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

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

3. 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.

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

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

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

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

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

9. STEP 1: List Process Steps Process Step/Input What is the process step? Review the high level process map or pain points within process Y X X X X Process Step What is the process step? Potential Failure Mode What can go wrong with the process step/output (Y’s)? Potential Failure Effects What is the impact on customer or internal requirements? SEVSEV Potential Causes What are the root cause reasons (X’s) for the process step/output to go wrong? OCCOCC Current Controls What are the existing controls that detect and prevent either the cause or the failure modes? DETDET RPNRPN 0

10. Outputs Receive Order Enter Order Identify Custom Specs Approve Invoice Customer New order number issued Order log initialed Customer letter sent Hard copy routed to Procurement Hard copy routed to Engineering (special orders only) 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 # order processing clerks New order log book Completeness of customer information Accuracy of order information Confirmation letter template # customer Service Reps Time per order Order processing software Method of order Type of order Product information Order forms New order log book Special orders Customer availability Accuracy of order information Procurement Manager approval TAT Planning Manager approval TAT CSR Manager approval TAT Order accuracy Inventory levels Inputs Process Example

11. STEP 2: List Potential Failure Modes Potential Failure Mode What can go wrong with the process step/output (Ys)? How can it fail to meet process requirements? Process Step What is the process step? Potential Failure Mode What can go wrong with the process step/output (Y’s)? Potential Failure Effects What is the impact on customer or internal requirements? SEVSEV Potential Causes What are the root cause reasons (X’s) for the process step/output to go wrong? OCCOCC Current Controls What are the existing controls that detect and prevent either the cause or the failure modes? DETDET RPNRPN 0

12. STEP 3: Identify Potential Failure Effects 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? Process Step What is the process step? Potential Failure Mode What can go wrong with the process step/output (Y’s)? Potential Failure Effects What is the impact on customer or internal requirements? SEVSEV Potential Causes What are the root cause reasons (X’s) for the process step/output to go wrong? OCCOCC Current Controls What are the existing controls that detect and prevent either the cause or the failure modes? DETDET RPNRPN 0

13. STEP 4: Identify Root Cause 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 Process Step What is the process step? Potential Failure Mode What can go wrong with the process step/output (Y’s)? Potential Failure Effects What is the impact on customer or internal requirements? SEVSEV Potential Causes What are the root cause reasons (X’s) for the process step/output to go wrong? OCCOCC Current Controls What are the existing controls that detect and prevent either the cause or the failure modes? DETDET RPNRPN 0

14. STEP 5: Identify Controls Current Controls Identify existing controls designed to prevent or detect the cause or the failure mode Process Step What is the process step? Potential Failure Mode What can go wrong with the process step/output (Y’s)? Potential Failure Effects What is the impact on customer or internal requirements? SEVSEV Potential Causes What are the root cause reasons (X’s) for the process step/output to go wrong? OCCOCC Current Controls What are the existing controls that detect and prevent either the cause or the failure modes? DETDET RPNRPN 0

15. STEP 6: Establish Ratings Rate the severity of each effect (SEV), probability of occurrence of each cause (OCC), and detection ability of each control (DET) 1075-641 SeveritySevereModerateMinor OccurrenceHigh probabilityMedium probabilityLow probability DetectionLow detectionMedium detectionHigh detection Process Step What is the process step? Potential Failure Mode What can go wrong with the process step/output (Y’s)? Potential Failure Effects What is the impact on customer or internal requirements? SEVSEV Potential Causes What are the root cause reasons (X’s) for the process step/output to go wrong? OCCOCC Current Controls What are the existing controls that detect and prevent either the cause or the failure modes? DETDET RPNRPN 1035150

16. STEP 7: Calculate Risk Priority Number (RPN) Rate the severity of each effect (SEV), probability of occurrence of each cause (OCC), and detection ability of each control (DET) Multiply SEV x OCC x DET to calculate a Risk Priority Number (RPN) Process Step What is the process step? Potential Failure Mode What can go wrong with the process step/output (Y’s)? Potential Failure Effects What is the impact on customer or internal requirements? SEVSEV Potential Causes What are the root cause reasons (X’s) for the process step/output to go wrong? OCCOCC Current Controls What are the existing controls that detect and prevent either the cause or the failure modes? DETDET RPNRPN 1035150

17. STEP 8: Identify Action Plans Process Step/Input What is the process step? Potential Failure Mode What can go wrong with the process step/output (Ys)? Potential Failure Effects What is the impact on customer or internal requirements? Potential Causes What are the root cause reasons (Xs) for the process step/output to go wrong? Current Controls What are the existing controls that detect and prevent either the cause or the failure mode? SEVSEV OCCOCC DETDET RPNRPN Actions Recommended What are the actions for reducing the OCC of the cause or improving DET? Plans / Responsibility Who is responsible and what is the target date for completion? SEV-RevSEV-Rev OCC-RevOCC-Rev DET-RevDET-Rev RPN-RevRPN-Rev 0 0 Beginning with the highest RPNs, create an action plan to address potential failures Actions Recommended What are the actions for reducing the OCC of the cause or improving DET?

18. STEP 9: Identify Responsibility/Timeline Process Step/Input What is the process step? Potential Failure Mode What can go wrong with the process step/output (Ys)? Potential Failure Effects What is the impact on customer or internal requirements? Potential Causes What are the root cause reasons (Xs) for the process step/output to go wrong? Current Controls What are the existing controls that detect and prevent either the cause or the failure mode? SEVSEV OCCOCC DETDET RPNRPN Actions Recommended What are the actions for reducing the OCC of the cause or improving DET? Plans / Responsibility Who is responsible and what is the target date for completion? SEV-RevSEV-Rev OCC-RevOCC-Rev DET-RevDET-Rev RPN-RevRPN-Rev 0 0 Beginning with the highest RPNs, create an action plan to address potential failures Plans/Responsibility Who is responsible and what is the target date for completion?

19. STEP 10: Calculate Revised RPN Estimate the reduction in RPN that would occur if the recommended actions are taken RPNRPN DETDET OCCOCC SEVSEV Process Step/Input What is the process step? Potential Failure Mode What can go wrong with the process step/output (Ys)? Potential Failure Effects What is the impact on customer or internal requirements? Potential Causes What are the root cause reasons (Xs) for the process step/output to go wrong? Current Controls What are the existing controls that detect and prevent either the cause or the failure mode? SEVSEV OCCOCC DETDET RPNRPN Actions Recommended What are the actions for reducing the OCC of the cause or improving DET? Plans / Responsibility Who is responsible and what is the target date for completion? SEV-RevSEV-Rev OCC-RevOCC-Rev DET-RevDET-Rev RPN-RevRPN-Rev 0 0

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

21. StepTask 1List process steps 2List potential failure modes 3Identify potential failure effects on customer or internal requirement 4Identify the root cause reasons (Xs) for the process step/output to go wrong 5Identify 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) 7Multiply SEV x OCC x DET to calculate a Risk Priority Number (RPN) 8Identify actions for reducing the OCC of the cause or improving DET 9Establish who is responsible and what is the target completion date 10Estimate the reduction in RPN that would occur if the recommended actions are taken FMEA Steps

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

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

24. 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 DePaul 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.