With this input the HTP diagram can be constructed (Figure 3). First, all risks are ordered according to their total HTP index value from highest to lowest. Second, the corresponding three‐letter risk factor code is added to each line, to provide more information about the particular risk. And third, additional columns can be created that denote the cumulative risk factor count and the cumulative risk control cost. The pyramidal HTP diagram lists the most significant risks at the top (sharply pointed for immediate management attention), and the less significant risks at the bottom (Grose, 1987).
The risk factors at the top of the HTP represent catastrophic consequences that can be eliminated or contained for a small amount of money. As we go down the HTP, the impact of the ranked risk factors diminishes. Since no firm can afford to eliminate every identified risk, one can find a level in the HTP below which management accepts the risks, instead of implementing risk response action plans for their removal (similar to Figure 2 above, which is a pre‐version to the fully developed HTP here). Alternatively, a firm may have a certain budget amount available to implement mitigation strategies. Starting from the top, the firm could then decide to implement all risk mitigation plans until the cumulative risk control cost equals or exceeds the budget. This cumulative cost is the cumulative sum of the risk prevention costs, which are based on the values in Table V. With this approach, the most critical risks can be addressed, while at the same time being constrained by a limited amount of resources. As a result, risk response actions can be selected for implementation according to the priority and the available resources. The cumulative risk factor count at that point indicates how many risks (irrespective of their severity, probability and prevention cost) could be eliminated. The HTP analysis thus represents an effective decision tool for integrating the severity of the consequence, the probability of occurrence, and the implementation cost of a risk response action plan for an identified SC risk.
While the HTP analysis just described can serve as a useful decision aid, certain limitations must be noted which relate mostly to assumptions and the subjective nature of the rankings and evaluations. For example, the implementation costs for risk mitigation action plans are assumed to be fixed. However, after the resources have been expended, the risk may not be completely eliminated; its severity may be merely lowered, for instance from “catastrophic” to “severe.” Here, the budget estimated was not sufficient to completely eliminate the risk. The risk might also emerge in a modified form, for which the implementation action plan may be not as effective. The HTP analysis in Figure 3 can therefore only be a decision aid, and not a tool that makes decisions for the supply chain manager. It must be realized that almost all evaluations are subjective, and that assumptions made today may not be valid tomorrow any more. Modifications to Figure 3 may therefore be necessary. Nevertheless, considering these caveats, the suggested approach can help conceptualize and understand the problem in a more structured way