1. OPM3 Risk Management
Group presentation

2. Problem definition
Building manufacturing plants in emerging countries
1) What is the problem?
To expand our business in the global market, building manufacturing plants in emerging
countries is inevitable activity.
However, many Japanese companies face lots of critical issues in every foreign
manufacturing plant. The causes of those issues are varied and many of them are
uncertain and unpredictable.
2) Why do I want to make the risk analysis for the problem?
If we can conduct risk analysis for the projects, we can prepare for them in advance to
some extent. What’s more, we can determine which country/area should be selected for
a certain project with the results of the risk analyses.
3) How do you use the results?
After arranging the HHM modeling chart, we will generate a quantitative risk analysis
model. Then, we will be able to conduct MC simulation to predict the probability of the
critical incidents and prioritize possible alternatives.

3. Approaches
1. Make a master
list of risks
• What is the risk for
building
manufacturing
plants in emerging
countries
• Through
discussions and
desk research we
clarified possible
risks
2. Develop
HHM
• Categorize all
of risks into
several
segments, that
is, develop the
HHM
3. Apply RFRM
to extract key
risks
• Identifying, rankin
g, and finding
critical risks are
essential
• Apply RFRM for
them
4. Quantify
risks by
utilizing Monte
Carlo
simulation
• To judge the
investment, qu
antifying risks
is the only way

4. Master list

Risks for building manufacturing plants
in emerging countries?
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Some countries policy and regulation are often
changed!
Some areas have geographical difficulties to
develop
Terrorists possibly come to risks
Accounting standard is difference with my
company
There is not still enough infrastructure
It is difficult to find the good partnerships
It is hard to collect the good work force on site
Procurement delay often happens in some
regions
We do not still understand some countries’
market
We cannot easily connect to Internet in some
areas
Discussion in the
team
Desk research on
investment in
emerging
countries
Review of thirdparty analyses
Interview to
colleagues in
foreign division

5. Brainstorming
Accounting standard
Politics
Law/Regulation
Local technical support
Forwarder
Tax standard
IT systems
Auditor/Consultant
Public safety
Suppliers
Equipment
Network
Insurance company
Exchange rate
Pandemic
Terrorist attack
Infrastructure
Data loss
Currency devaluation
Financial report
Business ethics Labor
Natural Disasters
Accounting staff
Weather
Tax (Tariff)
Local bank
Interest rate
Sustainability
Delivery
Religion

6. Hierarchical-Holographic-Model
(1st level)

7. Hierarchical-Holographic-Model
(2nd level - 1)

8. Hierarchical-Holographic-Model
(2nd level - 2)

9. Hierarchical-Holographic-Model
(2nd level - 3)

10. Hierarchical-Holographic-Model
(2nd level - 4)

11. Hierarchical-Holographic-Model
(2nd level - 5)

12. Risk Scenario-1
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Local government changes.
A coup erupts.
New regulation is installed.
Corporate tax increase.
Tariff increase.
Flood is caused by typhoon, or hurricane.
Snowstorm hits.
Drought occurs.
Electricity is not sufficient.
Water supply is poor.
Roads are not well developed.
Light crimes like thieves, pick pockets may disturb life.
Guerrilla is active.
Pandemic breaks out.
Earthquakes happen.
Mountain, bush fires .
There is fear of terrorist attack.
Local operation is damaged by protesters.
Different nationalities of employees may cause dispute.
Different religious shows different custom at work place

13. Risk Scenario-2
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Government political
Regulation change
Tax policy Change
Weather change
Electricity Shortage
Water Shortage
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Tarrif Policy Change
Public Safety
Pandemic and Infectious Disease Outbreak
Natural Disasters: Fire, Flooding, Bushfires
Terrorist attack/ Bomb threat etc.
Infrastructures are well developed
Nationality of the employees

14. Risk Scenario-3
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Accounting standard diffrences
Tax standard differences
No trustworthy Auditor/consultant
Exchange rate fluctuation
Currency Devaluation
Credit control
Financial reporting requirements not understood
Accounting staff availability
Relationship with local Bank
Interest rate
Affordable labor cost
Affordable Fixed cost(Land, building, leasing etc)

15. Risk Scenario-4
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Availability of Suppliers who can supply high quality materials
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Availability of Forwarders who can deliver/ship the goods with high frequency
Highly educated Employees are available
Availability of Equipment manufactures and its service staff.
Insurance company are available
Availability of Utilities(Water, Electricity, Gas Housing, Hospital, school, etc).
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Availability of Infrastructures(Airport, SeaPort, Highway, customer, Supplier)
Availabity of low cost, high quality Labor
Tender evaluation requirements not defined
Overpayment for goods and services
Failure to comply with procurement legislation/ processes
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Conflicts of interest in tender award process
Failure/ closure of service provider
Unethical service provider actions
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Goods/ services not meeting quality requirements
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Non-delivery of goods and services by supplier
Breach of contract

