RISK TAKING

 

Risk Taking

Risk is a natural part of management.  If there were nothing at risk, little (or no) management would be needed.  In the management of science and technology there are a few characteristic risks that are different from those seen in other fields.  You need to be aware of these.

The real issue is appraising risk at the start of a project.  You want to know what risks you are taking:

Does the proposed project require violating the known laws of nature?  Clearly such a project is foolish from the start.  The exception would be a research project which explicitly is trying to show an inaccuracy or inadequacy of those laws of nature.  But even that exploratory project needs to have extraordinary justification.

Does the proposed project have claw marks on it?   In another section I have introduced the notion of "claw marks".  This is a particularly valuable way of looking at an area of work and I encourage you to review that section of this essay.

Does the area of work in which the new project is proposed have significant critical mass issues?  For example, a proposed new computer memory technology would have an enormous hill to climb in order to compete with the existing investment and capability of the semiconductor industry.  It would have to awfully good to make such a project worth while.  Or can it manage to make use of the existing critical mass?  Could the new memory technology be manufactured in the existing, or modestly modified, semiconductor process plants?  Then it might have a chance at success without having to have all that investment on its own.

Does the new project compete with an existing product or process?  If so, how rapidly changing is that competing situation?  If you start a multi-year project to do something new, where will the competing technology be when you are ready to enter the market?  A new product having a, say, 20 percent advantage over an existing process or product is likely to find that the competition has passed it by during the development period unless the competition is truly limited by something fundamental in moving its own situation forward.  Your own advantage in performance or cost will inevitably deteriorate with the passage of time and with developmental exploration of the new technology or product.  Do you have enough competitive margin to still have an adequate advantage by the time your own situation has deteriorated naturally and the competition has made expected progress?

In addition to these more general considerations, I want to mention four areas of unusual risk which are specific to science and technology:

1.  New Materials.  My experience has shown that projects are of unusual risk that require a new material in order to provide certain properties.  The new material may fail in development, or take a long time to develop, or have different properties than expected or be really difficult to make in quantities for product production.  Make sure that your project does not depend on the development of a new material that is not already readily available.

2. New Processes.  This is very similar to the situation for new materials, above.  A new process, needed for some aspect of the proposed project, if not readily available at the start, will frequently turn out to be the gating aspect of the project.  New processes take time and effort and are just not predictable well enough to be depended upon in a development project.  Make sure your project is independent of the need to depend on a new, unproven process or, worse, a process yet to be developed.

3. New Product for a New Market.  This combination is a killer.  It has been done successfully, but the risk is compounded and hard to judge.  Introducing an existing product into a new market is an exercise in marketing and has its own risks.  Developing a new product for an existing market has all the risks of the development process, but, at least, you know there is a market out there for it when you are done.  Combining the two risks is very, very dangerous and should be considered with special care.

4. Mixed Exploration and Development.  I have touched on this one at several places in this essay, but it bears being reexamined.  It is important to remove the feasibility issues before starting on and counting on a development project.  If the project requires any exploration/research then the whole project must be considered exploration/research until those risks are removed.  Of course, it is possible to have a project that does not depend on a new idea, but which explores the idea on the side and makes use of it if/when it is successful.  But it is really important that you examine new development projects for any dependence on exploration.