Learn how to measure and improve your transportation risk management performance in four steps: objectives, data, comparison, and improvement.

When thinking of improvements, as with risk management broadly, start by separating the apples of the categories of the most frequently occurring risk incidents from the oranges of the rarely occurring risk incidents. Then, focus on (1) the apples with PDCA or other continuous improvement approaches and (2) the oranges with response and resilience planning. Do NOT mix the apples with the oranges.

Data helps create risk maps: a graph of impact per incident of a certain risk category versus the likelihood of occurrence of a single incident of this category in a given period, say, a year. Despite copious data on highly frequent risk incidents (say, delays beyond 2 days), you must rely on individuals' subjective opinions for most risk incident categories: Data can make you lose sight of the forest of overall risk management by focusing on only a few trees of risk incident categories about which you have data. The goal is to develop a risk map with a comprehensive set of risk incident categories, ranging from the most frequent (low impact/incident, but high frequency) to the rarest (high impact/incident but low frequency).

How can you evaluate the effectiveness of a transportation risk management plan?

Transportation risk management is a vital aspect of logistics management, as it helps to protect the supply chain from disruptions, delays, damages, and losses. A transportation risk management plan is a document that outlines the strategies, actions, and resources that a company will use to identify, assess, mitigate, and monitor the risks associated with its transportation activities. But how can you evaluate the effectiveness of such a plan? Here are some steps that you can follow to measure and improve your transportation risk management performance.

1 Define your objectives and metrics

The first step is to define what you want to achieve with your transportation risk management plan and how you will measure it. You need to set clear and realistic objectives that align with your business goals and customer expectations. For example, you may want to reduce the frequency and severity of transportation incidents, improve the delivery time and quality, or lower the transportation costs and liabilities. Then, you need to choose the appropriate metrics that will help you track and quantify your progress and results. Some common metrics are the number and type of transportation incidents, the percentage of on-time and in-full deliveries, the transportation cost per unit, and the customer satisfaction and retention rate.

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Mohan Sodhi

Professor, Ops & Supply Chain, Bayes Business School (London), POMS Fellow, FIMA, FORS
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As preliminary steps, it would be worthwhile to state what 'risk' means: negative impact on your organization or negative impact on your customers and, therefore, reputation risk for you. How will you measure this impact? A lost shipment may mean loss of some revenues to the transporter but it may mean the shipper loses their shirt and the consignee failed to satisfy their customer in turn. All this may seem obvious, but having led many risk discussions, I have found it useful to understand 'risk' before making plans and measures. Also, risk incidents like transportation delays can be repeated, in which case data can help, or, like the pandemic, risk incidents can be rare or even one-off, in which case data does not help.

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2 Collect and analyze data

The next step is to collect and analyze the data that will inform your evaluation. You need to have a reliable and consistent data collection system that will capture the relevant information from your transportation operations, such as the routes, modes, carriers, volumes, times, conditions, and outcomes. You also need to have a robust and flexible data analysis tool that will help you process, visualize, and interpret the data. You can use various methods and techniques to analyze the data, such as descriptive statistics, trend analysis, root cause analysis, benchmarking, and risk mapping. The goal is to identify the patterns, trends, gaps, and opportunities that will reveal the strengths and weaknesses of your transportation risk management plan.

Add your perspective

Mohan Sodhi

Professor, Ops & Supply Chain, Bayes Business School (London), POMS Fellow, FIMA, FORS
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Data helps create risk maps: a graph of impact per incident of a certain risk category versus the likelihood of occurrence of a single incident of this category in a given period, say, a year. Despite copious data on highly frequent risk incidents (say, delays beyond 2 days), you must rely on individuals' subjective opinions for most risk incident categories: Data can make you lose sight of the forest of overall risk management by focusing on only a few trees of risk incident categories about which you have data. The goal is to develop a risk map with a comprehensive set of risk incident categories, ranging from the most frequent (low impact/incident, but high frequency) to the rarest (high impact/incident but low frequency).

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3 Compare and evaluate performance

The third step is to compare and evaluate your performance against your objectives and metrics. You need to compare the actual data with the expected or desired data to see how well you are meeting your targets and standards. You also need to evaluate the impact and value of your performance on your business outcomes and customer satisfaction. You can use various tools and frameworks to compare and evaluate your performance, such as scorecards, dashboards, reports, and feedback surveys. The goal is to measure and demonstrate the effectiveness and efficiency of your transportation risk management plan.

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Mohan Sodhi

Professor, Ops & Supply Chain, Bayes Business School (London), POMS Fellow, FIMA, FORS
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You can do this only for the most frequently occurring risk incidents like delays, which are really about the performance of your operations. However, your operations' performance differs from your risk management's performance except for the most frequently occurring risk incidents. The best you can do is quarterly risk management exercises to track people's subjective opinions on which risk categories have moved in the risk map: less likely or more likely, less impact per incident or more. Don't get suckered in by focusing on the data you have - think instead of what you don't have because the lack of information is what will bite you with low-frequency risk events that have huge negative impact on you and even more on your customers.

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4 Identify and implement improvements

The final step is to identify and implement improvements based on your evaluation. You need to find the root causes of the problems or issues that are affecting your performance and address them with corrective or preventive actions. You also need to find the best practices or opportunities that are enhancing your performance and replicate them across your transportation operations. You can use various tools and methods to identify and implement improvements, such as SWOT analysis, gap analysis, action plans, and PDCA cycles. The goal is to improve and optimize your transportation risk management plan.

Add your perspective

Mohan Sodhi

Professor, Ops & Supply Chain, Bayes Business School (London), POMS Fellow, FIMA, FORS
Report contribution
When thinking of improvements, as with risk management broadly, start by separating the apples of the categories of the most frequently occurring risk incidents from the oranges of the rarely occurring risk incidents. Then, focus on (1) the apples with PDCA or other continuous improvement approaches and (2) the oranges with response and resilience planning. Do NOT mix the apples with the oranges.

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5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you evaluate the effectiveness of a transportation risk management plan?

1

2

3

4

5

1 Define your objectives and metrics

2 Collect and analyze data

3 Compare and evaluate performance

4 Identify and implement improvements

5 Here’s what else to consider

Logistics Management

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How can you evaluate the effectiveness of a transportation risk management plan?

1

2

3

4

5

1 Define your objectives and metrics

2 Collect and analyze data

3 Compare and evaluate performance

4 Identify and implement improvements

5 Here’s what else to consider

Logistics Management

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