Importance Of Risk Management

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Chapter3 - Risk Based Management Thinking in NPD
Introduction to Risk Management
“Effect of uncertainty on objectives”. [BIB-02]
Note1 – An effect is a deviation from the expected positive and /or negative
Note2 – Objectives can have different aspects (such as financial, health and safety, and environmental goals) and can apply at different levels (such as strategic, organization-wide, project, product and process).
Note3 – Risk is often characterized by reference to potential events and consequences, or a combination of these.
Note4 – Risk is often expressed in terms of a combination of the consequences of an event (including changes in circumstances) & the associated likelihood of occurrence.
Risk is an uncertain future
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Importance of Risk Management in NPD
Risk management has an effect on New product development cycle time.
Overlooking or Under-Managing risk leads to increased uncertainty about project completion dates, excessive cost, an increase in the estimated lead time or a total project collapse.
Over-Managing risk can lead to lost market opportunities because the longer than necessary lead-time means that market conditions have changed.
Product lead-time frequently determines whether it is market or technological risk that is important.
Products with short lead-time such as computers; calculators and computer games are less likely to attract high market risk because the market requirements have a relatively small chance of changing during new product development. The early the product release to the market increases predominantly the technological risks.
Changing market conditions are likely to be a major risk factor in long lead-time projects.
Some of the typical risks during new product development process are Pre-development, project budgeting and approval; start-up, management, product delivery and
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Technological risk is concerned with the possibilities that:
- An adequate technical solution cannot be identified for one or more of the product’s sub-systems.
- An identified technical solution turns out to be inadequate on functional, cost, time for development, or other grounds;
- A supplier of a key sub-system or component fails to provide a suitable solution.
- Most difficult problems arise from incompatibilities at the packaging interfaces between sub-systems and each of these interface should also be included as a risk element.
- Determine the probability of not being able to make the element work in the required manner by the overall system. Determine the consequences of such a failure for the project.
- In most cases the discussions about the probability of failure and consequences will be subjective. Reach decisions by informed discussions and consensus.
- Assessment must include technology incorporated into mechanical elements, electronic, electrical, difficulty of providing production systems, materials