Sustainability Risk Management Using Failure Mode Effect Analysis: Evidence from Malaysia

Abstract

Palm oil industry in Malaysia has been in the limelight due to criticisms from various
pressure groups on the severe sustainability issues as the results of palm oil productions and
processes. Emerging sustainability issues expose palm oil industry to face the unprecedented set
of sustainability risks. As such the identification of sustainability risks, the assessment of their
impact, the development of sustainability risk management (SRM) to respond and monitor those
risks are critical for organization in order to ensure company’s viability and survival in current
business environment. Thus, this study intends to provide useful insights on the management of
sustainability issues using risk management framework that includes risk identification, risk
assessment and analysis, risk response, and risk monitoring. Questionnaires were distributed to
operational managers in selected palm oil mills. Failure Mode Effect Analysis (FMEA) was
employed to analyse the data. The findings reveal that sustainability risks are perceived as
having major impact to business operations; they occur occasionally and are moderately easy to
be detected. By assessing the impact of sustainability risks, an acceptable range of risk
mitigation strategies can be assigned properly. This finding highlights the need for integrated
sustainability risk management approaches to facilitate the development of effective sustainable
strategies.