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Understanding Technical Risk Assessing Technical Risk Templates Risk Compounding Risk Management |
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Development programs are beset with rising manufacturing cost projections and erosion of performance. This demonstrates that development cost estimation and management methods systematically underestimate manufacturing costs and overestimate performance because they do not rigorously assess or manage technical risk. |
Technical Risk is a measure of the possibility and consequence that the originally conceived design will change before the product enters production. A complex product such as an aircraft experiences hundreds or even thousands of design changes during development. While individual changes are unpredictable, the combination of all the changes is a statistical average that can be effectively forecast. Technical Risk is the approach used to forecast the impact of changes.
To assess Technical Risk, each part or component of the system is assigned a Probability of Failure and a Consequence of Failure. The Probability of Failure runs from 0% to 100%. The Consequence of Failure is the expected impact if the design is changed. It may include manufacturing cost impact, performance impact, development cost, and schedule. Often, a failure results in switching from the preferred design to a backup design with more conservative technology. In such a case, the Consequence of Failure is the loss of all the technical advantages attributed to the preferred design.
Because the actual failures or design changes average together in a statistically predictable way, it is not important that the assessment of individual risks be precise. Therefore, templates have been found useful for assessing risk. Such a template is a grid, with a description of technical maturity in each cell. Every cell is also associated with a particular estimate for Technical Risk. Design teams locate the cell that comes closest to describing their component or part. The associated estimate is then used as their risk assessment.
Most complex product are tightly interdependent. A design change in one component often necessitates changes in other components. This can be addressed by compounding risk estimates. The technical risk associated with each component is increased based on the average technical risk across the whole project. If average technical risk is very low, no compounding is necessary. For moderate risk, compounding is significant. For high average risk, compounding can double or triple the impact. When development programs take twice as long as the original schedule and cost a multiple of the original budget, the reasons usually involve high levels of risk compounding.
Once the consequences of risk are understood, engineers can make rational choices about including leading edge technologies that enhance performance but may cause trouble during development. Some risks are worth taking, but many are not, and few programs can afford even a moderate level of average technical risk across the product.
Call DFM Consulting for guidance in assessing and managing technical risk on your program.
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