 338

preventive measure. Ability of the team of managers, responsible for product development and production, to bring progressive solutions of risks is great advantage. The optimal solution should include all factors having influence on quality of product during its development and production. Within the corrective measures research also the ways how to decrease risk occurrence probability and to increase probability of its detection should be defined. This brings delegation of duties and responsibilities on workers that are working in or are responsible for the process of probable risk occurrence. This phase should include preparation of plans and definition of objective that is expected to be achieved through realization of preventive and corrective measures what results in less enterprise sensibility on risk consequences. Among risk treatment ways belong e.g. risk retention, risk reduction, risk transfer, risk avoiding, etc. 6. Monitoring and checking measures efficiency. This phase should be focused on risks monitoring. Responsible managers should carry out continual checking, survey, critical observation and detection of changes from required or expected performance quality level. Effectiveness evaluation of preventive measures is more complicated task than in case of corrective measures. While in case of corrective measures the results achieved after application of measures can be compared with results before their application, in case of preventive measures such data are not available. Effectiveness evaluation of preventive measures is usually based on risk reduction. In this case we can use indicator comparing estimations of selected parameters after and before realization of measures (e.g. estimations of financial losses). In case application of measures led to risk reduction of possible problems in quality, it is necessary to ensure permanent performing preventive measures. Within monitoring it is suitable to apply controlling as an early warning system or use graphical methods, e.g. progressive diagram, managing graph, etc. 7. Communication with managers in all phases of product development and production. Communication with responsible managers at all levels of product development and production is important aspect of risk management process within the continual quality improvement. Top management participating in strategy and strategic objectives is also an important part of communication. Each enterprise department participating in product development and production can understand the risks of poor quality differently. Therefore their risk understanding has to be identified, recorded and included in decision making process. Communication and consultations are a part of risk management process and should be realized in all its phases. 8. Elaboration of documentation about risk management process in quality of products. Final report should contain data about course of solving the risks accompanied by specific data and analyses. This report should include achieved results and identified future opportunities for quality improvement. Preventive measures proposals and corrective measure changes should be reflected in documentation for decision making at top level of enterprise management and all managers responsible for product development and production should be acquainted with them. 4 Conclusion Risk management process should be an important part of quality management in enterprise. All risks that can have negative impacts on quality management should be the subject of risk assessment and their minimization. Ignorance of assessed risks brings negative impacts; it results in production of poor quality, increased costs, unsatisfied customer and enterprise bad reputation. Therefore it is necessary to highlight risk management process that can serve as methodology of continual improvement in enterprise. It enables to solve not only existing risks but especially early identification of potential risks. Just the prevention enables early elimination of unwanted effects influencing what is good basis for successful business and satisfied customer. References: [1] Buganová, K. Business Risk Management in strategic enterprise planning. In: Young Science - Science and Crisis Situations 2008: international conference of young researchers, Zilina: University of Zilina, 2008. [2] Lusková, M. - Hudáková, M. Using methods of risk analysis in Slovak enterprises, In: WMSCI 2009: The 13th world multi-conference on systemics, cybernetics and informatics, USA Orlando: International Institute of Informatics and Systemics, 2009. [3] Kruliš, J. How to win over risks, Active Risk Management management tool of successful firms, Praha: Linde, 2011. ISBN: 978-1-61804-123-4 339

[4] Mateides, A. et al. Quality Management. Bratislava: Epos, 2006. [5] Nenadál, J. et al. Modern quality management principles, processes and methods. Praha: Management Press, 2008. [6] Nenadál, J. Modern Qualiy Management Systemns. Praha: Management Press, 2005. [7] STN EN ISO 31000:2011. Risk Management. Principles and guidelines. Bratislava: Slovenský ústav technickej normalizácie, 2011. [8] ISO Guide 73:2009. Risk management - Vocabulary, Guidelines for use in standards Austrália, 2009. [9] ISO 31010:2009, Risk management Risk Assessment Techniques. [cit. 10.5.2011]. Available:http://www.previ.be/pdf/31010_FDIS.pdf [10] STN EN ISO 9000:2006. Quality Management Systems. Fundamentals and Vocabulary. Bratislava: Slovenský ústav technickej normalizácie, 2006. [11] STN EN ISO 9001:2009. Quality Management Systems. Requirements. Bratislava: Slovenský ústav technickej normalizácie, 2009. [12] STN EN ISO 9004:2010. Managing for the sustained success of an organization. A quality management approach. Bratislava: Slovenský ústav technickej normalizácie, 2010. [13] Rybárová, D. Grisáková, N. Business risk. Bratislava: Iura Edition, 2010. This paper was elaborated within the project KEGA 077ŽU-4/2011 Integration of Quality and Risk Management. ISBN: 978-1-61804-123-4 340