Question 2 (10 marks)

Read the scenario below and answer the questions that follow.

Risk management at Deluxe Towels

Deluxe Towels manufactures a range of high-quality towels for the hospitality industry. The company allows for one to two towels per 100 manufactured to fail its stringent final quality checks. Towels that do not pass the final quality tests must be sold as second grade products in the companys factory shop. During a review of the companys performance, the Managing Director noted that there has been a significant increase in the number of towels that have been sent to the companys factory shop between January and March.

The operations team meet on Wednesday mornings to discuss productivity and production related matters. During one of these meetings in April, the Operations Manager noted that that they had to sell over 15 000 towels as second grade products over the last three months. It is estimated that the company lost R1.5 million over the first quarter of the year due to towels that did not pass the companys quality checks. The management team was unanimous in their conclusion that the losses attributable to waste far exceeded the companys tolerances.

A team of skilled technicians were tasked with an investigation of the companys manufacturing equipment. They were told to replace all worn parts and to recalibrate all machines. Staff were given additional training to enable them to identify potential issues early in the manufacturing process.

The quality control team samples several towels every hour and captures the results of various measurements on an automated reporting tool that produces quality control charts to track quality.

At a meeting in July, it was determined that the corrective measures that were introduced led to a noteworthy reduction in the number of the number of towels that had to be sold as second grade products. It is estimated that only one towel per 110 manufactured had to be sold in the companys factory shop as second grade products.

Use information from the scenario to explain how Deluxe Towels applied the following five major steps of the risk management process:

2.1 Risk identification

2.2 Risk analysis and quantification

2.3 Risk evaluation

2.4 Risk treatment and response

2.5 Risk monitoring and continual review