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PRINCIPLES OF RISK
MANAGEMENT AND
INSURANCE

5/2/2021

MONIKA REHMAN
RISK MANAGEMENT IN PRODUCT INNOVATION
Product Innovation:

Product innovation is defined as the development and market introduction of a new, redesigned,
or substantially improved good or service. It’s not only about developing something new and
original it's also about taking what's already there and making it much better.

Product innovation is the creation and subsequent introduction of a good or service that is either
new or an improved version of previous goods or services.

Importance:
Innovation is one of the most important concerns of each organization and its role in the
development and coordination of the market is inalienable Innovation is a process that begins
with the introduction to a plan of an idea and will become a new function and so it differs from
creation

By implementing a risk management plan and considering the various potential risks or events
before they occur, an organization can save money and protect their future. This is because a
robust risk management plan will help a company establish procedures to avoid potential threats,
minimize their impact should they occur, and cope with the results. This ability to understand
and control risk enables organizations to be more confident in their business decisions.
Furthermore, strong corporate governance principles that focus specifically on risk management
can help a company reach its goals.

• Creates a safe and secure work environment for all staff and customers.
• Increases the stability of business operations while also decreasing legal liability.
• Provides protection from events that are detrimental to both the company and the
environment.
• Protects all involved people and assets from potential harm.
• Helps establish the organization's insurance needs in order to save on unnecessary
premiums.
Risk Management Tools & Techniques:

• The brainstorming process, you must assess the risks that could impact your project. ...
• Root Cause Analysis.
• SWOT. Strengths, weakness, opportunities, threats.
• Risk Assessment Template for IT.
• Risk Register.
• Probability and Impact Matrix.
• Risk Data Quality Assessment.
.
Managing Product Innovation Risks:

A product innovation may not attract enough customers. It may fail requirements for quality or
delivery. Profit margins may be too slim or cash flow unsustainable. Too many opportunities
may be lost when other projects are not given support.
Risks of innovation

• Operational - e.g. failing to meet your quality, cost, or scheduling requirements.

• Commercial - e.g. failing to attract enough customers.

• Financial - e.g. investing in unsuccessful innovation projects.

Factors Prevent Innovation:

Innovation isn’t a guaranteed success. There are several factors that may prevent innovation
from being successful, and you have to keep them in mind before taking the leap:

Expense:
New technology, specialized employees, huge shifts in your business’s identity innovation
can be an extremely expensive undertaking, and because increased profits aren’t guaranteed, it
can be risky. During the innovation process, you have to think about the costs weighed against
the potential profits and make the best decision. Ask yourself the question: Will this create
value?
Scheduling:
Innovation takes time, and the time that you spend innovating is time that you’re not using to
focus on your current products, marketing, and sales. If you can’t implement your innovations
quickly and efficiently, you can risk failing to meet your quotas and falling behind on your
schedule losing profits and the trust of your customers and investors.
Instability:
Innovative idea generation can be exciting, but if businesses are constantly making hug e
innovations, they may never find a stable identity or market and it will be hard for customers,
investors, and 3employees to keep up with their changes. It’s all about innovation
management; a stable business identity is important for generating profits, so it’s vital that
you choose your new innovations carefully and deliberately, rather than saying yes to every
new thing that comes your way.

Relationship between Innovation and Risk:

When it comes to the relationship between innovations and risk, these two seem to go hand in
hand. Every innovation faces a lot of risk throughout the whole innovations process. The time
factor plays a big role since risk can directly be related to the length of the innovation
process/project. The more time passes between the idea, its development, and the final launch,
the more risk elements may emerge, and more things can go wrong. Looking at this innovation-
risk relationship, we can approach it from two different aspects:

Risk of Failure:
Of course, the risk of failure is obvious. Innovation without success doesn’t benefit your
business, now does it? First things first, make sure that your innovations are in line with your
business vision and mission as well as with your business strategy. Next, define your innovation
strategy and scan for all risk factors. Let’s make one thing clear, it is impossible to take all of the
risk factors into consideration, but at least try and list the main ones, and keep track of them.
Types of risk that can impact the success of your innovation are market risk, credit risk,
operational risk, strategic risk, liquidity risk, regulatory risk, reputational risk, political risk...
They can be internal, external, you name it. Risk is everywhere. But even if you have an aversion
towards risk, and a low tolerance level, keep in mind that there are two sides to risk, not just the
negative one. With it, risk also brings a chance for success. The Chinese character for risk
perhaps best illustrates its true meaning. It is combined with two characters, one to symbolize
danger and the other an opportunity.

