Risk Based Thinking | Risk Management | Risk Assessment | PDF

What is Risk-Based Thinking (RBT)?

→ Risk-based thinking is a proactive approach to managing risks and opportunities within an organization.

→ It is the fundamental approach in quality management systems (QMS).

→ The risk can impact the organization's goals and objectives.

→ RBT helps organizations to identify, assess, and prioritize the potential risks.

→ By this method, organizations can improve decision-making and performance.

Table of Contents:

• What is Risk-Based Thinking (RBT)?
• What is Risk?
• Examples of Risk Based Thinking
• What is Risk-Based Thinking in ISO 9001?
• Why to Use Risk-Based Thinking?
• How to Implement Risk-Based Thinking?
• Strengths and Weakness in Risk-Based Thinking
• Internal and External Factors in Risk-Based Thinking
• Benefits of Risk-Based Thinking
• Conclusion

What is Risk?

→ ISO 9001:2015 defines Risk as "The Effect Of Uncertainty On an Expected Result."

⏩There are two types of risks available with the system:

1. Positive Risk
2. Negative Risk

→ It has built-in characteristics with all systems, processes, and functions.

→ RBT ensures these risks are identified, considered, and eliminated or controlled throughout the processes.

→ It is something we all do automatically and often sub-consciously in everyday life and it makes preventive action part of the routine.

Examples of Risk Based Thinking:

→ Now we will understand this concept with the help of examples.

→ Refer to the below example for a better understanding of this concept.

⏩Example 01:

→ If we have a flight then we plan to reach the airport at least 30 to 40 minutes before flight timing while considering all desirable or undesirable events that may happen during the journey (from home to airport) like rain, traffic, fuel refilling, puncture, check-in times, etc...

→ It is a part of the process approach of ISO 9001:2015.

→ All processes have different likelihoods related to the effect of uncertainty.

→ Some processes need more careful and effective planning to mitigate and control than others.

⏩Example 02:

→ In the above example the risk factors are different and depend on the modes of transport we use.

⏩The different transport options are:

• We go to the airport in our car,
• We go to the airport with cab service, and
• We go by public transport like the metro or BRTS, etc.

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What is Risk-Based Thinking in ISO 9001?

→ RBT ensures these risks are identified, considered, and controlled from the beginning.

→ So we can implement early from the design phase of any process, product, or service.

→ It is one of the major changes in the updated ISO 9001:2015 standard.

→ It is used to establish a systematic approach to considering risk and taking action before the thing happens instead of taking action after things happen.

→ So, it is a preventive aspect of the new ISO 9001:2015 QMS standard rather than a reactive approach.

→ It is the newly addressed Requirements of an ISO 9001-2015.

Risk-Based Thinking in ISO 9001:

⏩Refer to the below-mentioned clause-wise concepts of risk-based thinking.

→ Introduction - the concept explained

▶ Clause 04 – the organization is required to determine its QMS processes and to address its risks and opportunities 

▶ Clause 05 – top management is required to Promote awareness of RBT and Determine and address risks and opportunities that can affect product /service conformity

▶ Clause 06 – the organization is required to identify risks and opportunities related to QMS performance and take appropriate actions to address them 

▶ Clause 07 – the organization is required to determine and provide necessary resources.

▶ Clause 08 – the organization is required to manage its operational processes.

▶ Clause 09 – the organization is required to monitor, measure, analyze, and evaluate the effectiveness of actions taken to address the risks and opportunities

▶ Clause 10 – the organization must correct, prevent, or reduce undesired effects improve the QMS, and update risks and opportunities.

Why to Use Risk-Based Thinking?

→ Using Risk-Based Thinking (RBT) is essential for organizations seeking long-term success and sustainability.

→ By considering risks throughout the system and all processes the likelihood of achieving stated objectives is improved.

→ With this concept we can get output more consistent and reliable.

→ So the customers can be confident that they will receive the expected product or service.

How to Implement Risk-Based Thinking? 

⏩We can implement RBT in below four steps:

1. Identify risks
2. Assess risks
3. Plan for risks
4. Implement actions

⏩01. Identify risks:

→ Recognize risks and opportunities that could affect the ability to meet customer and regulatory requirements.

⏩02. Assess risks:

→ Determine the likelihood and potential impact of these risks.

⏩03. Plan for risks:

→ Develop strategies to mitigate, avoid, transfer, or accept risks based on their severity.

⏩04. Implement actions:

→ Take actions to address risks in daily operations, continuously monitor and review them, and adjust as needed.

→ By integrating risk-based thinking, businesses can foster a culture of continual improvement, and prevent potential problems.

→ It shifts the mindset from reactive problem-solving to proactive risk management.

Strengths and Weakness in Risk-Based Thinking:

→ Strengths and Weaknesses are two parts of RBT.

→ Now we will understand about the different strengths and weaknesses of RBT.

⏩The strength associated with a system are such as:

• Infrastructure
• Machines
• Resources
• Good Will
• Fewer Competitors, etc.

⏩Similarly, The weaknesses associated with a system are:

• Delay
• Defects
• Scrap
• Complaints
• Repetitive Issues, etc.

Internal and External Factors in Risk-Based Thinking:

→ Internal and External factors are associated with the system.

⏩Internal Factors are:

• External Provider
• Input
• Process
• Output
• Customer

⏩ Risks associated with the 6M system are:

• Man
• Machine
• Material
• Method
• Mother Nature (Environment)
• Measurement (Measures)

⏩External Factors are:

→ Below are External Factors associated with a system:

1. Political
2. Economical
3. Social
4. Technological
5. Environmental
6. Legal

→ Also, we can say external factors are PESTEL factors.

→ Now we will learn about the external factors in detail.

[1] Political factor:

→ Political factors are basically how the government gets involved in the economy like,

• Tax policy,
• Labor law,
• Environmental law,
• Tariffs etc.

[2] Economic factor:

→ Economic factors are economically affecting the organization such as,

• Economic growth,
• Interest rates,
• Exchange rates and
• The inflation rate etc.…

[3] Social factor:

→ Social factors are socially related to the organization such as,

• The cultural aspects,
• Customs, festivals,
• Lifestyle and
• Locality etc.….

[4] Technological factor:

→ Technological factors are related to the system by technological aspects such as,

• New process adaption,
• R&D activity, automation,
• Technology  incentives and
• The rate of technological change etc.…

[5] Environmental factors:

→ Environmental factors include ecological and environmental aspects such as,

• Weather,
• Climate and
• Climate change
• Natural Resources etc.

[6] Legal factors:

→ Legal factors include the statutory and regulatory compliances associated with the system.

Benefits of Risk-Based Thinking:

• It improves governance
• It establishes a proactive culture of improvement
• RBT assists with statutory and regulatory compliance
• It assures the consistency of the quality of products and services
• It improves customer confidence and satisfaction
• Improved decision-making
• It optimized resource allocation
• Minimized losses
• Better crisis management
• Increased innovation

Conclusion:

→ Risk-based thinking is a proactive approach that empowers organizations.

→ It handles uncertainties with confidence and planning.

→ By proactively identifying, assessing, and managing risks, organizations can make better decisions.

→ The organization can also optimize resources, and enhance resilience with the help of RBT.

→ RBT approach minimizes potential losses and ensures statuaries and regulatory compliance.

→ This approach also fosters continuous improvement and innovation within the organization.

→ Adopting risk-based thinking leads to more robust, agile, and successful organizations.