From SCDigest's On-Target e-Magazine

June 1, 2011

Supply Chain News: Graphically Representing Supply Risk Across Three Dimensions

Reader Responds with Smart Way to Add Velocity Dimension  to Familiar 2 X 2 Framework of Likelhood and Impact

SCDigest Editorial Staff

SCDigest Says: Keep velocity as a dimension, said Tom Haber Senior Manager, Enterprise Risk Management at EPCOR Risk, Assurance & Advisory, but use another approach to illustrating that graphically. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

In our Supply Chain Graphic of the Week last week, we shownd a couple of iterations of a supplier risk framework familiar to most supply management professionals, in which risk is rated along two dimensions: likelihood/probability and then impact.  (See Supply Chain Graphic of the Week: Adding a Velocity Dimension to Risk Management.)

Some use a simple 2 x 2 approach, in which both dimensions are rated as either high or low, resulting in four quadrants in which various risks can be assigned, generating in turn different levels of mitigation strategies, as shown below.

Many have taken this same basic concept and decided that two dimensions (low and high) do not provide enough granularity, and so have simplty segmented the two dimensions into more categories, giving a more nuanced breakdown of probability and impact, as shown in the graphic below, and leading to an even more targeted set of appropriate mitigation strategies.

At the recent Institute for Supply Management (ISM) conference, we noted that supply management veteran Robert Kemp had suggested that companies should consider adding a third variable to the mix - velocity,

In other words, in addition to likelihood and impact, how fast an event would impact a company is another dimension  to consiider, and will also impact appropriate mitigation strategies. An event that will be slower to have an impact obviously gives a company more time to respond shoukd it occur. While there is probably some overlap with the veliocity dimension with impact/materiality, we agree that adding velocity to the framework makes sense.

But how to do it graphically? Should companies build a complicated three-dimensional chart? How would that best be done?

(Sourcing and Procurement Article Continues Below)

SCDigest Reader to the Rescue

As is often the case, a Supply Chain Digest reader came to the rescue.

Keep velocity as a dimension, said Tom Haber Senior Manager, Enterprise Risk Management  at EPCOR Risk, Assurance & Advisory, but use another approach to illustrating that graphically.

"My answer is: Don't try to represent velocity as a third dimension. You are trying to build something overly complex that will likely not be practical.  Instead, keep velocity as an overlay to the traditional impact/likelihood risk grid," Haber wrote us. "When you plot the risks on the grid, code them another way to show the velocity (another colored point or a different type of point).  Most leading practices show risk velocity in that fashion." 

In this example, from the analysts at the Corporate Executive Board, the two dimensions of likelihood and impact are still used, but now the velocity of each supply chain risk is indicated by using a different color, in a familiar red, yellow, green traffic light type of graphic approach.

We definitely like this approach more than trying to come up witha three-dimensional model, but now wonder if it would be even better to use an icon, like a race car for very rapid, a regular car for rapid, and VW Bug or something for slow, instead of colors.

We would still welcome your suggestions for how to best add velocity - or other dimensions - to a risk framework graphic. Let us know at the Feedback button below.