The relation between impact and probability in supply chain risk management

Paper in proceeding, 2018

Purpose: The purpose of the study is to provide a better understanding of cargo theft risk by
analyzing the relation between probability and impact for different combinations of incident
type and transport chain location type.
Design/methodology/approach: This study is based on a system-theoretical approach, which
emphasizes a holistic rather than an atomistic view. The research method used in this paper is
deductive; the analysis is based on the data taken from IIS (Incident Information Service), a
transport-related crime database of TAPA (Transported Asset Protection Association) EMEA;
and the result is analyzed and discussed within a frame of reference based on risk
management theories from a supply chain perspective.
Findings: The total risk may be the same for either a frequency-intensive risk with low
impact or a high-impact risk with low probability, but different combinations of risks require
different risk management strategies. As we show in this paper, the general pattern for cargo
theft incidents is that a larger impact risk often corresponds with a lower probability risk, as
one might expect, but there are also several exceptions to this typical relation. Regressing
probability on impact gives an estimated effect of about -0,5 instead of the theoretically
expected -1. This implies that focusing on impact risk reduction may be a better risk
management strategy in terms of total risk than focusing on probability reduction.
Research limitations/implications: This study is based on theoretical deduction using
official statistics regarding cargo thefts from a risk management perspective. Its geographical
limitation and focus on cargo theft is mainly linked to the limitations of the utilized database,
although the frame of reference as well as the general discussion can be utilized in all supply
chain risk management issues.
Practical implications: The result in this study signals that an impact reducing strategy may
reduce the total risk more from cargo theft then a probability focused strategy. This
conclusion follows the traditional understanding in risk management that a higher impact is
normally more serious than a higher possibility; therefore shall higher impact risks be
prioritized before high probability risks.
Originality/value: This paper utilize actual crime statistics reported by the industry itself to
analyse on supply chain risk management effects by focusing on the two main dimensions in
risk management, namely probability and consequences.