Types of Risk
Creating a product or maintaining equipment is actually about our ability to manage risk. The various risks are outlined below, and there are more to consider. This summary covers the basics related to reliability.
The use of a product, whether it is driving a car, riding in an airplane, or applying a surgical device, entails some risk of loss for someone of something they value. This loss or harm may be valued differently by different stakeholders in the process of using the product. The loss or harm may involve delay, injury, property damage, or degradation of the environment, to name a few examples.
Safety risk has two independent components: the probability of the harm and the severity of the harm. A product may be unreliable (failure is quite likely), but when it fails, the only harm is a delay or a loss of time. Everyone can recall frustrations using a computer. The most reliable product (where failure is unlikely), such as a nuclear power plant or a commercial airplane, could likely cause a catastrophe when it fails.
It has been said that a new product idea is born when a new technical capability is recognized as being able to fill an existing customer need. During new product development, one of the risks is that a new technology will not work well enough in the application. The new technology may not be quite bright enough, fast enough, or provide long enough battery life. Attempts to close those gaps may compromise reliability.
Major schedule delays in new product development have resulted from new technology not yet ready. Optimistic scheduling of new product development results in large investments being made earlier than necessary for personnel, tooling, manufacturing and service facilities, sales training, advertising, and so on.
Delays in new product development do three things: cause more direct cost in salaries and use of facilities, allow competitors to establish a presence in the market, and divert resources from other development of other products.
If the future time when the new product will be obsolete is fixed by competitors or emerging technology, delays in introducing the new product reduce its total potential sales. This reduction takes the form of slicing out the middle of the product’s life when volumes and profits are highest. Delays cause more outlay in development and reduce the potential for return on that investment.
Financial risk can result from having unrealistic market projections on sales volumes. Shipments may not reach the level anticipated, perhaps wasting investment in production capacity.
An unreliable product may cost more in warranty than the profit available in a competitive market. Repairable products may fail again and again with no limit on financial losses. A bad reputation for reliability may have severe repercussions on market share.
An unsafe product can result in product liability lawsuits and resultant legal costs and jury awards. The negative publicity can tarnish the reputation of an entire company’s brand, spreading widespread financial loss.
Also published on Medium.