JSSOpen Journal of Social Sciences2327-5952Scientific Research Publishing10.4236/jss.2019.71008JSS-89848ArticlesBusiness&Economics Social Sciences&Humanities Customized Production Project Risk Management with Analytic Hierarchy Process JunxinZhong1JintaiLv2YingZhang3Engineering, Ji Neng Composite Material & Products (Guangzhou) Ltd., Guangzhou, ChinaService Center, Guangzhou Tianwei Information Technology Co. Ltd., Guangzhou, ChinaGeneral Management, GRG Banking I.T. Co. Ltd., Guangzhou, China070120190701859520, December 201811, January 2019 14, January 2019© Copyright 2014 by authors and Scientific Research Publishing Inc. 2014This work is licensed under the Creative Commons Attribution International License (CC BY). http://creativecommons.org/licenses/by/4.0/

Based on the PMBOK risk management frame, this paper collects the potential risk factors of the customized project of company T with Delphi method. After several rounds of research, we get 22 level three factors from the original 6 level one factor. Then we filtrate all the 22 level three factors to identify the TOP10 factors with Analytic Hierarchy Process (AHP). This method is qualitative and quantitative. The project manager can find out the critical factors quickly. It’s very helpful to analyze and solve issues during project management.

Customized Production Project Risk Management Research on Critical Fac-tors Analytic Hierarchy Process Lean Production Delphi Method1. Introduction

As a brand new production mode, customized production aims to produce customized products under acceptable cost and time line. Enormous investment is also required for the new technology and equipments. The internal and external environment changes very quickly as well. The risk happens everywhere, which is believed that a valid risk management is very critical to the success of the project [1] . While the current risk management effect depends on the experience of the project manager. All the arrangements and decisions made under this situation are very subjective. Besides, it’s very difficult to find out and focus on the most critical factors when all of them come to you in the same time. There is a big challenge to transfer the risk management knowledge to your peers as well. It is a big waste to the company.

This paper uses AHP to calculate the weight of each critical factor and rank them. It’s quantitative and qualitative which can help avoid the subjective decisions. It’s also very easy for the project managers to find out the important factors to help improve the efficiency of the project risk management. The project management knowledge with the AHP can be stored and transferred as well.

2. Literature Review

In the 1960s, risk management becomes a subject. The purpose of the traditional risk management is to decrease the negative effect to the business operation and sustainable development. The primary strategy is to avoid or transfer the risk [2] [3] . Insurance is the most important tool in this period. The risk management research focus on the credits risk and financial risk [4] . The Global Association of Risk Professionals (GARP) established in 1996. It drives the establishing and perfecting of the certification and qualification examination system. The GARP is accepted and recommended by the financial industry in many countries. It becomes the principle standard to measure the risk management ability of the employee. In the same year, Project Management Institute (PMI) issues the first edition of PMBOK. Risk management is one of the nine knowledge field and never been removed since that [5] [6] . Project risk is defined as an uncertain event or condition by PMBOK the 5th edition. It will create positive effect or negative effect to the project objective once happened. The target of project risk management is to enhance the percentage and effect of the positive events and lower them on the negative events. The risk management is divided into six processes by PMBOK risk management frame. They are plan the risk management, identify the risk, implement qualitative risk analysis, implement quantitative risk analysis, plan the risk response and control the risk [7] .

AHP (Analytic Hierarchy Process) is suggested by Professor T.L. Saaty from University of Pittsburgh in the early 1970s. It’s an easy and flexible quantitative decision-making method to qualitative questions. It can divide various factors from complicated problems into different levels to make them more systematical [8] .

According to the subjective judgment of the objective reality, the AHP combines the expert advice and analysis judgment effectively. First of all, make quantitative description of the importance between different factors in the same level. Then calculate each factor’s weight of importance. At last, rank the factor based on the weight of importance. The AHP combines the qualitative and quantitative analysis, flexible and systematical to deal with different kinds of problems, which help it get widely attention and application quickly.

3. Identify Risk Factors

Based on the six processes of risk management in the PMBOK, we identify the critical factors of customized production projects with Delphi. In the first round open research, we identify the secondary factor from A1 plan the risk management、A3 implement qualitative risk analysis、A4 implement quantitative risk analysis、A5 plan the risk response and A6 control the risk. We get 11 secondary factors. In the second round evaluation research, we identify the secondary factor from A2 identify the risk and identify the third factor from 11 secondary factors in the meantime. It totally takes 3 rounds. We get 7 secondary factors and 22 third factors from original 6 primary factors. Establish the critical factor evaluation system of customized production project. See Table 1.

