Project Risk Management Failure Mode Effects Analysis FMEA

Project Risk Management: Failure Mode & Effects Analysis (FMEA) This presentation is the property of Janette Long and may not be reproduced or distributed without express written consent. Presented by: Janette Long, SSBB, PMP May 29, 2013

Objectives n n Project Risk Management ¨ Definition ¨ Benefits What is a Failure Mode and Effects Analysis (FMEA)? ¨ Tool that identifies/analyzes risk and formulates a response plan

Definition – Project Risk Management Source: PMBOK® Guide – Fourth Edition “Project Risk Management includes the processes concerned with conducting risk management planning, identification, analysis, responses, and monitoring and control on a project. ” • To increase the probability and impact of positive events; • To decrease the probability and impact of negative events; • To identify and prioritize risks in advance of their occurrence, and provide action-oriented information to project managers.

Benefits n Lower risk of process failure (improved cost by reducing rework) n Lower risk of being surprised by process failure, which enables us to proactively manage customer expectations n Equip process operators with response plans to implement predefined solutions without delay in the event of an anticipated failure occurring n Foster a foundation for driving a culture of continuous improvement aimed at improving quality, cost, and speed

What is a FMEA? FMEA is a tool that: n Validates key process inputs n Identifies, evaluates, prioritizes potential failures n Identifies causes and effects of failures n Identifies actions to eliminate or reduce potential failures n Documents and tracks action taken to reduce risk

Pain Points n Previous audit/quality control reports n Growth indicators (sales/call volume) n Pricing trends n Service delivery channel multiplicity/complexity n Unauthorized activity (disregard of policy, authority limits) n Discrepant documentation n Security breach n Inconsistent deliverables (SOW and metrics)

Internal Control Components n n n Operational structure Control activities Information and communication People management Process monitoring The main goal of internal control is to: n Identify risks hindering the achievement of an organization’s objectives n Perform necessary measures to manage risk exposures

Transfer Function X X X Y = f (x 1, x 2, x 3. . . ) Outputs Transfer (Lagging Metrics) Inputs (Leading Metrics) Changes in inputs transfer to the output. Focus on controlling, stabilizing, and improving the critical process 8 inputs to improve performance.

STEP 1: Process Step What is the process step? List Process Steps Potential Failure Mode Potential Failure Effects What can go wrong with the process step/output (Y’s)? What is the impact on customer or internal requirements? S E V Potential Causes What are the root cause reasons (X’s) for the process step/output to go wrong? O C C Current Controls What are the existing controls that detect and prevent either the cause or the failure modes? D R E P T N 0 X Process Step/Input What is the process step? X X X Y Review the high level process map or pain points within process

Process Example Outputs • New order number issued • Order log initialed • Customer letter sent Receive Order • # order processing clerks • New order log book • Completeness of customer information • Accuracy of order information • Confirmation letter template • Hard copy routed to Procurement • Hard copy routed to Engineering (special orders only) Enter Order • # customer Service Reps • Time per order • Order processing software • Method of order • Type of order • Product information • Order forms • New order log book • Changes reviewed with customer • Changes documented on order form • Order signed by engineer • Order entered by CSR • Approved order sent to Planning • Order reviewed • Parts ordered • Completed order sent to CSR for approval and invoicing Identify Custom Specs Approve Invoice Customer • Special orders • Customer availability • Accuracy of order information Inputs • Procurement Manager approval TAT • Planning Manager approval TAT • CSR Manager approval TAT • Order accuracy • Inventory levels

STEP 2: Process Step What is the process step? List Potential Failure Modes Potential Failure Mode Potential Failure Effects What can go wrong with the process step/output (Y’s)? What is the impact on customer or internal requirements? S E V Potential Causes What are the root cause reasons (X’s) for the process step/output to go wrong? O C C Current Controls What are the existing controls that detect and prevent either the cause or the failure modes? D R E P T N 0 Potential Failure Mode What can go wrong with the process step/output (Ys)? How can it fail to meet process requirements?

STEP 3: Process Step What is the process step? Identify Potential Failure Effects Potential Failure Mode Potential Failure Effects What can go wrong with the process step/output (Y’s)? What is the impact on customer or internal requirements? S E V Potential Causes What are the root cause reasons (X’s) for the process step/output to go wrong? O C C Current Controls What are the existing controls that detect and prevent either the cause or the failure modes? D R E P T N 0 Potential Failure Effects • What is the impact on customer or internal requirements? • Determine the effects of failure that will be felt by internal or external customers • Will the effect be a missed requirement?

STEP 4: Process Step What is the process step? Identify Root Cause Potential Failure Mode Potential Failure Effects What can go wrong with the process step/output (Y’s)? What is the impact on customer or internal requirements? S E V Potential Causes What are the root cause reasons (X’s) for the process step/output to go wrong? O C C Current Controls What are the existing controls that detect and prevent either the cause or the failure modes? D R E P T N 0 Potential Causes • What are the root causes (x’s) for the process step/output to go wrong? • Identify potential causes of the failure • Scan the process map inputs for sources of variation

STEP 5: Process Step What is the process step? Identify Controls Potential Failure Mode Potential Failure Effects What can go wrong with the process step/output (Y’s)? What is the impact on customer or internal requirements? S E V Potential Causes What are the root cause reasons (X’s) for the process step/output to go wrong? O C C Current Controls What are the existing controls that detect and prevent either the cause or the failure modes? D R E P T N 0 Current Controls Identify existing controls designed to prevent or detect the cause or the failure mode