More Time - more Risk:

As already mentioned, time plays a big role. The longer the innovation process, the higher the
risk associated with it. Being always on the lookout for red flags is a must. Do not fear
abandoning your ideas, because sometimes the right decision for your whole business might just
be to stop or postpone the innovation project you are working on. This will save you a lot of time
and money and give you a chance to shift your focus to more important projects.

Fast and Small Iterations for more Success:

Instead of waiting for the end-product to hit the market and then see the success of your
innovation, try incorporating small and quick iterations throughout the whole innovation process.
This will help you navigate and hit a home run with your innovation with more success. These
small changes will provide you with fast and accurate feedback about your innovation, and
whether you are going the right way or not. The feedback can provide you with valuable data on
crucial aspects of your innovation that you might have not considered, and hence help you avoid
the risk of failure.

Right Infrastructure to Support your Innovation:

Sometimes overlooked, the lack of infrastructure can be a big deal-breaker and a huge risk
factor. Not only do you have to make sure that your innovation is on track and monitor for all
other risk factors, but you also have to make sure that, once your product or service is ready to
hit the market, it has the right infrastructure to support it. If that is not the case, you have to
consider if you can create the right infrastructure yourself, or improve the existing one? These
are all risk factors that are quite often overlooked and the reason why some innovations fail.

Innovations as a way to reduce risk:

Now the other aspect in the innovation-risk relationship is the impact innovations have on
reducing risk. Even if you are expecting the unexpected, at some point you will still get caught
off-guard. But a business that supports and nourishes a rich innovation culture is more agile and
more capable of responding to risk. No matter your industry, risk can come from all sides, at any
time. This is where innovative solutions step in and turn a disaster into success.

The Innovation Portfolio:

The more you innovate successfully, the more relevant you are. The more diverse innovations
you have in your portfolio, the more secure your business is. Here you must wisely manage your
innovation portfolio and make sure that you have a steady flow of fresh innovations, all in
different stages of the innovation process. This will make sure that your cash-flow and ROI are
constantly in motion and that even in case one innovation fails, the others will cover the damage.

Predicting the Future:

Even with the newest tech, we cannot predict the future. But what innovative technologies have
given us are some pretty awesome tools we can use. Thanks to them, key indicators can be
tracked, and huge amounts of data could be analyzed to lower the risk as much as possible. Big
Data allows you to bring well-educated decisions and manage your innovation process more
efficiently. Again, it is almost impossible to take all risk factors into consideration and analyze
all outcomes but, to a certain extent, innovative technologies can help you make sure that you are
on the right track.

Innovation Cloud and risk management:

Innovation Cloud lowers the risk of failure and supports the launch of successful innovations.
How can we help your business in risk management? The Innovation Cloud software solution is
designed in such a way to help you lower the risk of making wrong decisions throughout the
entire innovation process. We make sure that only the best ideas are chosen for further
development. Thanks to Machine Learning and Big Data, Innovation Cloud further boosts your
innovation process and gives you the possibility to improve your decision-making process even
more. Next, our Phase-Gate approach ensures the successful development of your ideas and
makes sure they hit the market successfully and on time. Keeping track of your key indicators
and progress as you move forward through phases and having checkpoints will ensure that you
make the right decisions and take adequate action at any given moment.

Risk Management Approaches:

After the company's specific risks are identified and the risk management process has been
implemented, there are several different strategies companies can take in regard to different types
of risk:

• Risk Avoidance:

While the complete elimination of all risk is rarely possible, a risk avoidance strategy
is designed to deflect as many threats as possible in order to avoid the costly and
disruptive consequences of a damaging event.

• Risk Reduction:

Companies are sometimes able to reduce the amount of damage certain risks can have
on company processes. This is achieved by adjusting certain aspects of an overall
project plan or company process, or by reducing its scope.

• Risk Sharing:

Sometimes, the consequences of a risk are shared, or distributed among several of the
project's participants or business departments. The risk could also be shared with a
third party, such as a vendor or business partner.

