Department of Engineering

Risk Management in Plant Location Decision

Risk Management in Plant Location Decision

Principal Investigator: Professor Sir Mike Gregory

This project explores risk management practices in global manufacturing investment. It reflects the growing internationalisation of manufacturing and the increasing complexity and fragmentation of manufacturing systems. Issues of risk management have become increasingly important in financial and company governance contexts not least because of growing international concerns about the consequences of unregulated risk. However while significant progress has been made in the awareness and articulation of financial risk there appeared to be little evidence of systematic management of risks associated with the globalisation of manufacturing despite the fact that ill-advised internationalisation projects could risk companies’ futures. Investment risk management practice has evolved as risk analysis in global manufacturing investment from theoretical and practice perspectives. The need to actively manage risk has tended to be lost by the adoption of complex financial risk analysis methods in industrial investment projects.

The approach adopted in this research was to undertake detailed case investigations in a cross section of industrial businesses at different levels of maturity in order to observe current practices, identify common principles and to seek to synthesise systematic approaches to risk management where appropriate. These field studies were conducted against a background of a detailed review of the literature and practice in finance and consulting and a detailed review of literature and practice in manufacturing strategy and system design.

The key findings are as follows:

  • Elements of global manufacturing risk are managed by a variety of implicit and explicit methods, typically embedded in strategic and financial evaluations. There are no widely recognised comprehensive and systematic approaches to the analysis and mitigation of risks associated with global manufacturing investments.
  • A broad review and analysis of global manufacturing investment projects identified key categories of investment risks and key dimensions of investment risk management.
  • A very preliminary classification of global manufacturers from an investment risk management practice perspective, which may be helpful to companies in assessing their own risk management capabilities and behaviours.
  • A prototype investment risk management process architecture is proposed based upon the key research findings. It presents a structured approach to the key risk management tasks and demonstrates their generality across a range of industrial environment. This provides confidence though not conclusive evidence that these methods might be applicable across a broad spectrum of manufacturing industries.

The research findings extend the current understanding of risk management into the domain of global manufacturing strategy and provide the basis for more comprehensive and systematic assessment of risk in global investment projects. Further research will be required to validate the proposed risk management process and to explore the particular risks associated with different sectors, technologies, and business contexts.