Tools To Manage Risk in New Product Development

Imagine this scenario: You’re a project manager in the Engineering department of a manufacturing company. You have a couple successful new product projects under your belt, and feeling confident. You’re proficient using Microsoft® Project and have an opportunity to manage the company’s next big, high-profile project. After a team meeting to kick off the project, you create a detailed Gantt chart. After all, that’s what you have used in the past, what could go wrong? 

This is an all-too-common scenario and could be a career-limiting decision.

In a recent article, I discussed how risk impacts new product development (1). Understanding, managing and mitigating risk is inherent in innovation. Project management is essentially risk management and you cannot select the appropriate project management tools without first understanding project risk.

Figure 1 shows a generalized risk matrix described more fully in the article cited above. On the x-axis are three sources of project uncertainty and the y-axis reflects the level of complexity. Uncertainty and complexity are the root cause of project risk. And remember, risk is not static but rather dynamic. In general the risk will become less as the project progresses, but that is not always the case if “unk unks” are the major source of uncertainty.

Figure 1

If task variation dominates and complexity is low, then a Gantt chart and managing the critical path is an acceptable tool. A better approach to develop a Gantt chart is the “critical chain” technique (2). Task estimates are based on a 50% probability of success, eliminating the safety each team member naturally build into their estimates. Then buffers are added to protect tasks that feed the critical path. A buffer is also added to protect the critical path and the entire project. The project manager then focuses on managing the buffers.

In addition to normal task variation, you will typically have foreseeable uncertainty. These are risks you can anticipate and plan for. Risk lists and techniques such as Failure Mode and Effects Analysis (FMEA) are useful tools (3).

From the assessment of foreseeable events and relying on senior level engineering personnel, you must ascertain the possibility of “unk unks”, also known as unforeseeable uncertainty. By definition, these might not be discernable. As you progress through your risk analysis, knowledge gaps may lead you to conclude that you have unk unks and if they are the dominate source of uncertainty, there is no real project plan. Using a Gantt chart is a waste of time. Rather, you must rely on the time-tested iterate-and-learn or parallel trials to learn quickly. Learning cycles are the basis of the lean methodologies including the agile techniques for software development.

As previously mentioned, if project tasks are completely understood and project management is focused on managing task variation, then a simple Gantt chart and managing the critical path is appropriate. That is rarely the case. Most projects also have foreseeable uncertainty and some level of unk unks. A better option in that case is a lean project management tool as described by Mascitelli (4).

The project begins with a high-level discussion of the key deliverables to reach market. For instance, completing various cycles of prototypes, regulatory approval, etc. You can use a simplified Gantt chart for this exercise, to ascertain dependencies and the critical path. It is not uncommon to also create an initial block diagram of the system. Then, you break the project into its main parts and use the risk matrix to consider sources of uncertainty and how you might need to manage pieces of the project differently, as previously described.

The lean project tool relies on two key elements: stand-up meetings and a visual project board. Short 15-minute standup meetings, maybe held three times a week, replace weekly project meetings. They force the team to break workflow into smaller chunks and frequent short meetings accelerates feedback loops.

The visual project board as illustrated in Figure 2 pulls together several elements that are used in conjunction with the stand-up meetings. It is typically at least a 4’x6’ board displayed in a common work area. The left side includes about a 2-month snapshot of the planned (and unplanned) high-level deliverables that drive the tasks. On the right side of the board is a visual graphic of the critical path milestones, comparing actual to projected completion dates. This quickly communicates project schedule variance.

Figure 2

The center section is the heart of the concept and the focus of the stand-up meetings. It shows a two week window of tasks on sticky notes for each team member. During the daily stand-ups, each team member describes what has been done since the last meeting, what they are working on, and any impediments. Off-topic issues can be put on sticky notes and placed in the “parking lot” on the right bottom of the board.

In summary, don’t assume that every project is the same and you can use the same project management tools you have used previously. Experienced project managers realize that project management is essentially risk management. You must understand the project risk profile, and choose appropriate tools.

Notes:

  1. See this article: “How Risk Impacts New Product Development”
  2. Eliyahu M. Goldratt, Critical Chain. (Great Barrington, MA: The North River Press, 1997)
  3. Robin E. McDermott et.al, The Basics of FMEA. (New York: Productivity Press, 2009)
  4. Ronald Mascitelli, Mastering Lean Product Development. (Northridge, CA: Technology Perspectives, 2011)

About the Author

Jeff Groh is President of New Product Visions located in Flat Rock, NC. New Product Visions helps companies drive revenue and earnings growth by improving their innovation management practices. We focus on processes, organization, management engagement and culture. Services include consulting, Innovation Coach™ Workshops, Your Innovation Coach online consulting service and software enablers. Mr. Groh spent 30+ years in industry in a variety of management roles in sales, manufacturing and new product development prior to starting New Product Visions. For additional information or to join our mailing list, contact us. Available for select speaking engagements.

 

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