Managing Risks & CIP

Recently I have been hearing a SAP Webcast and it has been very interesting to me to see the scope of the planning and control functions in management and how technology can help to deal with the contingencies in the organizations and specially in firms.

They describe the benefits for the firm to prevent risks in all kind of process and functions and I think this is a refinement stage after all control systems has been installed at the firm.

First we have to understand accountant systems are just a part of the game in SAP Systems and these systems are just providing information to take decisions about the firm and in the same system we can get information for desicion takers at many stages at the firm.

SAP proposal is to classify risks and determine a wide map of the likely contingencies and the effect of it impacts and sistematize them as if it were just a computing program, thought it would be convenient if you are covering at least an 80 % of the expected contingencies. That is, if you do that then I will have at least three actions in mind to react. As an example if the exchange rate increases over the normal range and its limits ,what would be the impact on the entire firm considering not only the financial concerns but considering all the effects at the Strategical, Tactical and Operational levels ?. This is very important because probably when we face an exchange rate increase, the man in charge of the purchases don´t know what are the limits in its actions, instead he only knows he has to provide other departments with supplies.

So in determining contingencies and its probabilities I think SAP has considered many important aspects. As a proof of this I can tell you that I´ve been since many years ago training with @risk softwares which encourage you to define the main contingencies and to classify them in just three or four classes.

What you see in the table at SAP Webcast is :

• In red High level risks
• In Yellow Medium level risks
• In Green Low level risks

Of course for all the categorized risks there´re differents kind of responses at different levels in the organization.

All of this must be considered in CIP (Continous Improvement Process)

We can see at the US Army Business Transformation Center they are studyng and redefine the way they do business. First we have to consider they have strongly internalized in its normal activities the ARR ( After Action Review) which considers a hard methodology following a sequence of steps reviewing the past actions and it have to deal with the Lean process which is used for review and design of tactic actions.

Finally the US army has been involved developing the managing of risks inside the organization and finally implementing this procedures with their partnerships. In this context we find as final yield the deployment of the Lean Six Sigma method as Continuous Improvement Process what they have called DMAIC ( Define-Measure-Analyze-Improve-Control )

In the figure above we can see the convergence and complementaries between the Lean method (Focused in Fast Speed) and the Six Sigma concept which has been melt in only one concept called DMAIC.

Note Lean method is just focused in doing things as fast as possible and of course we are talking about efficacy but not necessarily efficiency. In this sense Six Sigma add the concept of efficiency basically because we are talking about business process.

In Lean you don´t have to be efficient in time constraints because it is focused in doing things fast so they are not considering the resource costs in terms of time, it would not have sense every time you are designing processes to save lifes

In this way Lean Six Sigma or DMAIC appears to be an efficient and efficacy methodology of CIP to make the business process efficient in terms of saving resources and manage risks in a reasonable way.