Risk and Uncertainty in Product Development

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Risk is kind of a negative word.  We usually associate risk with bad things happening.  We feel relieved if we have taken a risk and everything turns out okay.  Companies hire specialists in risk management to minimize physical hazards and financial exposures.

The Project Management Institute (PMI) talks about risk more as an uncertainty.  There are “positive” risks as well as negative risks.  You might receive more orders than you can fill.  A foreign currency transaction costs less in dollars than anticipated.  The contractor finishes work faster than planned.  These “positive” uncertainties also impact business, yet we generally rejoice over the outcomes.

New product development (NPD) involves risk and uncertainty – by definition.  While there are both positive and negative risks, we can generally categorize NPD risks into a few categories:  technology, market, and people.

Technology Risk in NPD

Often, we design new products and services to take advantage of new technologies.  Technical advances can drive production costs down to increase profits.  Implementing technology changes involves a cost by itself but the goal is to achieve greater reward than this expense.  For example, installing a machine in the factory with greater throughput involves capital cost.  But if the machine has lower operating cost and produces more widgets per hour, the company quickly recovers the investment with more sales.

Another risk of technology development in NPD involves product features.  We may add additional technical capabilities to a product to enhance the product’s operability.  The risk here is there can be “too much of a good thing”.  More technology built into a product can make it more complicated and less reliable.  Always check with your key customers to ensure the new technology costs (price, learning curve, complexity) do no outweigh by the benefits (ease-of-use, competitive advantage, reliability).

Market Risk

New products are dependent on market acceptance for success and profitability.  Markets are made of people and people can be fickle.  A single tweet or Instagram post can change fashionable trends in an instant.  Designing products for market timing is a challenging task.

Effective NPD processes, like WAGILE Product Development (see Part 3 of The Innovation PROCESS Book) ensure that customer feedback is gathered and analyzed throughout the development process.  Sometimes it takes two years to design and develop a new product.  During that time, technologies change, but so do economies and customer needs.  At the point of updating this post from 3Q22 to 2Q25, the US economy is facing a recession following a period of historically high inflation amidst tumultuous government rule changes.  Consumers respond to these conditions with their limited purchasing decisions and companies must meet these needs.

One example of a great service response to recession/inflation is a new television show on a food channel.  The premise is to prepare dinner with ingredients that are less expensive and to stretch meals (leftovers) for a family to save money.  During high-flying economic times, this show would maybe not be so popular.  But creating the new television show concept is a terrific new product to address market uncertainties.

People Risk

People are always a risk to product development.  We’ve already discussed the uncertainties that people as consumers bring to product development.  Yet we also have internal people risks.  Proper training of staff and innovation teams helps to minimize uncertainties in NPD.

For example, ensuring effective cross-functional collaboration builds manufacturing discussion alongside marketing and sales.  Each team member on an NPD team must serve to represent decisions for his/her function and department.  Manufacturing team members meet with the innovation team to manage the production process and to also represent quality, safety, and logistics.  Finance representatives not only provide cost/benefit analysis but also represent the time value of money and inventory from a supply chain perspective.

Risk in NPD

New product development involves risk.  Of course, we must take risks because our customers demand new and improved features.  Most uncertainties in NPD lie within three categories:  technology, market, and people.  Using appropriate processes can help to minimize negative risks and maximize the positive uncertainties that occur in an NPD project.  NPD processes, like WAGILE and Lean NPD are hybrid approaches to project management giving flexibility to the innovation team while at the time maintaining structure and predictability to satisfy executives and regulators.

Learn More About Hybrid Processes for NPD

Risk is kind of a negative word.  We usually associate risk with bad things happening.  We feel relieved if we have taken a risk and everything turns out okay.  Companies hire specialists in risk management to minimize physical hazards and financial exposures.

The Project Management Institute (PMI) talks about risk more as an uncertainty.  There are “positive” risks as well as negative risks.  You might receive more orders than you can fill.  A foreign currency transaction costs less in dollars than anticipated.  The contractor finishes work faster than planned.  These “positive” uncertainties also impact business, yet we generally rejoice over the outcomes.

New product development (NPD) involves risk and uncertainty – by definition.  While there are both positive and negative risks, we can generally categorize NPD risks into a few categories:  technology, market, and people.

Technology Risk in NPD

Often, we design new products and services to take advantage of new technologies.  Technical advances can drive production costs down to increase profits.  Implementing technology changes involves a cost by itself but the goal is to achieve greater reward than this expense.  For example, installing a machine in the factory with greater throughput involves capital cost.  But if the machine has lower operating cost and produces more widgets per hour, the company quickly recovers the investment with more sales.

Another risk of technology development in NPD involves product features.  We may add additional technical capabilities to a product to enhance the product’s operability.  The risk here is there can be “too much of a good thing”.  More technology built into a product can make it more complicated and less reliable.  Always check with your key customers to ensure the new technology costs (price, learning curve, complexity) do no outweigh by the benefits (ease-of-use, competitive advantage, reliability).

Market Risk

New products are dependent on market acceptance for success and profitability.  Markets are made of people and people can be fickle.  A single tweet or Instagram post can change fashionable trends in an instant.  Designing products for market timing is a challenging task.

Effective NPD processes, like WAGILE Product Development (see Part 3 of The Innovation PROCESS Book) ensure that customer feedback is gathered and analyzed throughout the development process.  Sometimes it takes two years to design and develop a new product.  During that time, technologies change, but so do economies and customer needs.  At the point of updating this post from 3Q22 to 2Q25, the US economy is facing a recession following a period of historically high inflation amidst tumultuous government rule changes.  Consumers respond to these conditions with their limited purchasing decisions and companies must meet these needs.

One example of a great service response to recession/inflation is a new television show on a food channel.  The premise is to prepare dinner with ingredients that are less expensive and to stretch meals (leftovers) for a family to save money.  During high-flying economic times, this show would maybe not be so popular.  But creating the new television show concept is a terrific new product to address market uncertainties.

People Risk

People are always a risk to product development.  We’ve already discussed the uncertainties that people as consumers bring to product development.  Yet we also have internal people risks.  Proper training of staff and innovation teams helps to minimize uncertainties in NPD.

For example, ensuring effective cross-functional collaboration builds manufacturing discussion alongside marketing and sales.  Each team member on an NPD team must serve to represent decisions for his/her function and department.  Manufacturing team members meet with the innovation team to manage the production process and to also represent quality, safety, and logistics.  Finance representatives not only provide cost/benefit analysis but also represent the time value of money and inventory from a supply chain perspective.

Risk in NPD

New product development involves risk.  Of course, we must take risks because our customers demand new and improved features.  Most uncertainties in NPD lie within three categories:  technology, market, and people.  Using appropriate processes can help to minimize negative risks and maximize the positive uncertainties that occur in an NPD project.  NPD processes, like WAGILE and Lean NPD are hybrid approaches to project management giving flexibility to the innovation team while at the time maintaining structure and predictability to satisfy executives and regulators.

Learn More About Hybrid Processes for NPD

Learn more about managing risk via hybrid processes in my presentation with the Central Illinois Chapter of PMI (virtual) on 8 April 2025 at 12 pm (noon) CDT.  More information is here for “What’s In Between?  Hybrid Waterfall-Agile Processes for Product Development.” 

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