Product Development Risks Small medium-sized enterprises (SMEs) are known to contribute to any countries economic growth. To ensure their survival in a competitive market, SMEs need to have the ability to innovate and develop new products. Prompt decisions making therefore needed to innovate and produce new products to reach market first before their competitors. However, due to their size as well as financial and human resources constraints, SMEs face obstacles and huge challenges. Therefore, one of the major aspects of developing a successful new product is managing risks. Risk can have either a positive or negative impact on new product performance. It is crucial for companies to manage risks in order to achieve the desired new product development (NPD) performance without compromising quality. Four main types of risk may affect NPD performance: technology, market, operational and financial risks are discussed pertaining to NPD performance. In order to succeed, SMEs must take risks to launch new products speedily and successfully. Therefore there is a need to take strategic action to mitigate and avoid risks through risk management when developing new products. It is therefore vital for SMEs to have the ability to assess, diagnose and manage risk in the NPD process. Thus, exploratory studies of the existing literature have identified four main categories of risks which affect new product development performance namely: technology, market, organizational and financial risks. According to Hollman and Mohammad- Zadeh, the first step in the risk management process should be carried out continuously and systematically by identifying possible sources of loss, and therefore risks. The above research findings had also helped SMEs to carry out the initial stage of risk management process through risk identification. Having obtained the research guidance from the research done your organization is keen to develop new ideas that were put forward by your young and energetic researchers in your organization. You have the opportunity to invest RM 10 billion for your organization to develop a jet engine for commercial aircrafts. The development plan will span over 5 years. The final product costing RM 500 million / unit could reach a sales potential of eventually making RM 250 billion for the organization. The new engine can be placed in service 5 years from now, but only if it qualifies four years from now for certification clearing commercial use and only if it meets Americas Federal Aviation Administrations (FAA) ever tightening standards for noise reduction. Certification also has to be obtained from the Malaysian Director General of Civil Aviation (DGCA). There is competition from world-class manufacturers like Pratt and Whitney and Rolls Royce who are developing competing engines with a long successful track record. If you decide to proceed with the project, you must also determine where the new engines will be produced and develop the manufacturing facilities. If you decline to proceed, your organization could invest its resources elsewhere and based on its track record for successful products developed in the past it could get attractive returns.

Question A.

Discuss your options dealing with this proposal.

Question B. In case of lengthy product design and development time, examine the kinds of risks that the organization will be exposed to.