When I was a new engineer, I first heard the phrase “manage the risk.” I don’t think I really understood the meaning of the statement because it felt like my bosses were simply trading safety for profit. Of course, that wasn’t true – we must strike a balance among what is unknown, what is unknowable, and cost. If an activity is too risky, businesses will forego the opportunity for profit at any cost.
Product innovation is risky. There are risks in new product development (NPD) involving customer acceptance, technology, and product design. We use a variety of NPD processes to manage the risk of investment (cost) versus success in the market (profit). Beyond the potential benefit of an individual NPD project, we use product portfolio management (PPM) to balance trade-offs and decisions for the entire suite of projects, programs, and products within the organization. (Learn more about NPD processes and PPM in The Innovation ANSWER Book.)
Watch the 30-second summary here and then read on!
“Simple” Project Risks
While a “simple” project might be very sophisticated from a technical perspective, the risks are clearly defined and “knowable”. Goals, objectives, technical solutions, and expected outcomes are determined at the outset, including a formal assessment of uncertainties for the project. We often use the term “known unknowns” to describe risks in simple projects.
For instance, if you are doing a construction project, it is likely that the weather will be bad one or more days and prevent work progress. This is a known unknown – we know inclement weather will occur, but we don’t know when it will happen. We “manage the risk” by adding a couple of days to the schedule as a contingency. In other words, we can anticipate and plan for uncertainties that we expect to occur during project execution.
For such simple projects, we usually follow a project management process called “waterfall”. That is, we can plan the work upfront because we can anticipate the risks. Then, we execute the plan and monitor progress against the plan. Risk is “managed” by consuming the contingency on from a known trade-off between schedule (cost) and the completion of the new product project (profit).
Inherently Risky Projects
At the opposite end of the spectrum are inherently risky projects. These are projects with “unknown unknowns”. For product innovation, we might view R&D or early phases of NPD as inherently risky. We don’t know much about the markets and may not have a technical solution. Yet, we recognize the opportunity and will investigate it.
For example, if you have an idea to create an app that matches hobbyists for service bartering, that is an inherently risky idea. You will need to research whether someone who loves gardening will trade her services with a neighbor who loves cooking. It “feels” like an opportunity exists, but you will need to investigate the cost of developing the app with the potential for profit. In such cases, traditional market research and the scientific method serve as process tools.
Complex and Complicated Projects
In between the simple and inherently risky projects are complex or complicated projects. We might know what features customers expect in a new product or we might have a new technology available. In these situations, a “WAGILE” NPD process is best to launch an innovation with both requirements and technical uncertainties.
WAGILE is a hybrid process, combining the best of “waterfall” or Stage-Gate® processes with the Agile philosophy. A benefit of waterfall include risk management through a disciplined planning process. The benefits of Agile project management (like Scrum) include intensive customer focus and iterative design cycles. WAGILE combines these processes to blend discipline and planning with customer feedback with iterative development.
WAGILE has five stages and gates with a set of tools and techniques to speed product development, increase customer satisfaction, and improve organizational efficiency. The stages (and gates) of WAGILE are:
- Opportunity Identification (Idea Gate),
- Business Case (Functional Gate),
- Technical Development (Technology Gate),
- Scale-Up (Constructability Gate), and
- Production (Launch Decision).
You can read more about WAGILE here.
Managing Innovation Risk
Naturally, there are risks in innovation and in new product development. If there were not uncertainties in design and development, the world would be boring and stagnant. Yet, we don’t want to navigate within a chaos of undetermined risks either.
The seemingly dubious phrase “managing the risk” means making trade-offs between investment and potential payoffs. As innovation leaders we don’t always know if markets and competitors will respond as we expect. We don’t know if the technology will work. Instead, we use NPD processes to plan our work and make decisions about projects.
Simple projects with “known unknowns” are successfully implemented with waterfall processes. R&D projects are inherently risky, so we apply the scientific method to hypothesize a solution and test its validity. For complex or complicated projects, we deploy innovation management processes (like WAGILE) to apply planning and discipline in conjunction with continuous customer feedback and iterative design. Each project should be evaluated for the best execution methodology, remembering that no two projects are alike.
Learn more about WAGILE to manage project risks at my presentation with PMI Pikes Peak on 8 April 2021 (register here). Also check out my podcast interview on WAGILE with Kevin Brennan here. Then register for an in-depth and interactive workshop on WAGILE product development on 22 and 23 April 2021. Register here. Contact me at email@example.com for customized WAGILE implementation in your organization.
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