4. Rank Risk Factors with AHP4.1. AHP Procedure

In order to find out the top 10 critical risk factors, this paper analysis all the 22 risk factors with AHP, below is the procedure:

1) Create hierarchy structure model

2) Construct comparison matrix

Critical factor evaluation system of customized production project
Primary factorsSecondary FactorsThird Factors
A1 Plan the risk ManagementC1 Support of Stakeholders
B1 Arrange time and resource for the risk management activityC2 Cost and schedule activities
C3 Establish risk contingency reserve using method
B2 An accepted risk estimation basisC4 Define the risk probability and influence
C5 Risk classification
A2 Identify the riskC6 Risk description format
C7 Risk identification method and technology
C8 Risk triggering condition
A3 Implement qualitative risk analysisC9 Risk attitude of the group and the other stakeholders
B3 Create risk rating rulesC10 Risk priority ranking
C11 Risk urgency evaluation
A4 Implement quantitative risk analysisB4 Implement the risk quantified resultC12 Quantification risk priority list
C13 Probability to fulfill the project objective
C14 Quantitative analysis method
A5 Plan the risk responseC15 Determine the risk response responsible individual
B5 Create risk response actionsC16 Negative risk response
C17 Positive risk response
CA6 Control the riskB6 Risk reevaluateC18 Identify new risk
C19 Existing risk reevaluate
C20 Cancel outdated risk
B7 The validity of the control processC21 Comply with the risk management policies and procedures
C22 Adjust cost/schedule contingency reserve

3) Check consistency

4) Calculate the final weight value.

4.2. Create Hierarchy Structure Model

In order to create hierarchy structure model, we need to define the target layer, standard layer and decision layer. The target of this paper is to find out the critical factor of customized production project, so the target layer is effective risk management (A). Because the paper is based on the PMBOK risk management, so the 6 processes (plan the risk management, identify the risk, implement qualitative risk analysis, implement quantitative risk analysis, plan the risk response and control the risk) are the standard layer (B1-B6). At last, we use the 22 risk factors from Delphi as the decision layer (C1-C22). See below Figure 1.

4.3. Construct Comparison Matrix

In order to construct comparison matrix for AHP, we need to compare the importance of each factor in the same group. According to the interview information with the industry experts, we get the comparison value. We compare the factor i with the factor j in the same group, and mark them from 1 to 9. 1 means factor i is as important as factor j, 3 means factor i is a little more important than factor j, 5 means factor i is obviously more important than factor j, 7 means factor i is intensely more important than factor j, 9 means factor i is extremely more important than factor j, the other number means the importance is between its

front number and the latter number. The importance of j to i is the reciprocal of the importance of i to j. See Table 2 for the definition of each scale number.

After summarized all the information, we get the below comparison matrix: Table 3 is the comparison matrix between decision layer C1 to C5 of the standard layer B1; Table 4 is the comparison matrix between decision layer C6 to C8 of the standard layer B2; Table 5 is the comparison matrix between decision layer C9 to C11 of the standard layer B3; Table 6 is the comparison matrix between decision layer C12 to C14 of the standard layer B4; Table 7 is the comparison matrix between decision layer C15 to C17 of the standard layer B5; Table 8 is the comparison matrix between decision layer C18 to C22 of the standard layer B6; Table 9 is the comparison matrix between standard layer B1 to B6 of

Definition of each scale number for the comparison matrix
Scale aijDefinition
1factor i is as important as factor j
3factor i is a little more important than factor j
5factor i is obviously more important than factor j
7factor i is intensely more important than factor j
9factor i is extremely more important than factor j
2, 4, 6, 8the importance is between its front number and the latter number
reciprocalWhen compare j to i,the aji = 1/aij
 Decision layer comparison matrix of standard layer B1
C1C2C3C4C5
C117553
C21/711/31/21/3
C31/53133
C41/521/311/3
C51/331/331
 Decision layer comparison matrix of standard layer B2
C6C7C8
C611/31/7
C7311/5
C8751
 Decision Layer Comparison Matrix of Standard Layer B3
C9C10C11
C911/51/3
C10513
C1131/31
 Decision layer comparison matrix of standard layer B4
C12C13C14
C12135
C131/313
C141/51/31
 Decision layer comparison matrix of standard layer B5
C15C16C17
C15135
C161/313
C171/51/31
 Decision layer comparison matrix of standard layer B6
C18C19C20C21C22
C181371/35
C191/3151/53
C201/71/511/71/3
C2135715
C221/51/331/51
 Standard layer comparison matrix of target layer A
B1B2B3B4B5B6
B111/3351/31/5
B231351/31/5
B31/31/3131/51/7
B41/51/51/311/71/9
B5335711/3
B6557931

the target layer A.

