ARM 401: Extra Study Segment A

Consequence Rankings

(C) severity

Detection Rankings

(D) chance it will not be discovered prior to reaching the customer

Occurrence Rankings

(O) likelihood/ failure rate

Advantages of Fishbone/ 5 Whys

-determines root cause -when several root causes found, relationships can be determined

Criticality Analysis Categories

-excessive unscheduled maintenance -delay or loss of operational availability -potential mission failure -potential loss of life

Threats

-increased competition -declining economy -declining demand -taxes

Opportunities

-new markets -acquisition targets -reduced competition

Benefits of Probability

-predicting likelihood -prioritizing loss exposures -predicting/ estimating both (+) and (-) consequences of risk -evaluate and prioritize RM decisions

Expected Value

Mean; weighted average of values; weights based on likelihood; most obvious return one can expect from an action taken

Deductible

Risk Threshold

Residual Risk

The level of risk remaining after actions are taken to alter the level of risk; represents the effectiveness of current risk treatment

Optimum Risk

The level of risk that is within an organization's risk appetite;

Inherent Risk

The level of risk that would be faced if it were to remain untreated or no action were to be taken to alter the level of risk.

Risk Map

pinpoint where efforts should be focused; expresses likelihood and consequences in relation to risk appetite; identify, prioritize, and quantify risks in a two-dimensional pictorial that illustrates frequency and severity on vertical and horizontal axes.

Probability Analysis

predict likelihood can event will occur; most reliable for an organization with substantial volume of data on past losses and fairly stable operations

Production RCA

quality control/ industrial manufacturing

Risk Priority Number

relative risk of a particular FMEA item; RPN; higher RPN NOT = higher criticality

Probability Distribution

represents probability estimates for a particular set of circumstances and the probability of each possible outcome; mutually exclusive & collectively exhaustive; categories or bins

"and" gate

requires calculating joint probability that all events alone will occur; P(S) x P(T) x P(U)

"or" gate

requires calculating the probability that one or more events directly below will occur; P(H) + P(I) - P(H x I)

Process Flow RCA

similar to production/ business processes; analyzes specific processes from input to output; reviews a firms activities, relationships, and metrics; the goal is to make the process analyzed run more efficiently, flexibly, quickly, or cost-effectively

Delpi Technique

small group of experts; anonymous survey

Alternate Regression Analysis

solid portion of the line - trend of historical data; dashed portion of line - projects beyond the range of historical data

HAZOP

specific project/ process; complex scientific systems; useful in situation when all risks must be identified and eliminated; subdivide the process into components and review each

Cause and Effect Analysis

starts with a specific unwanted outcome of effect, then works backward through the process one step at a time to identify the underlying cause

Fault Tree Analysis

starts with an assumption about cause and works back from the failure; top event examined by discussing all causes that contributed

Failure Mode & Effect Analysis (FMEA)

teams examines a process & identifies failures @ each step; determines priority

Earning at Risk

technique to assess earning volatility by measuring the likelihood that earning will be below a specific dollar amount over a specific period of time; developed using Monte Carlo Simulation modeling changes and prices; assessing changes in factors like price of products and production costs on an org's earnings

Volatility

the degree of variation a subject may have; higher level of this = higher risk

EaR Threshold

the low end of projected earnings within a specific confidence, such as 95%; greater than ______ ____________ represented by area to the right; less than ______ ___________________ represented by area to the left

Theoretical Probability

unchanging; someone who has never seen could extrapolate probability from descriptions alone; coin toss

Event Tree Analysis

used for consequences of accidental events; typically provides only two options, success or failure.

Standard Deviation

used to determine the possible spread of potential results; greater value here = greater volatility

Value at Risk

used to determine the probability of a loss on an investment portfolio over a certain, usually short, period of time; likelihood of incurring a loss in value that exceeds a threshold level

Regression Analysis

used to estimate relationships with between variables; increase accuracy of forecasting; used for risks that vary predictably in relation to another variable

Curvilinear Regression Line

used to measure a relationship between the independent and dependent variables that changes @ an accelerating or decelerating rate rather than constant

Dependent Variable

variable being forecast

Independent Variable

variable determines the value of the dependent variable

Collaboration

work together for a shared goal

Cooperation

work together to achieve individual objectives

Steps of RCA

1: collect data 2: chart causal factors 3: identify root cause 4: determine and implement recommendations

Steps of FMEA

1: determine slope and objective 2: assemble a team 3: define components and function 4: for each, identify potential causes and effects of failure 5: develop responses to prevent/ mitigate

