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11 - Managing Risk in Operations

Published online by Cambridge University Press:  05 June 2012

Danny Samson  and
Prakash J. Singh
By
Damien Power  and
Danny Samson
Danny Samson
Affiliation:
University of Melbourne
Prakash J. Singh
Affiliation:
University of Melbourne
Damien Power
Affiliation:
University of Melbourne
Danny Samson
Affiliation:
University of Melbourne
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Summary

Learning objectives

After reading this chapter, you should be able to:

  • appreciate that operations management decisions involve not just costs and benefits, but also risk factors

  • understand risk and its management frameworks

  • know how to identify and take risks into account in operational decision-making

  • incorporate risk factors into major decision areas such as technology choices, capacity choices, and other areas of operations

  • identify the key risks and be able to evaluate them and account for them in supply chains, not just in-house operations.

Box 11.1: Management challenge: PETRONAS

Consider the risks faced by the Malaysian oil and gas company PETRONAS. This company explores for oil and gas and then develops these assets into operating refineries and downstream petrochemical plants. In addition it operates pipelines all over the world and a large fleet of ships. Some of the risks this company faces include:

  • When PETRONAS explores by drilling for oil and gas, up to $100 million can be spent in any location, with a relatively low probability of success in finding significant deposits (only about one in eight developments is successful overall).

  • There is technical risk in operations, such as with new technology and plant reliability.

  • Marketing risk involves concerns about the future prices and demand for oil, gas and other petroleum and chemical products and related services.

  • PETRONAS operates in many countries where there is political uncertainty. PETRONAS has had to do business with ‘warlords’ and hence faces risk of asset nationalisation, sabotage etc.

  • Economic risk such as associated with currency fluctuation pervades the income stream of this company, which employs and pays most of its staff in Malaysian currency, but sells its products in US dollars.

  • […]

Information

Type
Chapter
Information
Operations Management
An Integrated Approach
 , pp. 325 - 350
Publisher: Cambridge University Press
Print publication year: 2008

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