STEP 6: Process Step What is the process step? Establish Ratings Potential Failure Mode Potential Failure Effects What can go wrong with the process step/output (Y’s)? What is the impact on customer or internal requirements? S E V Potential Causes O C C What are the root cause reasons (X’s) for the process step/output to go wrong? 10 Current Controls What are the existing controls that detect and prevent either the cause or the failure modes? 3 D R E P T N 5 Rate the severity of each effect (SEV), probability of occurrence of each cause (OCC), and detection ability of each control (DET) 10 7 5 -6 4 1 Severity Severe Moderate Minor Occurrence High probability Medium probability Low probability Detection Low detection Medium detection High detection 150

STEP 7: Process Step What is the process step? Calculate Risk Priority Number (RPN) Potential Failure Mode Potential Failure Effects What can go wrong with the process step/output (Y’s)? What is the impact on customer or internal requirements? S E V 10 • Rate the severity of each effect (SEV), probability of occurrence of each cause (OCC), and detection ability of each control (DET) Potential Causes What are the root cause reasons (X’s) for the process step/output to go wrong? O C C 3 Current Controls What are the existing controls that detect and prevent either the cause or the failure modes? D R E P T N 5 150 • Multiply SEV x OCC x DET to calculate a Risk Priority Number (RPN)

STEP 8: Process Step/Input What is the process step? Identify Action Plans Potential Current S O D R Failure Causes Controls E C E P Mode Effects What are the V C T N What can go What is the root existing wrong with impact on cause controls that the process customer or reasons (Xs) detect and step/output internal for the prevent (Ys)? requirement process either the s? step/output cause or the to go failure wrong? mode? Beginning with the highest RPNs, create an action plan to address potential failures 0 Actions Recommend ed What are the actions for reducing the OCC of the cause or improving DET? Plans / Responsibi lity Who is responsible and what is the target date for completion? S O D R E C E P V C T N R R e e v v - - Actions Recommended What are the actions for reducing the OCC of the cause or improving DET? 0

STEP 9: Process Step/Input What is the process step? Identify Responsibility/Timeline Potential Current S O D R Failure Causes Controls E C E P Mode Effects What are the V C T N What can go What is the root existing wrong with impact on cause controls that the process customer or reasons (Xs) detect and step/output internal for the prevent (Ys)? requirement process either the s? step/output cause or the to go failure wrong? mode? Beginning with the highest RPNs, create an action plan to address potential failures 0 Actions Recommend ed What are the actions for reducing the OCC of the cause or improving DET? Plans / Responsibi lity Who is responsible and what is the target date for completion? S O D R E C E P V C T N R R e e v v - - 0 Plans/Responsibility Who is responsible and what is the target date for completion?

STEP 10: Process Step/Input What is the process step? Calculate Revised RPN Potential Current S O D R Failure Causes Controls E C E P Mode Effects What are the V C T N What can go What is the root existing wrong with impact on cause controls that the process customer or reasons (Xs) detect and step/output internal for the prevent (Ys)? requirement process either the s? step/output cause or the to go failure wrong? mode? 0 Actions Recommend ed What are the actions for reducing the OCC of the cause or improving DET? Estimate the reduction in RPN that would occur if the recommended actions are taken Plans / Responsibi lity Who is responsible and what is the target date for completion? S O D R E C E P V C T N R R e e v v - - 0 S OD R E C E P V C T N

FMEA Tips Process Steps should align with Process Maps – High Level or Detailed Should align with Outputs Should align with Inputs Make sure that Uncontrollable inputs are examined carefully Verify that high RPN Failure Modes flow down to the Control Plan A Potential Failure Mode may have several Failure Effects Everything can’t be a Top Priority; make sure there’s a wide range in RPN. In ‘Rev’, Severity doesn’t change, but OCC and DET will

FMEA Steps Step Task 1 List process steps 2 List potential failure modes 3 Identify potential failure effects on customer or internal requirement 4 Identify the root cause reasons (Xs) for the process step/output to go wrong 5 Identify the existing controls that prevent or detect either the cause or the failure mode 6 Rate the severity of each effect (SEV), probability of occurrence of each cause (OCC), and detection ability of each control (DET) 7 Multiply SEV x OCC x DET to calculate a Risk Priority Number (RPN) 8 Identify actions for reducing the OCC of the cause or improving DET 9 Establish who is responsible and what is the target completion date 10 Estimate the reduction in RPN that would occur if the recommended actions are taken

Guidelines n Works best as a team effort n Must have motivated team members n Include cross-functional representation on team n Perform on “as is” process first and then on redesigned “to be” process n Treat as a living document, reflect changes n Use to take action

Checkpoint n Understanding of FMEA n Clearly defined steps to perform a Baseline Failure Mode and Effects Analysis (FMEA)

Janette Long, SSBB, PMP is a Lean Six Sigma Black Belt and certified Project Management Professional with over 12 years of experience within the banking/mortgage, education, insurance and nonprofit arenas. She earned her BSC Marketing degree from De. Paul University and continued her graduate studies in Lean Six Sigma at the University of Chicago and Villanova University. Previous projects include branding initiatives, bank divestitures, compliance software implementation, operational risk audits, business process management, and IT performance management. She is currently engaged in a business process re-engineering effort for a Fortune 50 insurance company.