Risky decision? How much detail do you need?

I once worked for a US multinational company whose Vice President of Engineering insisted on reducing the product launch risk to zero before allowing new product introductions to proceed from development into manufacturing. He did not want to take a risky decision.

Some projects spent a long time at that Stage-gate.

Acceptable levels of risk

Getting risk down to an acceptable level is one thing but my experience is that getting to zero risk is asymptotic (i.e. takes forever to achieve – like this…). I think the delays and extra costs incurred would reduce the attractiveness of the original investment case.

However, I was brought up on the accepted wisdom that it is 10 x cheaper to fix a problem at the design stage than it is at the development stage. And 100 x cheaper to fix the problem at design than at manufacturing stage. I have seen that it gets worse once you have shipped hardware to customers.

This may well be true for tangible products. But not when software-based functionality is a significant proportion of the product value (see my earlier blog on Value Slip). Accepted practices around post-delivery software updates means that shipping before the risk has been reduced to zero improves time to market. And this is often the winning strategy in a fast-moving marketplace. Rather than a risky decision.

How times change

Going back in time – what would have helped my VP to take more risk? Let’s imagine he had:

  • Seen the remote software update mechanism working successfully.
  • Reassurances (preferably in writing!) from Product Marketing that customers liked the idea of post shipment updates as it meant they got to take advantage of the latest fixes and functionality without delaying asset purchases that underpinned their own revenue streams.
  • Received a commitment from Quality Assurance that Stage-gate testing would still check for safety and other reputation-damaging issues, so these could not escape.

Would he have taken more risk and radically improved the NPV returns for his boss?

Hmm.. maybe not but then I think he belonged to a different era and could not see the internet revolution coming.

So, more and better information might help you to make a decision that you feel is risky. I think you still need a

balanced risk appetite

to remain successful.

Using information to calibrate a risky decision

How can information improve your chances and where can you get it from? Here are some examples:

  • Consider (usually expert) suggestions for de-constructing the step you are considering making to see if it can be taken in smaller chunks (e.g. as part of an incremental approach). Sometimes this increases risk so explore the impacts carefully.
  • Feedback from potential customers (e.g. using prototypes as part of an agile development).
  • Market research (if you believe that the authors’ guesses are better than yours).
  • Experimental results (e.g. laboratory trails).
  • Independent assurance review of your plans.
  • Formal risk management processes (e.g. Management of Risk).
  • Results of scenario testing – what are the best, worst, most likely outcomes?

Whatever you do to make a smarter decision – you will still get it wrong sometimes. I see one US-based multi-national has discovered that this week. (I mean, it must still be embarrassing when you launch a blue-chip service that does not work.)

 

Key point: If you are facing a risky decision make intelligent use of a range of information types to help you make the best call.

Link to cover picture

Happy days

Nigel

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