In product, project, and engineering management, we are often faced with uncertainties. In fact, much of what we do includes risk. Risk is defined as an unexpected outcome that can impact the deliverables of a project through distortions of the scope, schedule, budget, or quality of work. Note that the Project Management Institute (PMI) specifically defines risk as uncertainty with a positive or negative impact on the project deliverables.
We spend most of our time focusing on how to manage and/or mitigate negative uncertainties. In my career as a chemical engineer, we concentrate on identifying and minimizing safety risks using tools like hazard identification and analysis, job aids, and engineering controls. We don’t very often consider the potential for a surprise, positive outcome.
However, in product, project, and engineering management, such positive uncertainties do, indeed, occur. Why should we identify positive risks? What is the reason for developing risk response plans for a positive uncertainty? Are there drawback to looking only at negative risks and ignoring positive risks? Let’s take a quick look at these questions to learn more about risk management in the product, project, and engineering fields.
Why Identify Positive Risks?
Identifying positive uncertainties in a project is much the same as recognizing negative risks. However, humans seem to be better conditioned to identify negative risks in science and technology. Meetings extend for long periods of time when opened for criticism, yet silence ensues when a facilitator requests positive comments.
This is unfortunate because when we identify positive uncertainties for a product development or engineering design project, we access several advantageous opportunities. First, when team members recognize and identify potentially pleasant surprises on the project, they are more motivated to work on the project. Building camaraderie around positive project outcomes can lead to enhanced teamwork and collaboration.
Next, identifying positive project uncertainties can have an affirmative effect on product revenues and ease of project implementation. For example, consider a new product development (NPD) project in which the market is unknown. A full risk analysis will include determination of the maximum market size and penetration in addition to analysis of a product that fails at launch.
This positive risk analysis allows the NPD team to consider the optimum size of the production line, inventory, and distribution channels. Isn’t it just as likely that your new product will become the next “Tickle Me Elmo” doll as it is to become the Apple Newton? Risk assessments must account for and create response plans for unexpected market reactions in both tepid sales and blockbuster revenue situations. The only way to do so is to first identify the potential positive outcomes that are equal in impact and probability as safety risks.
What are the Reasons for Risk Response Planning?
After quick consideration of the question, most of us can readily understand why we need to develop risk response plans for positive as well as negative project uncertainties. A project can fail if the scope, schedule, budget, or quality elements are not met. Yet a project can fail under conditions that lead to overly rapid business growth, too.
Consider the case of Krispy Kreme, a popular donut shop in the southern part of the United States. Krispy Kreme recognized the market need to sell more of it donuts. Customers love Krispy Kreme donuts. So the company began a large expansion project and built dozens of stores in prime locations. At the same time, recognizing the demand for their product, Krispy Kreme began selling donuts at service stations quick-stop shops and at supermarkets. Unfortunately, with so many outlets available to purchase a Krispy Kreme donut, the stores suffered due to higher operating costs. If the company had conscientiously and thoroughly evaluated the positive risks of rapid growth, they may have changed the strategy and saved millions of dollars lost in store construction as well as a hit to their brand reputation. Product, project, and engineering managers should consider fast market acceptance and rapid growth among other positive risks when evaluating project uncertainties.
Are There Drawbacks to Ignoring Positive Risks?
If we ignore a risk, there is some probability that it will have an impact on the project deliverables. Depending on the severity of the risk event, a safety incident can range from a near-miss to a fatality. Because we don’t want our staff to get hurt at work, we design risk responses for almost all negative uncertainties. These responses range from eliminating the risk by automating the task to machine interlocks and procedural controls.
While the disadvantage of ignoring a negative risk is obvious, we tend to struggle with the concept of positive project uncertainties. If a product is launched to higher-than-expected market demand, we assume we will just make more profit by charging a higher price until we can build another manufacturing facility. Of course, by ignoring an analysis of the potential positive outcome (high product demand), we also ignore the possibility of competition and market timing.
A competitor may also have recognized the customer need for a new product but is slower at launching. However, when the competitor observes the popularity of the product, it may be in a better position to ramp up production. The competitor may launch a slightly better product or one with more features or better economics. In any of these circumstances, the competitor is ready to take the majority market share while you are willing to accept status quo due to a lack of planning.
Secondly, some products have a short-lived cycle in the market. Remember PDAs (personal data assistants)? If a firm does not evaluate the positive risks in a short-term sales situation, production may lag and the product misses a wave of popularity. This results in very negative outcomes by failing to anticipate positive market responses.
Positive Risk Analysis
Normally, we are conditioned to consider negative outcomes as risks. In fact, working in product, project, and engineering management, we are trained to identify, monitor, and mitigate negative risks. Yet if we fail to anticipate positive uncertainties, projects can also suffer scope, schedule, budget, and quality outcomes. Risk identification should include analysis of potentially unexpected, pleasant impacts on the project deliverables, such as increased sales or market penetration.
We need to include positive uncertainties in a risk assessment so that we can plan risk responses just as we do for negative risks. Simply ignoring the potential for a positive outcome can negatively impact the revenue inputs or success of a project to the same degree as ignoring the potential for a health, safety, or environmental risk. A company needs to be poised to take advantage of rapid growth or high customer demand with a marketing, production, and distribution plan that delivers maximum value to all stakeholders.
You can learn more about risk management with certification training in New Product Development Professional (NPDP) workshops including an affordable self-study course or in a customized face-to-face training session. Contact me at [email protected] or 281-280-8717 for information on new product development training or professional management coaching. We also offer several options for Project Management Professional (PMP) training and practice test questions, including risk management. At Simple-PDH, we want to make it simple for you to study, learn, and earn and maintain your professional certifications.
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