total costs op product risk
Introduction & background
• Product risk and ESG (Environmental; Social & Governance) compliance are becoming increasingly important due to factors as globalisation, outsourcing, legislation, customer expectations and public opinions/social media
•The consequences and financial impact of Product risk has increased over the last years and will further increase due to factors as product recall, dismantling and dependency on viewer suppliers and difference in ethics and quality perception
• For (global) companies the financial impact of Product risk is comparable with Product Damage and consequential Business Interruption losses,
In addition Product risk is more than a financial risk as >30% of Product losses have a health/safety impact and product risks harm the reputation of the company
In practice still too many product losses happen because companies only focus on Quality for Product risk control and/or Quality is not in line with the inherent Basic risk of Product risk and complete Processing from Design through supplies/sales.
The Basic risk is primary a default condition that is dependent on the product and product spread
The Basic risk has the biggest impact of the 3 conditions and is hard to influence by the company. The Processing (activity) risk and the Product risk control are company related and more important and should be related to the Basic Risk.
Quality is a key Product Risk Control measure, but prevention by inherent safe processing is better and many large losses have happened because just one quality control was not effective and/or management was not enough aware of their Product risks.
Product risk control process
The Product risk control process of PRE comprises of 5 steps/levels namely:
1 Preparation including Product risk questionnaires
2 Preliminary assessment and planning risk engineering services/solutions
3 Execution of Product risk engineering services and solutions
4 Consolidation and benchmarking
5 Product risk control dashboard and lessons learnt with risk improvement including continuous (yearly) execution of step 2-5
The process is applicable for standalone and multilocal companies.
Basic risk scan (see also Poduct RE)
The impact of the Basic risk is on average higher than for the Processing (activity) risk and even for the Product risk control (including Quality).
The PRE-Basic risk scan is a consistent process and tool by which the Basic risk can be determined quick into 4 classes.
The Basic risk Scan consists of the following 4 sections:
I General info
II Selection of best appropriate product type and application
III Selection of other 4 Basic risk conditions
IV Assessment outcome (= automatic calculated)
Section III&IV of Basic risk scan
The Incident scan
(see also Product RE)
The Incident scan comprises of a preliminary review of available incident and loss data of the own products as well as relevant incidents of peer.
Losses and incidents of peers and comparable products can be consulted from the PRE loss and incident dbase that comprises of thousands of product losses that have been broken down into useful categories including causes and loss effect in monetary values.
Example of selection of Incident dbase
Product risk control dashboard
The Product risk control dashboard is an effective information of the Product risk for individual products, product groups companies, or whole group and can be updated periodically.
By means of the dashboard management understands main issues and can put the right priorities if the Product risk level is below target.
Product risk control dashboard
Where lessons learnt focuses of known incidents and losses, Risk improvement covers the improvement measures from the risk engineering services & solutions.
The priority for risk improvement should be to the risk improvement actions that brings the Product risk to the target Product risk control level.
Identifying risks is half of the solution, but if risk improvement for Product risk is not timely implemented the whole efforts have been useless and can even work against the company. For this reason execution and supervision of risk improvement are key to successfull risk control.