Correlated Risk Assessment and Its Managerial Applications

In this paper, we present a new approach of correlated risk assessment by linking the multiple process capability indices and loss functions, in which the multivariate process capability indices and multivariate loss functions describe the likelihood and consequences as a result of nonconformities in multivariate manufacturing or environmental system respectively. Then, the associated relationship equations are developed using multivariate methods. Moreover, a step-by-step procedure is provided to facilitate the implementation of the correlated risk assessment. Given the multivariate process capability indices, we show that the expected loss can be estimated by our developed relationship equations. Two numerical examples are also given to demonstrate how the correlated manufacturing and environmental risks can be properly assessed by linking the multivariate process capability indices and multivariate loss function. The risk information of likelihood and expected loss classified in the four planning zones of a strategic planning matrix provides practicing managers and engineers with a decision making tool for prioritizing their quality improvement projects when conducting risk assessment for any multivariate process or environmental system. Once the existing quality/environmental problems and their Key Performance Indicators (KPI) are identified, one may conduct risk assessment by applying the relationship equations to evaluate the impact of correlated risk on manufacturing processes or multiple environmental emissions inside company and it can lead to the direction of continuous improvement for any industry.