Contents  Introduction  ch.1  ch.2  ch.3  ch.4  ch.5  Conclusion  Literature  App.1  App.2 

3. System OF innovational project risk factors.

We make the assumption that risk is a divergence of actual results of the realized projects from planned ones independently on the sign of this divergence. Such an assumption corresponds to the interpretation of risk as a root-mean-square deviation of a variate from its mean value.

According to economics, risk factors are the sources of perturbations for innovational process. They cause appearance of divergences of actual innovational project results from planned results. Each risk factor can be attributed by a determining quality- a characteristic of the project which determines presence of a given risk factor most considerably.

During primary classification all the risks of an innovational project can be divided into human, production and commercial risks (see Appendix 1).  

Human risks are caused by so-called human factor. It is not the news that personnel influence an innovational project to a high extent[x]. Dependently on the performing functions of the personnel human risks are divided into forecast risks, management risks and realization risks.

Forecast risks are associated with inadequate planning and forecasting of an innovation project performing and its results, conditions of the environment where a project is to be realized.

Management risks are displayed in ineffective project organization, insufficient level of the crew interaction[xi].

Realization risks emerge because of possible mistakes and miscalculation made by the staff (consciously or unconsciously) which realizes the project and reduces an invention to practice[xii].

All the human risks depend on the personnel’s experience and its motivation in a given innovational project. So these characteristics are the determining qualities for human risks.

Production risks are associated with possible divergence of the created product characteristics as scheduled in a plan. The higher production risks, the higher probability and value of possible divergences. Novelty and duration of an innovative project are the determining qualities for production risks. High novelty of a project supposes low-developed production methods and hence high productive risks. Increasing of production risks also corresponds to limitations imposed on the period of a project performing.

Commercial risks are revealed in probable divergences of economic results of a project from planned figures. Commercial risks have the most complicated structure comparing with other types of risk factors. To a definite extent of generalization commercial risks can be divided dependently on the level where they appear into the following groups:

Microlevel risks: performing of a project within general activity of a firm.

Mesolevel risks: action of the firm in the market.

Macrolevel: functioning of the market within the economy.

Microlevel risks are divided into technological, social, legal and economic categories.

Technological risks: caused by changes in the technological level of the economy as a whole. These changes are associated with the situation when one technology replaces another (e.g. semiconductors replaced incandescent lamps). At a detailed view it is obvious that any innovational product can be considered as a set of attributes, each of that represents new idea or technology applied in this product[xiii]. These attribute-technologies behave in the market far more predictably than the products, which represent them. Every such an attribute has its own value that is displayed either in the profit gained because of raise by this attribute productivity or in a cost of needs satisfied by the attribute. An attribute-technology can be represented by one brand only, but in the long term its value becomes dispersed among several rival brands. It is useful to analyze a model of the attributes-technologies dispersion products of rival firms (see Fig.1).

Figure 1.

Suppose that at the moment t₁ 4 firms (F₁, F₃, F₄, F₅) mastered technology а₀. One firm (F₂) mastered technology а₁ that dominates over   а₀ being more effective and perfect. Technology а₁ replaces а₀ and devaluates it to a certain extent. Soon firms F₃ and F₄ become leaders as they mastered technology а₂. Within such an analysis technological risk for the firm developing technology а₁ can be considered as the probability of mastering technology а₂ by other firms.

Social risks: are reflected in possible changes in consumers’ tastes, predilections and favors, changes in consumer tastes and ways of its satisfaction. Social risks are related to technological risks with the only difference that innovations directed to production (production innovations) are more affected by technological risks while consumer innovations (mass market oriented) are more exposed to social risks. The point of both risks is identical: an innovation loses its actuality and relevance because of external changes[xiv].

Legal risks: changes in legal environment where the firm is acting. The state is able to modify “the rules of the game” that can influence the results of an innovational project.

Economic risks. Fluctuations of interest rates, stock market indexes, inflation rates, exchange rates and other economic indicators influence commercial effect of innovations. In other words, commercial risks comprise wide range of traditional risks of an investment project such as currency risks, interest-rate risks etc.

Obviously, duration of a project is the determining quality for all the macrolevel risks[xv]. Although, the increase of duration causes lowering of production risks, the correlation between duration and macrolevel commercial risks is just the opposite: the more duration is the more macrolevel risks are. The firm performing an innovational project faces a dilemma: increasing project duration it raises macrolevel risks and decreasing duration it raises technological risks. Thus more thorough analysis shows one peculiarity. It is duration of production stage of a project that signifies for production risks while duration of the whole project signifies for macrolevel risks. Hence often-suggested scheme when marketing and production stages of a project are realized simultaneously apparently can promote decrease of macrolevel risks[xvi].

Mesolevel risks are divided into suppliers’ risks, rivals risks and customers’ risks.

Suppliers’ risks are associated with the probability for suppliers not to provide component parts for an innovational product of necessary quality and amount in demanded terms. This is the result of instability in technological supply chains. The more novelty of the created product - the less reliable planned scheme of supplies and the higher suppliers’ risks[xvii].

Customers’ risks are caused by the presence of two perceptional barriers, which hinder customers from buying an innovational product. The first perceptional barrier (type A) appears when a customer transmits his negative experience or prejudices on a new product. The second barrier arises when an individual has not an experience of purchasing similar products before[xviii].

Novelty of an innovative product is a determinant quality for customers’ risks as well as for suppliers’ risks. Customers’ risks are very high when a product is brand new.

Rivals risks are determined by unknown behavior of that firm rivals in the market. Unlike technological risks (macrolevel), rivals risks represent actions of definite competing firms affecting success of an innovational project realizing. High novelty of a project causes high market uncertainty and high suddenness of rivals’ actions what means high rivals risks.

Special determinant quality – result – become crucial during considering microlevel risks. As a rule it is interpreted as ratio of project costs and project outcome. Though depending on purposes that a firm plans to achieve realizing the project “result” can change its connotative meaning (e.g. it can be market share etc.).

Under such an interpretation microlevel risks can be represented as probability of the variant when functioning of the project in the past, in the present or in the future doesn’t satisfy the firm. Hence the following risks can be separated:

Risks of the future. They imply a probability that an innovational project will cease to correspond with firm mission[xix].

Risks of the present. Problems with project financing take place during its performing.

Risks of the past. The result of project realization upon its finishing has not justified hopes for this project.

Contents  Introduction  ch.1  ch.2  ch.3  ch.4  ch.5  Conclusion  Literature  App.1  App.2