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Developing the Decision Matrix

Decision Matrix

Figure 26.1 Decision Matrix

The matrix is based on the definition of risk, as described by the following equation:

Risk = (Consequence of an event) x (Probability of that event happening)

In this matrix, the team graded Probability into six categories—unlikely, rare, likely, very likely, toss-up, and certain—along the horizontal axis. Similarly, they graded Consequence into six categories, ranging from noticeable to catastrophic, along the vertical axis. The impact which each category of consequence had on the business was specified in real money terms.

Risk was graded into five categories, from negligible to extreme, depending upon the value of the product of an event's probability and its consequence. Each cell position represented a grade of risk, which was the product of consequence (vertical axis) and probability (horizontal axis). The management team helped the team finalize each risk category grade. For example, an event which was certain to happen and had a catastrophic business consequence ($100,000,000) was graded as an event of extreme risk for the business. Another event of the same consequence, but unlikely to happen (a probability of 1 in 10,000), was graded as an event of low risk to the business.

In order to determine the importance of any project, we set up other crossfunctional teams (with at least 2 people) to assess the risk to the business if a project was not carried out. They estimated the likelihood and the consequence of occurrence. For example, a team comprising the maintenance engineer, a shift supervisor from oil-movements, and an external civil engineering consultant determined that repairing the cracks in the concrete jetty structure would cost $100,000 if carried out without delay. Each year of delay would increase the cost exponentially. A delay of 5 years could put the business in extreme risk category. This was a shock to us. We had always thought that concrete needed no maintenance, so it had become invisible.

Similarly, a team comprising the outside plot maintenance supervisor, an inspector, and a shift supervisor addressed another project with the following scope.

  • • Clean up the pipe-tracks, and keep them clean
  • • Inspect pipes
  • • Reinforce thickness if required
  • • Touch-up paint where required

They determined that the project would cost $80,000 if done without delay that year, with a recurring annual cost of $20,000. If postponed for a year, the business risk would move into the extreme category.

This process was applied to all visible manifestations of past neglect. They were ranked in order of the risk they represented if not carried out.

 
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