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Project risk management in
new product development
Negar Ghiam
Haleh Givari
Javad Arjmand
Mohammad Mokhatabi
Dr. Sadeghi
Spring 2011
Introduction
NPD starts with market opportunities
and technical possibilities.
Uncertain information
Precise information
NPD risks:
Market related risks
Completion risks
Institutional risks
Concepts of uncertainty
Uncertainty
Risk
The possibility of several possible
outcomes for a situation, each with a
probability of occurrence.
Novel venture
Possible outcomes are known
Probabilities are unknown
New technology or new market
Unknown
Unknowns
Approaches to buffers
Project buffers:
Schedule buffers
Budget contingencies
Specification compromises
Schedule buffers
Critical path (no slack)
Schedule buffers
The effectiveness of the schedule buffer
is realizing that it is not mainly a
calculation device, but a tool to
change attitudes.
Budget contingencies
Buffer for errors in cost estimates
Budget reserve: 5 to 10% of the
estimated cost (20% in early phases)
Budget contingencies
Used as an alternative to schedule
buffers and shorten the durations:
Working overtime
Adding additional or using more
experienced staff
Outsourcing activities
Upgrading equipment
Specification compromises
Microsoft focused on the most
important features and entered PC
software mass market.
Approaches to project risk
management PRM: formal process to manage
identifiable risk factors
It consists of 4 phases:
Risk identification
Risk assessment and prioritization
Risk response planning
Documentation and learning
Project risk management
Risk identification Risk lists
Risk assessment and
prioritization
Risk status = (event amount at stake) *
(event probability)
Risk response planning
Identified risk
Partially under the control of the team
Uncontrollable (No influence)
Risk prevention
Risk avoidance
- Use novel technologies
Risk mitigation
- Market risks
Risk transfer
- Insurance
Uncontrollable risks
Contingency planning:
In project schedule and budget
Decision trees
Approaches to unforeseeable
uncertainty
Increasing project flexibility
Discovery driven planning
Information gap decision theory
Increasing project flexibility
Overlapping the development phase
and the implementation phase
Quick feedbacks about
customer requirements
Discovery driven planning
Uncover unknown unknowns with 4
analyses:
1. Reverse income statement
2. Pro forma operations specification
3. Assumptions checklist
4. Milestone planning
Information gap decision theory
Severe uncertainty
Maximize the robustness or immunity
to failure
The project goal and path are
unknown
Unknown unknowns affecting the
project goal
No project plan
The team knows little about the project
outcomes
The project goal and path are unknown
Trial-and-error learning selectionism
Cost comparison of trial-and-
error and selectionism
Benefit comparison of trial-and-
error and selectionism
Case study:
Five small creative companies in UK
Risk vs. Creativity
The simultaneous rise of the risk and
creativity agendas is one of the great
paradoxes of today.
Risk-avoidance strategies may often
inhibit inventiveness.
This Research:
Linkages between formal views of design processes
and risks within them.
Focus on human or non-measurable aspects of risk
which are not usually ‘calculated’ by standard risk
assessment tools or formulas.
Informal approaches to risk are especially relevant in
small and medium companies which do not have the
structure a larger company has to perform formal
assessments.
New Product Development (NPD) process moves
from one domain of decisions to another, and may
be represented by a flow, with critical decision
points appearing at intervals.
The NPD process is neither logical nor tidy
Seven Specific questions:1. How is risk assessed in small companies when critical design
decisions are made?
2. What kind of communication exists among the design team and
the decision makers during the process of New Product
Development?
3. What is the perceived weight of importance given to decisions made
‘live’ against a reflection over those same decisions at a later stage?
4. Is it possible to map the considerable literature based on management
of risk in general management to the design function in creative
companies?
5. Is it more appropriate to establish design as an integrated feature
where risk is shared between decision ‘locations’?
6. Should we acknowledge that creativity in the design of new products is
delightfully risky and defies a description?
7. What is the nature of risk sharing between designer’s decisions and
those made by consumers?
Identifying Participating
Companies
40 suitable design-led companies from an DTI/Design Council database of approximately 350 from across the UK.
The aim was for a 2 year (or less) product cycle to ‘fit’ within the time available for research.
10 companies were initially shortlist that expressed a positive initial attitude to participation and fulfilled the core project criteria.
5 were eventually selected for study.
Individuals with key role on the development of new products within their companies , committed to the promotion of design centered activities.
Selection of Companies for
Study
All companies were in the process of
starting a new product lifecycle but the
products under Development varied :
Protective safety clothing,
Catering equipment,
Aids for the visually impaired
home entertainment equipment
a wide range of secondary material helped
characterize the company culture, their
products and their development process:
photographs, company literature and website
material, notes from telephone conversations,
emails, informal interactions, etc.
Semi-structured interviews were initially
undertaken with selected key personnel.
Ongoing Interviews and Risk Forms
A tailor-made risk form (reflective diary) was produced for each
person/company
Regular semi-structured interviews were
then undertaken to provide detailed
‘commentary’ on risk issues as the NPD
process continued.
The risk forms were again used in
conjunction with the interviews to record
the perceived relative importance of risk
areas.
Summary Company Descriptions and New
Products TrackedCompany 1
A social enterprise developing innovative and attractive
fluorescent, reflective clothing and accessories for children to
make them safer when cycling and walking.
The product tracked during the study was a new high visibility
garment incorporating a novel surface design element.
Summary Company Descriptions and New
Products Tracked
company 2
The largest of the 5 companies studied
Designs and develops high-quality hi-fi equipment, including
loudspeakers.
The product selected for study was a new constituent
(loudspeaker) of an integrated ‘home-entertainment system’
Summary Company Descriptions and New
Products Tracked
company 3
designs, develops and manufactures a range of safety headwear for rescue services, military organizations and
recreational markets.
the product studied was a new safety helmet aimed specifically at surfers.
Summary Company Descriptions and New
Products Tracked
company 4
This company designs and develops a range of innovative
catering equipment based on ‘induction energy’.
The product tracked was an innovative multi-element hot plate.
Summary Company Descriptions and New
Products Tracked
company 5
Produces a range of products designed to assist visually-
impaired people.
The product tracked was a new desk top printer, capable of
handling these specialist chemical-coated papers.
Results
The interviewees were asked to identify the future risks which they
perceived to be significant.
Despite the relatively small sample size, a very wide range of risks
were identified.
Only 2 of these specific risks were common to 3 or more
companies, and only 6 common to 2 companies.
This highlights the very individual nature of risk perception in
companies, even where firms share a number of core
characteristics
The only recognizably common risk issues are:
competition, correct pricing, developing and protecting IPR,
technical risks (around components) and the retention of key
personnel.
Despite this lack of commonality, a number of broad (non-
discrete) risk domains were recognized, including:
• Financial: operational finance, access to working
capital,pricing.
• Personal: personal finance, family circumstances.
• Intellectual Property: developing and protecting ideas,research
needs.
• Regulatory compliance: policy changes, safety issues, new
standards.
• Markets: competition, consumer / customer response.
• Technical: manufacturing processes, new technologies,
components.
• Partnerships / collaborations: networks, cross-functional
teams, formal / informal partnerships, e.g. suppliers,
specialist input, distribution networks.
• Organizational: capacity, skills, support / commitment to NPD.
