A performance-oriented risk management framework for innovative R&D projects

Uncertainty is one of the major inherent difficulties in developing innovative products, due to their highly dynamic markets and technologies. The presence of a large degree of uncertainty leads to high R&D risks, resulting in many R&D failures. Therefore, it is important to manage R&D risks through all R&D stages to improve R&D project success rates. This paper proposes a new risk management framework that aligns project risk management with corporate strategy and a performance measurement system to increase success rates of R&D projects and to accomplish corporate strategic goals. The balanced scorecard is used to identify major performance measures of an R&D organization based on the firm vision and strategy. Quality function deployment is adapted to transform organizational performance measures into project performance measures and a systematic procedure is developed for risk identification, assessment, response planning, and control. The proposed risk management framework enables an R&D project to be focused on achieving the corporate goals and provides a more effective way to identify, assess, analyze, and monitor R&D risks along the project cycle. The proposed methodology is illustrated with a drug development project.