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Sensitivity Analysis and Continuous Improvement

1.How does sensitivity analysis relate to contingency planning? What are several risk mitigation strategies that you could implement to desensitize these variables?

2.What are key elements of quality management? How are quality imperative and continuous improvement related to strategic and operational control?

3. Is it realistic that a commitment to continuous improvement could actually replace operational controls? Strategic controls?

Could each of these questions be answered individually so I can understand? Thank you. I appreciate your help!

Solution Preview

Let's look at the three questions through research and example.

RESPONSE:

1. How does sensitivity analysis relate to contingency planning?

It relates to contingency planning because in sensitivity analysis, you analyze the change in the outcome of a situation due to some change in the parameter. This way you can find out what factors are going to have the greatest impact on the final outcome. After identifying the factor(s) and its outcome, you can formulate a contingency plan for the future to tackle the situation if it occurs e.g., the effect of a 50% loss of capacity. So this way you are prepared for the worst case scenario and have a plan in advance, a contingency plan.Thus, the sensitivity analysis deals with the What ifs?

Example of a Risk Indicator:

The identified risk area is internal capacity. The risk indicator is "the amount of overtime."

How frequently should risks be monitored? The frequency for monitoring risks will vary with the complexity, size and sensitivity of the program.

The roles and responsibilities for ongoing monitoring of the status of each risk should be included as part of the risk management strategy (http://www.tbs-sct.gc.ca/eval/tools_outils/RBM_GAR_cour/Bas/module_03/module_0308_e.asp).

The following example illustrates how the contingency plan is formulated in light of the sensitivity analysis, risk factors e.g., the amount of overtime, that will affect the outcome.

EXAMPLE: Contingency planning

Organizations prepare contingency plans in recognition of the fact that things do go wrong from time to time Contingency planning involves:

? Preparing for predictable and quantifiable crises
? Preparing for unexpected and unwelcome events

The aim is to minimize the impact of a foreseeable event and to plan for how the organization will resume normal operations after the crisis.

Contingency plans

The contingency plan:

? Identifies alternative courses of action that can be taken if circumstances change with time
? Details standby procedures to enable the continuation of essential activities and services during the period of the emergency
? Includes program for improving the business in the longer term once the immediate situation has been resolved

Steps in drawing up a contingency plan

? Recognize the need for contingency planning
? Identify possible contingencies - all the possible adverse and crisis scenarios
? Specify the likely consequences
? Assess of the degree of risk to each eventuality
? Determine risk strategy to prevent a crisis & to deal with a crisis should one occur
? Draft the plan and identify responsibilities
? Simulate crises and the operate of each plan

Dealing with the "what if" question

Scenario analysis:

? This involves constructing multiple but equally plausible views of the future
? The scenario consists of a "story" from which managers can plan

Sensitivity analysis

? Involves testing the effect of a plan on alternative values of key variables
? e.g. the effect of a 50% loss of capacity

Crisis management involves:

? Identifying a crisis
? Planning a response
? Responding to a sudden event that poses a significant threat to the firm
? Limiting the damage
? Selecting an individual and team to deal with the crisis
? Resolving a crisis

Stages of a crisis

Pre-crisis: Prior to the event

1. Warning: Indications that there is or may be or could be an event liable to cause a significant impact on the organisation
2. Crisis point: When the event begins to cause significant impact on the organisation
3. Recovery: The acute stage of crisis has passed and the organisation is able to focus on a return to normal operations
4. Post crisis: Evaluation of the effects
5. Repair to the organization

Role of the crisis manager

? Crisis assessment
? Event tracking
? Managing human considerations
? Damage assessment
? Assessment or resources and options
? Development of contingencies
? Managing communications
? Co-ordination with external bodies
? Controlling information
? Controlling expectations
? Managing legal requirements

Advice on handling a crisis

? Appoint a crisis manager
? Recognize that the crisis manager is likely to adopt a more authoritarian style than is normal
? Do an objective assessment of the cause (s) of the crisis
? Determine whether the cause (s) will have a long term effect or whether it will be a short term phenomenon
? Project the most likely cause of events
? Focus on activities that will mitigate or eliminate the problem
? "Look for the silver lining"- opportunities in the aftermath
? Act to guard cash flow

Dealing with the financial aspects of a crisis

? Accelerate accounts receivable (payment by debtor)- by offering a discount if necessary.
? Slow up payment to creditors where possible.
? Increase short term, ...

Solution Summary

By example, this solution describes how sensitivity analysis relates to contingency planning, including several risk mitigation strategies that could implement to desensitize these variables. The key elements of quality management are described and it explains how quality imperative and continuous improvement are related to strategic and operational control. It also discusses if it is realistic that a commitment to continuous improvement could actually replace operational controls or strategic controls.

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