A new loss function‐based method for evaluating manufacturing and environmental risks

Purpose – The purpose of this research is to provide a new loss function‐based risk assessment method so the likelihood and consequence resulting from the failure of a manufacturing or environmental system can be evaluated simultaneously. Design/methodology/approach – Instead of using risk matrices of the occurrence and consequence separately for evaluating manufacturing and environmental risks, an integrated approach by exploring the relationship between process capability indices: C p , C pk and C pm , and three different loss functions: Taguchi's loss function; Inverted normal loss function (INLF); and Revised inverted normal loss function (RINLF) is proposed. Findings – The new method of quantitative risk assessment linking the likelihood and expected loss of failure is illustrated by two numeric examples. The results suggest that the revised inverted normal loss function (RINLF) be used in assessing manufacturing and environmental risks. Practical implications – It gives decision‐makers a concrete tool to assess the likelihood and consequence of their processes. Linking the process capability indices and loss functions is particularly promising, as this provides a useful risk assessment tool for practitioners who want to reduce hazardous waste and manufacturing losses from their facilities. Originality/value – The manufacturing and environmental risks are determined by paring the process capability indices and loss function. From the loss function‐based estimation, one can quantify the consequence of a manufacturing loss and get the severity rating in an objective way.