How is Product Development Risk Different From Enterprise Risk?

If you search for risk management software, you typically find a lengthy list of software solutions described as Integrated Risk Management, Enterprise Risk Management, Operational Risk Management, and IT Risk Management. Generally, these solutions work to reduce an organization’s exposure to risk events, as listed below:

  • Ensure compliance with various standards and regulations
  • Monitor processes for non-compliance, failure, and incursion/security breaches
  • Facilitate remediation, documentation, and audits
  • Track assets to prevent loss
  • Track safety issues to prevent injury
  • Monitor activities of third parties, such as suppliers and distributors
  • Mitigate the impact of acts of nature, terrorism, and accidents

These risks are often caused by events outside the control of the organization, process failures, or intentional interference/hackers.

Product Development Risk is Different

In comparison, product development risk is often due to lack of knowledge and/or experience. Indeed, there are risks from factors outside the control of the product development team, but a significant portion of risk can be reduced through learning and experimentation. For example:

  • Technology risk is frequently reduced by running tests designed to identify failure points
  • Concept testing and market tests reduce commercial risk
  • Business risk is reduced by testing the product concept against the business model

Risk management for product development goes beyond governance systems and enforcing process compliance. To effectively manage product development risk, project teams need tools that help them identify the critical unknowns and uncertainties.  Once these critical uncertainties are identified, prioritized, and evaluated, it is up to the project team to reduce the uncertainty and risk to an acceptable level before making significant investments in developing a product.

The immediate challenge for companies is identifying uncertainties and risks in product development.