The Effective Approach of Managing Risk in New Product Development (NPD)

Risk In The Product Development Life Cycle

In relation to the product development process, risk is usually seen as an unlikely condition or event. If it does occur, it can have positive or negative effects on the objectives of the product development process. In product development, projects rarely work out per the company’s predesigned plan. Thus, to properly manage various forms of risk, Eppinger & Ulrich (2008) suggest that a company and team develop and maintain a risk management plan, also known as a project risk plan.

In the product development process, the chances of a risk event are greatest in the concept, planning, and start-up phases. It is commonly known that, over the project lifecycle, as shown in Figure 1, the cost impact of a risk event is less if the event is detected and minimized in the earlier stages, according to Katsanis and Pitta (2006).

The early stages of the product development process represent a NPD team’s opportunity to minimize the impact of a potential risk event(s). On the other side of the situation lies the idea that once a NPD project passes the “halfway” implementation mark, the cost of a risk event occurring increases rapidly. Therefore, for any NPD project, the team should identify risks and control them prior to the halfway point—this would minimize the cost impact of risk events.

Figure 1.

Risk event graph (Gray & Larson, 2008, 198)

The relationship between risk management and NPD is also critical since developing a risk management system (plan) will enable a NPD team to better complete the project on budget, on time, and with the required technical performance. In addition, Lemke, Mitchell, & Szwejczewski (2008) explain this form of management enables the project leader (manager) to have stable control over the project’s future and chances of success.