Module 7: Innovation Finance & Metrics
Why should you use this method?
- Use a risk matrix to judge both the probability and the potential impact of each risk
- Understand which types of projects need strong risk management and which ones don't
The Risk Matrix is a straightforward tool to evaluate project risks. It is based on a concept by the Zurich Insurance Company, also called the Zurich Hazard Analysis.
How can you apply this method?
1. Identify the type of innovation project
Use the method card in risk identification to identify the type of innovation project
2. Identify the risks
Use the method card in risk identification to identify the risks. List own all the possible risks and give different numbers for every risk for easy identification. Focus on the areas with high risks.
3. Rate every risk
Now rate every possible risk on the matrix such that it becomes a point in the matrix. Note the point as a number to correspond to the risk identified
4. Protection target
Set a protection target- a line going through the matrix (vertical, diagonal, or horizontal) to identify which risks to handle
5. Priority risk handling
Any risk above the protection target line is to be dealt with on a priority basis
6. Secondary risk handling
Any risk below the protection target line can be neglected for the time being
Imagine you are working at SpaceX and building a rocket that is supposed to land vertically. One of the risks is that the rocket might explode due to the blowback of the landing. Unfortunately, and as you know from the news, this has been happening every time one of those rockets by SpaceX tries to land. So the probability is relatively high, at least at that point of the innovation process. And the impact is catastrophic because the rocket is destroyed. So are you willing to take a risk on the technology side, which is, if it occurs, catastrophic? It seems that at least from statements by Elon Musk that they accepted this risk and set the protection target above. This catastrophic impact is something that they can live with, as it gives valuable information to the company.
What’s up next?
Mitigate the risks by either working on the cause or the effect by risk-handling.
Pen, Paper/ Table template