Formula for Standard Deviation

1: find the mean 2: subtract the mean from each individual value and square the result 3: find the mean of those squared results 4: find the square root of that mean

Steps of Decision Tree Analysis

1: identify decision under consideration 2: various pathways charted for each 3: each pathway leads to an outcome 4: probabilities and value of outcome compared to determine which option produces highest expected value

5 Steps of Fault Tree Analysis

1: identify specific harmful event 2: diagram events that lead to the harmful event (reverse order) 3: determine whether the events leading to any other are connected by a gate 4: evaluate the tree to determine opportunities for system improvement 5: make suggestions to management about risk control

Five Steps of HAZOP

1: subdivide the project/ system into small components 2: review each component 3: identify cause and consequences for each 4: develop a solution for each 5: reevaluate and ensure solutions are working

Normal Distribution

68% values ± 2 of mean 95% values ± 4 of mean 99% values ± 6 of mean

Emerging Technology

Allows analysis of a vast number of outcomes based on large datasets

Blockchain

Because of their security, ____________ can eliminate the need to verify the accuracy of risk management data.

Calculate Criticality Analysis

C x O x D = product then compared with RPN associated with other failures

Holistic Perspective

Focus on Understanding: -demands on stakeholders from management -what environments look like Develop a thorough understanding of each unit's role and how it supports or depends on other units and stakeholders.

Discrete Probability Distribution

finite number of outcomes; usually displayed on a table; all outcomes and probability of each; frequency distribution

Change Analysis

focus on consequences of change

TOR Approach

focus on ineffective management

Limitation of FTA

higher uncertainty in probability of base events means high uncertainty in top event

Fault Tree Analysis Purpose

identify loss control practices that would help prevent similar losses in the future

Audits

identify negative risks and opportunity risks

Coordination

improve efficiency & reduce redundancy

Continuous Probability Distribution

infinite number of outcomes; possible outcomes x-axis - likelihood y-axis; depicts consequences of events; flat - equal probability; curved -distributed probability; divide distribution into a countable number of bins

Organizational Risk Register

interactive tool that will adequately identify the organization's risks, and allow them to be measured based on likelihood and the level of risk to the organization

Scenario Analysis

internal cross-functional team; addresses concerns as a whole; used to compile an organizational risk register

Probability

likelihood that it will happen over a period of time, assuming the environment remains stable

Root Cause Analysis

look backward @ a defective process

Condition Value at Risk

measures the likelihood of obtaining financial returns that would exceed the VaR threshold; brings more clarity to what can occur on the negative side of the VaR threshold; analyze extremely large losses (hurricane risk)

SWOT Analysis

new project or process; analyzes the general environment and the task environment; target strengths and reduce weaknesses

Process Risk Analysis

dissects processes from input to output; quick and efficient

Monte Carlo Simulation

a statistical computer model that simulates the effects that uncertainty is likely to have on risk outcomes; best case - worst case - most likely; more data points = more accurate projection; less uncertainty about early phases than later ones

Goal of FMEA

ensure customer safety and quality products; uses a team rather than an individual; team identifies potential failures @ each step in a process and charts the likely consequences of those failures

Decision Tree

examines consequences of decisions; used to examine effectiveness of a system, treatment or control, justify expenditures of money, time, or resources

Failure RCA

failure analysis/ engineering and maintenance

Safety RCA

accident analysis / occupational safety and health

Trend Analysis

an analysis that identifies patterns in past data and then projects those patterns into the future; forecast gains or losses

Coefficient of Variation

another measure of spread; measures ______________ from a mean by dividing the standard of a distribution by its mean; used to compare results from two different sets of data; higher level of this = higher volatility

Empirical Probability

based on historical data and loss experience; may change will the discover of new data or environmental changes

JSA

breakdown and analyze steps of job/ activity/ operation; used on repetitive human tasks in a stable environment

Systems RCA

combine all four/ change/ systems analysis concepts

System Safety Analysis

components- physical elements purpose environment life cycle

Life Cycle

conceptual phase engineering phase production (development) phase operational (deployment) phase disposal (termination) phase

Risk Register

connected to Scenario Model; A tool developed at the risk owner level that links specific activities, processes, projects, or plans to a list of identified risks and results of risk analysis and evaluation; should up continually update by risk owner

Linear Regression Analysis

deals with a constant rate of change; assumes change in dependent variable is is the same from year to year; goal is to find equation for line of best fit (y=mx+b slope-m intercept-b)