Operations, Resource and Risk Management
This domain tests how a venture converts inputs into outputs efficiently and how it manages resources and risk. Questions cover capacity, quality, inventory, supply chains, human resources and the risk management process.
Core rules and concepts
- The transformation process turns inputs (materials, labour, information) into outputs (goods and services) using processes and feedback.
- Capacity is the maximum output possible; a bottleneck is the constraint that limits the whole process.
- Productivity = output ÷ input. Quality control checks output; quality assurance improves the process.
- Inventory management balances holding costs against stock-out risk.
- Risk management: identify risks, assess likelihood and impact, then treat by avoiding, reducing, transferring or accepting. A risk register records owners and actions.
- Contingency planning prepares backup suppliers, insurance and succession.
Worked example
A catering business has one oven and peak-season demand for 300 meals a day, but the oven can produce 240. Reasoning: the oven is the bottleneck, so hiring more staff will not raise output. Options are reducing the menu, renting a second oven, pre-cooking items or accepting limited orders. If a supplier fails during peak season, a backup supplier is risk reduction; insurance is risk transfer. The choice depends on cost and likelihood.
Traps that cost marks
- Adding labour when a machine is the bottleneck.
- Confusing risk transfer (insurance) with risk reduction (backup supplier).
- Ignoring underinsurance or single-supplier dependence.
- Planning capacity without considering demand seasonality.