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Unformatted text preview: Chapter 8 (Concept/Project Evaluation) Risk/payoff matrix evaluations-At any single evaluation point in the new product process, the new products manager faces the four situations shown. Product concept can be a success or failure, and then decided to move on or kill the project. -AA cell and BB cell are fine, we drop a concept that would ultimately fail, or we continue on a concept that would ultimately succeed. The managerial problem arises in the other two cells. AB is a “drop error”, a winner is discarded. BA is a “go error”, a loser is continued to the next evaluation point-What do managers want to avoid?-AB is worse than BA because the potential cost of dropping a potential success is more than continuing with a failure-The exception is the opportunity cost. What other project is standing by waiting for funding? When good candidates wait in the wings, the losses of dropping a winner are much less because the money diverted will likely go to another winner. -In general, new products team should consider four generic risk strategies:- Avoidance : Eliminate the risky product project altogether, though an opportunity cost is incurred (what if they had pushed through with the project and it succeeded?)- Mitigation : Reduce the risk to an acceptable, threshold level, perhaps through redesigning the product to include more backup systems or increasing product reliability- Transfer : Move the responsibility to another organization, in the form of a joint venture or subcontractor, for example. The other party would be better equipped to handle the risk (outsourcing)- Acceptance : Develop a contingency plan now (active acceptance) or deal with the risks as they come up (passive acceptance)-Risk payoff matrix leads to the idea of a decay curve . This depicts the percentage of any firms new product concepts that survive through the development period, from the 100% starting out before concept testing to the 2% (estimated from studies) going to market. The discarded 98% drop off at various times during the process, and when they drop off is primarily determined by the analysis of the risk matrix.- Surrogate Questions are questions asked to give us pieces of information that can substitute for what we want to learn but cant. Each response has little value except to help answer a critical question that cannot be answered directly and change at different times in the evaluation process. The A-T-A-R Model (Know how to use it)-Based on how we forecast sales and profit on a new item-the calculation is much like a pro forma income statement, an array of figures allowing us to see what the profits will look like based on where we are at any one time in the development....
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This note was uploaded on 05/07/2008 for the course MGM 406 taught by Professor Ryan during the Spring '08 term at SUNY Buffalo.
- Spring '08