16. Risk Scenario-5
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Changes in services provided
Loss of customers to private sector companies
Services/ goods not provided within budget
Change in ability to supply services/ goods
Change in public demand for services/ products
Loss of customers to other state organisation
Change in interest rates
Undefined or unclear strategic vision
Inaccurate forecasting
Unethical business practices
Incomplete or inaccurate resource planning
Poor organizational design/ Inappropriate reporting lines
Strategic plan not implemented
Business Continuity Planning inadequate/ BCP not developed
Stakeholders not identified
Poor/ deteriorating stakeholder relationship

17. Risk Scenario-6
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Expectations of stakeholders not understood
Poor community relationships
Negative/ hostile/ inaccurate press coverage
Ineffective communication strategy/ plans
Joint ventures/ partnerships not managed
Loss of customer loyalty/ revenue
Failure to meet sustainability targets
Failure to assess and understand environmental impact of organizational
activities
• Contamination of water supply
• Damage to/ development of protected sensitive natural habitats

18. Risk Scenario-7
• Poor local technical support available
• Inadequate system security/ Confidential information not
adequately protected
• IT systems not integrated
• Network unavailability
• IT system/ software obsolescence
• Poor choice of software/ IT solution/ IT solution does not support
business requirements
• Loss of data/ information

19. RRF: Risk-Ranking and Filtering method
(Selected 11 critical risk scenarios)
1.
2.
3.
4.
5.
6.
7.
8.
Poor IT security causes serious confidential information leakage.
Immature organizational leads to low quality products.
Local parts supplier cannot meet quality requirement.
Local maintenance company cannot provide timely support.
Change of local government causes unfavorable economic effects.
Poor infrastructure disturbs smooth operation of factory.
Terrorist attack.
Anti-Japan sentiment erupts around the region,
and leads to serious damage.
9. Low job retention rate causes unstable operation.
10.High salary increasing rate to keep retention rate.
11.Severe natural disasters, Earthquake/Flood/Hurricane,
cause long downtime.

20. RRF: Risk-Ranking and Filtering method
(Evaluation criteria, Proxy attribute)
5-grade evaluation for each criterion considering both proxy
attributes
i. Undetectability
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Can we predict the risk? If we can predict and detect the risk
Can we detect the risk?
1
If we cannot predict and detect the risk
5
Any monitoring method of unfavorable conditions?
ii. Uncontrollability
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Can we stop the risk immediately?
iii. Multiple paths to failure
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Many paths to the risk? Unpredictable paths exist?
Standardized path exists?
iv. Irreversibility
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How probable the occurrence of critical risk?
How severe the risk mess up?

21. Extracting 4 critical risk scenarios
5.
7.
8.
11.
Change of local government causes unfavorable economic effects.
Terrorist attack.
Anti-Japan sentiment erupts around the region, and leads to serious damage.
Severe natural disasters, Earthquake/Flood/Hurricane, cause long downtime.

22. Weighting factor investigation by AHP
ⅰUndetectability ⅱUncontrollability ⅲMultiple paths to failure ⅳIrreversibility
ⅰUndetectability
ⅱUncontrollability
ⅲMultiple paths to failure
ⅳIrreversibility
1
1/3
1/5
3
3
1
1/3
5
5
3
1
7
Weight of each evaluation criteria
i.
ii.
iii.
iv.
Undetectability
Uncontrollability
Multiple paths to failure
Irreversibility
:
:
:
:
0.263
0.118
0.055
0.564
1/3
1/5
1/7
1

23. Quantitative ranking of critical risks
5. Change of local government causes unfavorable economic effects.
4×0.263 + 4×0.118 + 5×0.055 + 3×0.564 = 3.491
7. Terrorist attack.
5×0.263 + 4×0.118 + 5×0.055 + 4×0.564 = 4.318
8. Anti-Japan sentiment erupts around the region, and leads to
serious damage.
4×0.263 + 4×0.118 + 4×0.055 + 5×0.564 = 4.564
11. Severe natural disasters, Earthquake/Flood/Hurricane, cause long
downtime.
4×0.263 + 5×0.118 + 4×0.055 + 5×0.564 = 4.682
Order of Risk scenario : #11 > #8 > #7 > #5

24. Risk assessment by MC
Total damage [MJPY] =
 1,000 MJPY
2,000 MJPY
5,000 MJPY
10,000 MJPY
Monte Carlo simulation
PDF of each risk was defined as
triangular function by the following
table.