Risk Management Methods: FMEA and its Influence on Risk Handling Costs

Abstract

This chapter proposes the extension of the Failure Mode and Effects Analysis (FMEA) model as more reliable and efficient way of managing risks. The control mechanisms that quantify and analyse the consequences of risk materialization and its probability of appearance are usually considered by managers using subjective data. How can we measure if the probability of appearance of one risk is high or medium? The objective of this paper is finding new ways of introducing FMEA’s detection as a third parameter in the risk assessment matrix and establishing weather the evaluation is more efficient or not. The methodology includes interviews with managers and specialists that handle risk management processes in their organizations and that share an opinion on extending the risk matrix and improving the whole risk assessment process in order to cut risk handling costs.