Project risk management in new product development

1. Project risk management in
new product development
Negar Ghiam
Haleh Givari
Javad Arjmand
Mohammad Mokhatabi
Dr. Sadeghi
Spring 2011

2. Introduction
 NPD starts with market opportunities
and technical possibilities.
Uncertain information
Precise information

3. NPD risks:
 Market related risks
 Completion risks
 Institutional risks

4. Concepts of uncertainty
 Uncertainty
Risk
 The possibility of several possible
outcomes for a situation, each with a
probability of occurrence.

5. Novel venture
Possible outcomes are known
Probabilities are unknown

6. New technology or new market
Unknown
Unknowns

7. Approaches to buffers
 Project buffers:
Schedule buffers
Budget contingencies
Specification compromises

8. Schedule buffers
 Critical path (no slack)

9. Schedule buffers
The effectiveness of the schedule buffer
is realizing that it is not mainly a
calculation device, but a tool to
change attitudes.

10. Budget contingencies
 Buffer for errors in cost estimates
 Budget reserve: 5 to 10% of the
estimated cost (20% in early phases)

11. 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

12. Specification compromises
 Microsoft focused on the most
important features and entered PC
software mass market.

13. 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

14. Project risk management

15. Risk identification
 Risk lists

16. Risk assessment and
prioritization
Risk status = (event amount at stake) *
(event probability)

17. Risk response planning
Identified risk
Partially under the control of the team
Uncontrollable (No influence)

18. Risk prevention
 Risk avoidance
- Use novel technologies
 Risk mitigation
- Market risks
 Risk transfer
- Insurance

19. Uncontrollable risks
 Contingency planning:
In project schedule and budget

20. Decision trees

21. Approaches to unforeseeable
uncertainty
Increasing project flexibility
Discovery driven planning
Information gap decision theory

22. Increasing project flexibility
Overlapping the development phase
and the implementation phase
Quick feedbacks about
customer requirements

24. Discovery driven planning
 Uncover unknown unknowns with 4
analyses:
1. Reverse income statement
2. Pro forma operations specification
3. Assumptions checklist
4. Milestone planning

25. Information gap decision theory
 Severe uncertainty
 Maximize the robustness or immunity
to failure

26. The project goal and path are
unknown
 Unknown unknowns affecting the
project goal
No project plan

27. The project goal and path are
unknown
 The team knows little about the project
outcomes
Trial-and-error learning selectionism

28. Cost comparison of trial-and-error
and selectionism

29. Benefit comparison of trial-and-error
and selectionism

30.  Case study:
Five small creative companies in UK

31. 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.

32. 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.

33.  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

34. 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?

35. 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.

36. 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

37.  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.

38. Ongoing Interviews and Risk Forms
 A tailor-made risk form (reflective diary) was produced for each
person/company

39.  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.

40. Summary Company Descriptions and New
Products Tracked
Company 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.

41. 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’

42. 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.

43. 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.

44. 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.

45. 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.

46. 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.