After we get the comparison matrix, we calculate the relative weight Wi of factor i to the upper layer. The formula for Wi as below:

W i = Q i / Q a , and Q i = ( ∏ j = 1 n C i j ) 1 n , C i j is the importance scale of factor i to factor j.

Q a = / ( i , j = 1 , 2 , ⋅ ⋅ ⋅ n )

This paper use YAAHP to run the AHP calculation. Table 10 to Table 16 are the relative weight result of all the factors.

Relative weight result of target layer A
Effective risk management consistency ratio of the judgment matrix: 0.0028; the weight to the target: 1.0000; λmax: 6.0179
effective risk managementPlan the risk managementIdentify the riskImplement qualitative risk analysisImplement quantitative risk analysisPlan the risk responseControl the riskWi
Plan the risk management10.67031.49182.22550.67030.44930.1367
Identify the risk1.491811.49182.22550.67030.44930.1562
Implement qualitative risk analysis0.67030.670311.49180.44930.30120.098
Implement quantitative risk analysis0.44930.44930.670310.30120.20190.0657
Plan the risk response1.49181.49182.22553.320110.67030.2181
Control the risk2.22552.22553.32014.9531.491810.3253
 Relative weight result of standard layer B1
Plan the risk management consistency ratio of the judgment matrix:0.0126; the weight to the target:0.1367; λmax:5.0563
Plan the risk managementC1 Support of StakeholdersC2 Cost and schedule activitiesC3 Establish risk contingency reserve using methodC4 Define the risk probability and influenceC5 Risk classificationWi
C1 Support of Stakeholders13.32012.22552.22551.49180.3525
C2 Cost and schedule activities0.301210.67030.81870.67030.1197
C3 Establish risk contingency reserve using method0.44931.491811.49181.49180.2014
C4 Define the risk probability and influence0.44931.22140.670310.67030.1405
C5 Risk classification0.67031.49180.67031.491810.1859
 Relative weight result of standard layer B2
Identify the risk consistency ratio of the judgment matrix: 0.0000; the weight to the target: 0.1562; λmax: 3.0000
Identify the riskC6 Risk description formatC7 Risk identification method and technologyC8 Risk triggering conditionWi
C6 Risk description format10.67030.30120.1721
C7 Risk identification method and technology1.491810.44930.2567
C8 Risk triggering condition3.32012.225510.5713
 Relative weight result of standard layer B3
Implement qualitative risk analysis consistency ratio of the judgment matrix:0.0000; the weight to the target:0.0980; λmax:3.0000
Implement qualitative risk analysisC9 Risk attitude of the group and the other stakeholdersC10 Risk priority rankingC11 Risk urgency evaluationWi
C9 Risk attitude of the group and the other stakeholders10.44930.67030.212
C10 Risk priority ranking2.225511.49180.4718
C11 Risk urgency evaluation1.49180.670310.3162
 Relative weight result of standard layer B4
Implement quantitative risk analysis consistency ratio of the judgment matrix: 0.0000; the weight to the target: 0.0657; λmax: 3.0000
Implement quantitative risk analysisC12 Quantification risk priority listC13 Probability to fulfill the project objectiveC14 Quantitative analysis methodWi
C12 Quantification risk priority list11.49182.22550.4718
C13 Probability to fulfill the project objective0.670311.49180.3162
C14 Quantitative analysis method0.44930.670310.212
 Relative weight result of standard layer B5
Plan the risk response consistency ratio of the judgment matrix: 0.0000; the weight to the target: 0.2181; λmax: 3.0000
Plan the risk responseC15 Determine the risk response responsible individualC16 Negative risk responseC17 Positive risk responseWi
C15 Determine the risk response responsible individual11.49182.22550.4718
C16 Negative risk response0.670311.49180.3162
C17 Positive risk response0.44930.670310.212
 Relative weight result of standard layer B6
Control the risk consistency ratio of the judgment matrix: 0.0057; the weight to the target: 0.3253; λmax: 5.0256
Control the riskC18 Identify new riskC19 Existing risk reevaluateC20 Cancel outdated riskC21 Comply with the risk management policies and proceduresC22 Adjust cost/schedule contingency reserveWi
C18 Identify new risk11.49183.32010.67032.22550.2663
C19 Existing risk reevaluate0.670312.22550.44931.49180.1785
C20 Cancel outdated risk0.30120.449310.30120.67030.0869
C21 Comply with the risk management policies and procedures1.49182.22553.320112.22550.3386
C22 Adjust cost/schedule contingency reserve0.44930.67031.49180.449310.1296
4.4. Check Consistency

After we calculate the weight of each factor, we need to check the consistency of the comparison matrix. Calculate the consistency ratio CR of each matrix. If the CR is less than 0.1, it’s acceptable. Otherwise, we need to rerun the comparison matrix. We can get the CR from the below formula.

