The Unseen Icebergs in Product: Why Risk Management Is Important

Why you should implement risk management, the 4 types of product risks and techniques that can help address them.

In the tech industry, risk management is a critical tool in ensuring the long-term success of a product and stability of an organization. Just like an iceberg, many risks may lie beneath the surface, unseen and potentially catastrophic if not properly managed.

But how to understand and mitigate these risks before they hit?

Illustration by Jozef Micic.

What you’ll find in this guide:

• Why is Risk Management Important? ✅

• Most Common Risks in Tech Companies 🧊 

• The Four Type of Product Risks by Marty Cagan 🍀

  • Example of Risks for a Food Delivery App 🍔

  • Tips for Addressing Product Risks 💡

• 6 Techniques to Identify Risks 🧰

Why is Risk Management Important?

Risk management is a vital process within any organization that includes the methodical application of strategies and procedures to manage negative situations that could harm your project. 

The process generally involves the identification, assessment, and prioritization of risks, followed by the coordinated and economical application of resources to minimize, control, or even avoid their impact at all.

When you’re working in a tech company, risk management is never a one-time event. It's an ongoing process that involves constant monitoring and adjusting. The goal is to maximize opportunities and minimize negative surprises.

Most Common Risks in Tech Companies

In the sphere of technology, especially in tech-oriented companies, several types of risks can impact projects. Here are some key examples:

1. Scope Creep: This risk occurs when the project's goals aren't well-defined or when requirements change during project execution. This can lead to 'scope creep', where the project undergoes unplanned expansion, which in turn can lead to increased resource costs and delayed timelines.

2. Technical or Technology Risk: The rapid pace of technological change can really cause project risks. New and emerging technologies can make a current project obsolete, or there may be a high turnover of technological tools that can complicate project execution. Moreover, technology-intensive projects can have significant impacts on data security, compliance, and other facets of information security.

3. Incomplete Testing and Remediation: Executives often overlook the need for thorough testing and remediation procedures, mainly when conducted towards the end of a project. Inadequate testing can lead to unaddressed issues and lower project quality.

4. Organizational Changes: Organizational changes, such as resource reallocation, employee turnover, or strategic realignments, can disrupt ongoing projects and introduce new uncertainties.

5. Data Security Risks: Technology projects often handle sensitive data. Any breaches or unauthorized access can jeopardize the project and have wide-ranging impacts on the company.

6. Regulatory Compliance: With an ever-evolving regulatory system, especially around data and privacy, there's a continual risk of new or updated regulations impacting the project scope or requiring additional adjustments.

7. Availability of Skilled Resources: The technology sector often faces a shortage of skilled resources, and the availability of these resources can pose a potential risk to project timelines and quality.

The Four Type of Product Risks

Marty Cagan identified four types of product risks to help product teams ensure they are not just building the product right, but also building the right product. These are:

• Value Risk: Is there enough customer demand for the product?

• Usability Risk: Will users be able to effectively use the product?

• Feasibility Risk: Does the team have the right skills and tools to build the product?

• Business Viability Risk: Will the solution be viable and sustainable?

The 4 types of product risks by Marty Cagan.

By considering these risks, product teams can approach product development in a more holistic and strategic way. The methodology is designed to mitigate potential failure points by evaluating a product’s viability from different critical perspectives. 

This includes assessing the product's value proposition, its ease of use, its technical and operational feasibility, as well as its alignment with the overall business strategy. I’ve talked about this in the following post:

Example of Risks for a Food Delivery App

Remember the food delivery app in the past article in the project management series? We’ll utilize it again to understand how the four risks will look like.

Going back to this example, we could identify potential risks for it:

• Value Risk: This risk is about whether or not customers find the app valuable. For instance, if a food delivery app fails to offer a diverse range of restaurants or menu options that cater to users' dietary preferences or restrictions, it might not be valued by potential users.

• Usability Risk: This concerns how easy and intuitive the app is for customers to use. If customers find the app difficult to navigate, with a complex ordering process, or if it frequently crashes, this significantly undermines its usability.

• Feasibility Risk: Is the technical and operational feasibility of the app. For example, a delivery food app might face logistical challenges in ensuring timely delivery due to inefficient route planning for its drivers or lack of adequate driver-partner onboarding.

• Viability Risk: This risk is about the app's long-term sustainability and its alignment with business goals. For this example, this could manifest as difficulty in maintaining profitability due to high operation costs, such as commissions paid to restaurants or wages to delivery personnel, especially in a competitive market where consumers expect low delivery fees.

Tips for Addressing Product Risks

The are many strategies for handling these risks. In the image below, I try to simply relate a tool for each one of these risks mentioned above.

• Managing Value Risks can be done through market analysis, customer interviews, and prototype testing.

• Managing Usability Risks involves conducting usability tests, considering the accessibility of the product, and getting insight from the UX team.

• Managing Feasibility Risks involves conversations with technical leads to ensure the product is technically viable.

• Managing Viability Risks means understanding the financials, business model, legal compliance, and marketing strategy.

Useful tools to address product risks.

6 Techniques to Identify Risks

A systematic approach to managing product risks includes the regular identification of risks, evaluation, and implementation of mitigation strategies. This framework involves the entire product team working together to identify and address the risks.

Managing product risks requires more than just focusing on cost, time, and quality. A comprehensive approach that looks at value, usability, feasibility, and viability can help product managers better navigate uncertainties and drive their products towards success.

Good techniques to identify risks are:

1. SWOT Analysis

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. This technique helps product managers assess both internal and external factors that could impact the product's success. It's particularly useful for identifying risks related to market competition, internal resources, and external changes in the market environment.

2. Risk Matrix

A risk matrix is a framework used to categorize risks based on their probability of occurrence and the impact they would have if they were to occur. This technique helps in prioritizing risks, making it clear which risks need immediate attention and which can be monitored over time.

3. Failure Modes and Effects Analysis (FMEA)

FMEA is a step-by-step approach for identifying all possible failures in a project or business process. It's incredibly useful for preemptively recognizing what might go wrong, understanding the potential impact of each failure, and prioritizing risks based on their severity, occurrence, and detectability.

4. PESTLE Analysis

PESTLE stands for Political, Economic, Sociological, Technological, Legal, and Environmental. It is a framework that helps product managers to identify external risks that might affect the product. Understanding these external factors is crucial for strategic planning and risk management.

5. Monte Carlo Simulation

This technique uses probability modeling to understand the impact of risk and uncertainty in forecasting models. It's extremely useful for product managers in making informed decisions by analyzing a range of possible outcomes and their probabilities.

6. Root Cause Analysis

Root Cause Analysis is a technique for identifying the underlying causes of risks or problems. By focusing on the 'root' cause, product managers can implement solutions that eliminate the risk at its source rather than just addressing its symptoms.

Wrapping Up

Tech companies are navigating an ocean of hidden dangers beneath the digital surface, where underestimated risks can imperil even the most robust and innovative products. As we've seen, risk management is not just a strategic tool but a necessity that extends beyond one-off events to become a continuous vigilance practice.

For tech leaders, vigilance means embracing risk management as a core competency, ensuring the longevity and success of their products and organizations.

Ultimately, the goal is a clear-eyed recognition of the risks tech companies face, paired with an equally clear vision of how to manage them. By doing so, companies can turn potential roadblocks into mere stepping stones on their journey towards innovation and market leadership.

Is there a culture to identify risks in your company? How do you address them? Let me know in the comments below 👇👇