Npd presentation file risk management

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Project Risk Management in New Product Development

Amirhosein EmamiFateme Askarzadeh

Abazar Farahani Mahsa karimpour

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NPD starts with market opportunities and technical possibilities.

Uncertain information

Precise information

Introduction

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Financial RisksInterest Rates FOREXCredit

RegulationsCultureBoard Composition

Operational Risks

ContractsNatural Events

SuppliesEnvironment

Hazard Risks

Strategic RisksCompetition

Customer ChangesIndustry Changes

Customer Demand

M & A Integration

Recruitment

Supply Chain

Liquidity & Cash Flow

Products & Services

Public Access

Employees

Properties

R & DIntellectual Capital

Accounting Controls Information System

Internally Driven

External

ly

Driven

Externally Driven

Some risks can have both external and internal drivers. Hence, those risks overlap in two areas.

To combat these risks, Risk Management has become a core business process.

Risk Types

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RISK MANAGEMENT PROCESS

The Organization's Strategic Objectives

Risk Assessment

Risk ReportingThreats and Opportunities

Decision

Risk Treatment

Residual Risk Reporting

Monitoring

DataAnalysis

BusinessResearch

Risk Analysis

Risk Identification

Risk Description

Risk Estimation

Risk Evaluation

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Risk Management in New Product Development

Why research and analysis before new

product development

New product development is linked with very limited historical or preliminary data. Hence, risky

Risk can be in form of market, technical, or organizational issues. Risk analysis solves the problem through flexible modeling, primary and secondary research.

A good strategy is a must for evaluating and dealing with the associated and unavoidable risks.

Research conducted to understand customer needs and develop a new product is different from research required to launch a new product.

Product development research is focused on needs of customers while launch research focuses on understanding the motivation and attitudes of early adopters. Successful targeting of early adopters builds the fountain for new product success.

New product have a very high failure rates.Products fail, not because of technical shortcomings, but due to absence of market.Over 60% of new product fail before entering the market, and out of the remaining 40% that do see the ray of light, 40% fail to yield profit and are withdrawn from the market. Timely and reliable knowledge about customer preferences is most important. Such data is obtained from business research.

RISK MANAGEMENT PERTAINING TO THE BUSINESS ENVIRONMENT

Environment

External Internal

Socio-Economic

RegulationsTechnologyCompetition Structure Processes Culture

Constituents of the Business Environment

•Companies operate in a dynamic business environment which forces them to adopt risk management measures.

•The business environment is both external and internal to a company and an adverse change in any of the above mentioned constituents can increase the risk levels for the company.

NPD RISKS:

Market related risks

Completion risks

Institutional risks

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CONCEPTS OF UNCERTAINTY

Risk Definition

The possibility of several possible outcomes for a situation, each with a probability of occurrence.

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Novel Venture

Possible outcomes are knownProbabilities are unknown

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New Technology or New Market

Unknown Unknowns

APPROACHES TO BUFFERS

Project buffers:

Schedule buffersBudget contingenciesSpecification compromises

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Schedule buffers

Critical Chain Project Management (CCPM)

CCPM helps to overcome following phenomenon:

- Parkinson’s Law: Work expands to fill the available time. - Student Syndrome: People start to work in full fledge only when deadline is near. - Murphy's Law: What can go wrong will go wrong. - Bad Multi Tasking: Bad multitasking can delay start of the successor tasks.

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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.

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Buffer for errors in cost estimates

Budget reserve: 5 to 10% of the estimated cost (20% in early phases)

Budget contingencies

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Used as an alternative to schedule buffers and shorten the durations: Working overtime Adding additional or using more experienced staff Outsourcing activities Upgrading equipment

Budget contingencies

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Specification Compromises

Microsoft focused on the most important features and entered PC

software mass market.

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Approaches to Project Risk Management

PRM: formal process to manage identifiable risk factors

It consists of 4 phases:

Risk identificationRisk assessment and prioritizationRisk response planningDocumentation and learning

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Project Risk Management

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Risk identificationRisk Checklist

RISK ASSESSMENT & PRIORITIZATION

Risk status =

(event amount at stake) × (event probability)

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RISK RESPONSE PLANNING

Identified Risk

Partially under the control of the team

Uncontrollable (No influence)

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RISK PREVENTION

Risk avoidance- Use novel technologies

Risk mitigation- Market risks

Risk transfer- Insurance

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UNCONTROLABLE RISKS

Contingency planning:

In project schedule and budget

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Decision Trees

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Increasing Project FlexibilityDiscovery Driven PlanningInformation Gap Decision Theory

Approaches to Unforeseeable Uncertainty

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Increasing Project Flexibility

Overlapping the development phase and the implementation phase

Quick feedbacks about customer requirements

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Increasing Project Flexibility

DISCOVERY DRIVEN PLANNING

Uncover unknown unknowns with 4 analyses:

1. Reverse income statement

2. Pro forma operations specification

3. Assumptions checklist

4. Milestone planning

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INFORMATION GAP DECISION THEORY

Severe uncertainty

Maximize the robustness or immunity to failure

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The project goal and path are unknown

Unknown unknowns affecting the project goal

No project plan

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The team knows little about the project outcomes

The project goal and path are unknown

Trial-and-error learning Selectionism

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Cost Comparison of Trial and Error and Selectionism

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Benefit Comparison of Trial and Error and Selectionism

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