• Risk Retaining:

Sometimes, companies decide a risk is worth it from a business standpoint, and

decide to keep the risk and deal with any potential fallout. Companies will often
retain a certain level of risk if a project's anticipated profit is greater than the costs of
its potential risk
Risk Management Strategies and Processes:

Risk management is the process of identifying, assessing, and controlling threats to an

organization's capital and earnings. These threats, or risks, could stem from a wide variety of
sources, including financial uncertainty, legal liabilities, strategic management errors, accidents,
and natural disasters. IT security threats and data-related risks, and the risk management
strategies to alleviate them, have become a top priority for digitized companies. As a result, a
risk management plan increasingly includes companies' processes for identifying and controlling
threats to its digital assets, including proprietary corporate data, a customer's personally
identifiable information, and intellectual property

All risk management plans follow the same steps that combine to make up the overall risk
management process:

Establish Context:

Understand the circumstances in which the rest of the process will take place. The criteria that
will be used to evaluate risk should also be established and the structure of the analysis should be
defined.

Risk Identification:

The company identifies and defines potential risks that may negatively influence a specific
company process or project.

Risk Analysis:

Once specific types of risk are identified, the company then determines the odds of them
occurring, as well as their consequences. The goal of risk analysis is to further understand each
specific instance of risk, and how it could influence the company's projects and objectives.
Risk Assessment and Evaluation:

The risk is then further evaluated after determining the risk's overall likelihood of occurrence
combined with its overall consequence. The company can then make decisions on whether the
risk is acceptable and whether the company is willing to take it on based on its risk appetite.

Risk Mitigation:

During this step, companies assess their highest-ranked risks and develop a plan to alleviate them
using specific risk controls. These plans include risk mitigation processes, risk prevention tactics
and contingency plans in the event the risk comes to fruition.

Risk Monitoring:

Part of the mitigation plan includes following up on both the risks and the overall plan to
continuously monitor and track new and existing risks. The overall risk management process
should also be reviewed and updated accordingly.

Eliminate or Mitigate your Biggest Risks First:

This is the most important suggestion I have because it is often overlooked. Eliminate or mitigate
the significant risks first to ensure they don’t completely derail the project later on. This is often
called “fail fast, fail often”. An abundance of enthusiasm at the beginning of a project can lead to
working on features that have low risk and a high chance of success first. This should be avoided
as it could result in a complete waste of time and resources. Resolve the biggest risks before
investing in detailed design to avoid wasted effort.

Realize that Small Risks can Accumulate and Even Snowball:

It is important to consider both the size and number of risks in your project on an ongoing basis.
When you get to a point where you have eliminated or mitigated the most significant risks and
are ready for the next step, recognize that all of the remaining small risks can add up and become
significant. In addition to the cumulative effect of these small risks, there can also be a
compounding or “snowball” effect. The consequences of one risk could negatively impact other
risks and potentially make their effects much worse. Assess the total quantity of risks and
identify any that could be related.
Communicate and Consult:

Internal and external shareholders should be included in communication and consultation at

each appropriate step of the risk management process and in regards to the process as a whole.

Recognize Risk as an Opportunity:

Although we often avoid taking risks, they can be beneficial and lead to new or more creative
ways of solving problems. Taking a risk could also provide the solution to a problem never
thought of before. Trying something that doesn’t work can provide useful input into alternative
strategies. Many significant breakthroughs were achieved accidentally by people who took risks
and applied their learnings to create novel solutions to problems not originally intended.

Assess your Risks and Risk Acceptance levels Early:

Assess your risks as early as possible. Use a collaborative approach since there are many
different kinds of risks technical, business, safety, legal, etc. Get input from people both inside
and outside of your project team, especially if they have different backgrounds and expertise. It
is also important to determine the risk acceptance level of your stakeholders. Some people enjoy
shooting for the moon and understand that taking big risks can lead to big rewards. Others are
not as comfortable with taking risks and would prefer to take a more conservative approach.
Make sure you understand the risk tolerance of your stakeholders so you can make intelligent
decisions on how and when to proceed with risky aspects of your innovation.
Never Assume Risk Management will End:
Innovation progress and success requires continuous risk management. Although it may seem
like you have resolved all of you risks, it is always better to be proactive and manage risk on an
ongoing basis to prevent running into a brick wall you hadn’t thought of before. It is impossible
to predict every negative outcome that could arise but assessing risk pre-emptively will reduce
the chances of surprise roadblocks. Remember, taking risks can be beneficial when properly
managed and this requires continuous vigilance.