In most situations, uncertainty is an indicator of risk, which inevitably can lead to damage, loss or events that might be detrimental to a company. in most cases, companies will seek ventures that are low risk in order to minimize their potential of loss, which will lead to greater profitability. (Oracle Corporation, 2008) In the development of a new product, Research and Development, R&D, is a crucial step. Its work can be very rewarding for the company if everything is done right and the product does well on the sales floor. There are, however, a few drawbacks to R&D which can sometimes even cripple a company financially. The R&D process is very time consuming not to mention the exuberant costs associated with it. to forecast some of its expenses for R&D, the company needs risk logs, whereby all the risks associated with the process, whether financial or other are discussed. The risk log should include all that can go wrong, and what are the contingency plans that can divert the process back on to the right track. With cases where a company must hire subcontractors, whereupon, they must invest their own money in R&D as sole-source, long-term contract holders, the situation can go either way. On the one hand, the company has someone taking the financial burden off of their hands which can give the company maneuvering room to invest in other projects. On the other hand, however, one can never tell how well the R&D will be conducted, as well as delay and budgetary overruns on the part of the company. If the product is successful, then the contractors responsible will cover some of the company’s R&D costs. Yet, it’s also possible that the project will not be as successful as some had hoped, and in this case the subcontractors might not be able to help the company cover its financial risk, which in the end can be disastrous for it.
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Marketing can be a risky venture, because one never knows how well it can turn out. the company must then analyze which products will be good for business, cash cows, and which will not. To handle some marketing risks, a company can offer new families of products. In R&D and in marketing, one is counting on the response of the public, which, in many cases cannot be predicted. However, the evaluation of past trends in the market sector as well as formulating forecast models of all the possibilities, can be useful to see forward and safeguarding yourself and the project. Making a family of products can be either done vertically, whereupon the products of the same kind are offered ( a toy car in different colors and sizes), or horizontally, where the products are of a different kind ( toy cars, planes, ships, etc.) A well done marketing campaign, however, can make the consumer aware of the products which will mean success for the company.
When a company produces products that have a long life expectancy of approximately ten years or more, certain technical risks are prevalent that must be dealt with. All relevant risk logs must be made in order to ascertain the possibilities of the project might encounter in the future. Due to the length of the lifecycle of the product, there must be risk identification according to phases met, meaning that is it divided into time gaps, such as immediate risk, mid risk and long term risk. For this to occur, forecasts must be made of what the budget will allow for this, as well as timeframes for product testing. With each risk identification, more risks are bound to arise, all risks must be addressed in a comprehensive manner. Then, each phase of growth and development can be identified. The life cycle of the product will also have to be looked at to see where errors can occur during use.
One of the problems with producing high-tech products, are the large manufacturing costs associated with it. the amount of labor, power and the price of raw material will all affect the effectiveness of the manufacturing process. How long the process will take is an important issue in the process that must be addressed. When a company cannot begin production until it has a firm commitment for a certain quantity of orders, it runs the risk of waiting a prolonged period of time in order to get the ball rolling. Granted, being committed to a certain quantity of orders, will guarantee the company a steady income, which would mean profit. Yet, on the other hand, the there could be a long wait to get the orders, and in the meantime the machines are still there, the rent and wages are still being paid, which cuts into the company’s profits.
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Oracle Corporation. (2008). Risk Analysis Overview. Retrieved March 4, 2010, from Oracle.com: http://www.oracle.com/technology/products/bi/crystalball/pdf/risk-analysis-overview.pdf
Webb, A. (2003). The Project Manager’s Guide to Handling Risk. Aldershot: Gower Publishing Limited.