Hey Product Manager, Care For Some Risk?

Every product that you are put in charge of developing comes with an unwelcome addition – risk. We all know that risk exists and in fact many of us have developed ways to identify risk, quantify risk, and even manage risk. However it turns out that there is something very important that very few of us have been doing – calculating how much risk a new product has and what it’s going to cost us.Why You’ve Been Calculating Product Development Risk All WrongI can only speak for myself here, but when I’m placed in charge of creating a new product, the thing that I really don’t want to be thinking about is risk. Rather, I prefer to focus on just exactly how I’m going to accomplish what I’m being asked to do. It turns out that in this case, I’m probably wrong.Every new product has some level of risk associated with it. It makes sense that as product managers we really should be aware of how much risk developing a given product has. Look, our careers are riding on this stuff and it sure seems as though we should go into it with our eyes wide open instead of squeezing them shut and hoping for the best.In a normal distribution you can see that the risk profile of a new product development process can take on many different shapes. The traditional shape would be a straight line that reached up to 1.0 – basically a 100% chance that the project would complete on budget and would produce the expected profits.A normal distribution shows a more accurate real-world view. If the X-axis shows how much you’ve invested in the new product and the Y-axis shows the probability of completing the project on time and making the expected level of profit, then you can start to see how much risk you are dealing with.In no case will you ever have a 100% guarantee that you’ll be able to stay within your budget or achieve profit goals. Some projects are more likely that others to overrun their budgets (you know what products I’m talking about here).In the end, Armour has identified 6 different issues that product managers need to consider when we are trying to accurately calculate the amount of risk that there is in developing and launching a new product:Expected cost of the project
Probability of being able to stay within that expected cost
What the graph of the budget risk profile looks like
Expected profitability of the new product
Probability of being able to achieve the expected profit
What the graph of the profit risk profile looks likeIn the end, every product manager has a responsibility to know what the level of risk associated with the creation of a new product is. What you choose to do with this knowledge is your own business, but you need to make sure that you know what you are dealing with. What All Of This Means For YouProduct managers live in a world filled with risk. Although we all know this, it can be easy to forget it at times and take the simple route in which we don’t correctly calculate just how much risk we are facing when we start to develop a new product. Our problems often stem from the fact that all too often we end up making simplifying assumptions that just aren’t valid. The two most common points that we seem to overlook when we are evaluating if we should develop a new product include forgetting to factor in our ability to complete the development on time and on budget as well as the ability of the product to generate the profits that we think that it will.Taking the time to account for both of these risks will give product managers a more realistic view of the world that they live in. What we end up doing with this new information is our own decision; however, there is no excuse for us to not have the information in the first place.