In the third blog of our five-part series, 5 Key Ingredients to Fueling a Successful Product Launch we examine how to successfully manage risk in new product development.
Part 3: Managing Risk
The management of new products is the management of risk. Companies have seen their fortunes rise or drop based on their choice of projects and the effectiveness of their risk management. The Project Management Institute highlights that “neglecting risk may lead to an unbalanced portfolio and without risk consideration at the portfolio level, an organization may not build sufficient reserves and may be ill prepared for the future.”
There are huge amounts at stake, coupled with high levels of uncertainty. Total risk avoidance is impossible; your aim is to lessen the amounts at stake. But how?
The rule of risk management is: If the uncertainties are high, keep the amounts at stake low. As uncertainties decrease, the amount at stake can be increased. This keeps risk under control. The best way of doing this is to use a multi-stage decision process. Information is instrumental in managing risk, with each stage in the process as a means of gathering information and reducing uncertainty. The ability to withdraw at various get-out points also reduces risk, so incorporate timely evaluation, decision and get-out points into your system.
A multi-stage decision process can ensure you manage uncertainty in an objective way, with judgements based on facts. The most up-to-date risk analysis tools will use multiple criteria – technical and commercial – to give you an informed assessment. These assessments are combined with financial analytics to enable you to see which projects offer best return versus risk trade-off and help you manage and track specific risks and issues that affect a project. Scenario tools enable you to model and compare entire alternative futures and answer ‘what-if’ questions. This ability to compare financial analysis, timescales, risk and portfolio selection choices allows you to make the best strategic decisions for your business. By considering both technical and commercial factors that influence the likelihood of project success, your forward planning will be more robust and realistic.
The Association for Project Management adds, “Risk management is a process that allows individual risk events and overall risk to be understood and managed proactively, optimising success by minimising threats and maximising opportunities…All projects, programmes and portfolios are inherently risky because they are unique, constrained, based on assumptions, performed by people and subject to external influences. Risks can affect the achievement of objectives either positively or negatively. Risk includes both opportunities and threats, and both should be managed through the risk management process.”
Managing risk in an objective way isn’t easy, and that’s why risk analysis software is so important. Your ability to assess the probability of success of projects will be more objective, with judgements based on facts. With consideration for a variety of factors that influence the likelihood of project success, and by assessing and understanding the effects of uncertainty, your forward planning will be more realistic.
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5 Key Ingredients to Fueling a Successful Product Launch
Collaboration and Communication – The Key to Success
The Importance of Appropriate Governance when Launching a New Product