C R = C I R I , C I = ( λ max − n ) / ( n − 1 ) ,

The RI can be found from Table 17 based on the latitude n (the quantity of factors).

λ max = ∑ i = 1 n ( A Q ) i n × Q i ,

( A Q ) i is the product of a row matrix and a column matrix. Row matrix is the row i of the comparison matrix, column matrix is the relative weight matrix of the comparison matrix. Qi is from the relative weight calculation in chapter 4.3.

We can get the CR of each comparison matrix from Table 10 to Table 16 and they are all less than 0.1, which is acceptable to the consistency check. Table 18 is the summary of all the CR.

4.5. Calculate the Final Weight Value

Multiply the relative weight of each factor by the relative weight of corresponding standard layer. We can get the final weight of all the 22 factors, rank them in descending order, we get the below final weight list of all the factors, Table 19.

Random consistency index value of RI
n123456789
RI000.580.901.121.281.321.411.45
 CR value of the comparison matrix
B1B2B3B4B5B6A
CR0.01260.00000.00000.00000.00000.00570.0028
 Final weight list of all the factors
factorweightranking
C21 Comply with the risk management policies and procedures0.11011
C15 Determine the risk response responsible individual0.10292
C8 Risk triggering condition0.08933
C18 Identify new risk0.08664
C16 Negative risk response0.0695
C19 Existing risk reevaluate0.05816
C1 Support of Stakeholders0.04827
C10 Risk priority ranking0.04628
C17 Positive risk response0.04629
C22 Adjust cost/schedule contingency reserve0.042210
C7 Risk identification method and technology0.040111
C11 Risk urgency evaluation0.03112
C12 Quantification risk priority list0.03113
C20 Cancel outdated risk0.028314
C3 Establish risk contingency reserve using method0.027515
C6 Risk description format0.026916
C5 Risk classification0.025417
C9 Risk attitude of the group and the other stakeholders0.020818
C13 Probability to fulfill the project objective0.020819
C4 Define the risk probability and influence0.019220
C2 Cost and schedule activities0.016421
C14 Quantitative analysis method0.013922

With the AHP, we can calculate the weight value of all the 22 factors. Ranking them in descending order, we can get top 10 factors as the risk management critical factors. AHP combines the qualitative and quantitative analysis, the project manager can find out the critical factors quickly. It’s very helpful to analysis and solves problems during project management.

5. Management Enlightenment

Top 10 critical factors belong to Plan the risk management, Identify the risk, Implement qualitative risk analysis, Plan the risk response and Control the risk. Besides, Plan the risk response and Control the risk are particularly important, they include 7 of 10 critical factors. Project manager can pay extra attention to them.

The weight value of top two factors is obviously bigger. Comply with the risk management policies and procedures as the NO.1 critical factor means it’s very important to ensure the risk management policies and procedures are well executed and complied during the whole risk management cycle. Only in this way we can provide theoretical basis to the other risk management activities. Besides, we should determine the responsible individual for each risk, only when the responsible individual take his own responsibility, follow the risk management policies and procedures, the risk can be well managed.

According to the top 10 critical factors, we can identify the top 10 risks. For example, No.3 critical factor is Risk triggering condition. The corresponding risk is the structure failure. When the product is manufactured, it’s very difficult to tell whether there is a structure issue. But the customers are the professional players. They are much stronger and faster than the amateurs which means the sticks will be broken after several shoots. And broken sticks in the professional level will affect the brand reputation. In order to manage this risk, we should take actions in advance to describe the triggering condition of the structure failure.

As we can see from the final weight list of the factors, the weight of the last five factors are much lower. Which means it will not have too much influence to the whole project. So we don’t need to spend too much resource on them. Just need to review them in a certain period.

6. Conclusion

In this paper, based on the six processes of risk management, we identify the critical factors of customized production projects with Delphi. We get 7 secondary factors and 22 third factors from original 6 primary factors, and establish the critical factor evaluation system of customized production project. Then we calculate the weight of all the factors from critical factor evaluation system with AHP. After ranking them in descending order, we get top 10 critical factors. They are C21, C15, C8, C18, C16, C19, C1, C10, C17 and C22. With the top 10 critical factors list, project manager can manager each factor specifically, which will improve the efficiency of project management.

Acknowledgements

Thanks a lot for your valuable guidance, Professor Jiangping Wan.

Conflicts of Interest

The authors declare no conflicts of interest regarding the publication of this paper.

Cite this paper

Zhong, J.X., Lv, J.T. and Zhang, Y. (2019) Customized Production Project Risk Management with Analytic Hierarchy Process. Open Journal of Social Sciences, 7, 85-95. https://doi.org/10.4236/jss.2019.71008

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