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Project Management

Risk Management in Innovation Projects

  • Introduction

Innovation is a crucial driver for companies to maintain competitiveness and generate high value, moving beyond traditional product or service development. Exploring the factors that enable successful innovation is essential for the long-term sustainability of companies. Given that innovation inherently involves uncertainty in both the process and the outcome, there is a clear need to develop and implement effective risk management approaches and tools specifically tailored for innovation projects. According to the Frascati Manual (OECD, 2016), innovation can be defined as the transformation of an idea into a new or improved product or service, which can be commercialized. This definition highlights the importance of managing the risks associated with this transformative process. This literature review aims to synthesize existing research on risk management in innovation projects, drawing on a comprehensive systematic review. The review analyzes 98 articles published between 1998 and 2022. This extended timeframe and broad definition of innovation, encompassing not only product and technology-oriented innovations, but also service and business model innovations, provide a robust foundation for understanding the complexities of risk management in this field. The objectives of this review are threefold: to identify specific risks associated with innovation development, to classify the methods and tools used to manage these risks, and to outline future research directions that bridge these two critical domains.

  • Research Methodology of the Systematic Review

The systematic literature review employed in this study is based on the PRISMA (Preferred Reporting Items for Systematic Reviews and Meta-Analyses) methodology, a rigorous approach designed to ensure transparent and reliable findings. The PRISMA protocol consists of four distinct phases: identification, screening, eligibility, and inclusion. In the identification phase, a set of keywords was defined to capture the intersection of risk management and various forms of innovation. These keywords included terms such as “risk,” “risk management,” “innovation,” “product innovation,” “R&D,” “service innovation,” “business model innovation,” and “sustainable innovation”. Four main databases—Science Direct, Web of Science, Taylor and Francis, and Wiley Online—were consulted, covering the period from 1998 to 2022. This search resulted in the identification of 271 articles, which was reduced to 244 after removing duplicates. The screening phase involved two stages: filtering by journal field and analysis of abstracts. Articles published in fields outside of engineering, operations management, service development, risk management, innovation and technology management, and business management were excluded. The remaining 197 papers underwent an abstract analysis based on two criteria: the application of risk management to at least one type of innovation, and a contribution to the research scope in engineering or management sciences. After this stage, 74 articles were discarded, leaving 123 for full-text analysis. In the eligibility phase, these 123 articles were read in their entirety, and both descriptive and thematic aspects were evaluated. The descriptive aspects included time frame, research field, research methodology, and type of contribution. The thematic aspects considered the risk management process frameworks proposed in AFNOR (2003) and an innovation process comprising the stages of R&D, conceptualization, ramp-up, and commercialization (OECD, 2016). Ultimately, 98 articles met the inclusion criteria and were used to consolidate the knowledge linking risk management and innovation development.

III. Descriptive Analysis of the Literature

The temporal distribution of the reviewed articles shows a clear trend of increasing interest in the joint study of risk management and innovation. A seminal study by Bosworth and Jobome (1999) was identified, focusing on financial risks in product and process innovation. However, a significant increase in studies is observed after 2012, with 75 articles representing 77% of the reviewed literature. This surge reflects the evolving understanding of innovation beyond traditional new product development, encompassing areas such as open innovation, business model innovation, and sustainable innovation. The literature also reveals a growing recognition of the need to address risk management in these new contexts of innovation. The knowledge fields covered by the reviewed articles are diverse, with a notable balance between business, management, and accounting (51%) and engineering (41%). This balance indicates that both the organizational and technical aspects of risk management in innovation are considered important. Articles in the business, management, and accounting fields often adopt a behavioral perspective, focusing on organizational matters and stakeholder negotiation. For instance, Brown and Osborne (2013) argue for a risk governance approach rather than a purely technocratic one. In contrast, engineering-oriented articles tend to emphasize the techniques and tools for risk management. For example, Chen (2018) focuses on calculating uncertainty in complex contexts, and Keizer and Halman (2007) propose a method to diagnose risks in radical R&D projects. However, many authors argue that both organizational and technocratic viewpoints are essential for effectively managing risks in innovation.

The research methodologies employed in the literature are predominantly empirical, accounting for 71% of the studies. This indicates that the field is still in an exploratory phase. The empirical research is further categorized into case studies, surveys, and experimental research design, while the theoretical research includes literature analysis and mathematical theory building. The analysis of the literature reveals that most studies focus on concept development (64%), aiming to establish the main characteristics of risks in innovation, as well as integrating emerging concepts such as open innovation. The remaining 36% of the studies propose methods for evaluating risks in innovation projects. The existing risk management methods, often applicable to traditional product or service development, are seen as limited in the context of innovation. This limitation suggests the need for specific methods capable of handling the increased complexity and uncertainty involved in innovation.

  • Thematic Analysis of the Literature

The thematic analysis of the literature is crucial for understanding the nuances of risk management in innovation projects. The analysis reveals a clear dichotomy between internal and external risks. Internal risks, which can be controlled and managed within a company, are categorized into financial, relational, organizational, and operational risks. Financial risks are the most frequently cited, with approximately 30% of the articles addressing them. These risks primarily involve high investment levels and revenue diversification challenges. High investment levels are required for infrastructure, qualified human resources, and marketing campaigns. The issue of revenue diversification arises because companies that rely heavily on innovative products or services face increased financial risks due to market uncertainties. Relational risks, which are mentioned in about 20% of the articles, concern the collaborative relationships among actors involved in innovation projects. These risks include dependency on external actors, opportunistic behavior from partners, misaligned production processes, and data security issues. Organizational risks, while less frequently mentioned (10%), are considered critical for innovation success. These risks stem from the risk profile of decision-makers, with excessive control potentially sabotaging the innovation process, and the organizational culture of the company, where risk tolerance plays a significant role in exploiting innovative opportunities. Finally, operational risks, also addressed by 10% of the articles, are mainly related to knowledge management, the ability to acquire and integrate external knowledge, and the maturity of the innovative product or service.

External risks are beyond a company's direct control and are categorized into market, societal, and hazardous risks. Market risks, discussed in about 15% of the articles, concern the acceptance of innovations by customers. The uncertainty of the use phase can lead to demand fluctuations, and non-transparent pricing or compatibility issues can create customer aversion to innovative products and services. Societal risks (12%), involve the influence of governmental policies and media on public opinion. Government policies based on the “pre-cautionary principle” can sometimes be driven by political interests rather than scientific evidence, acting as a barrier to innovation. Media scrutiny and risk perception, often shaped by intuitive reasoning rather than scientific data, can also hinder societal acceptance of radical innovations. Hazardous risks (11%) refer to the potential side effects of innovations, impacting the environment and human health. These risks, often hard to determine due to the lack of knowledge involved in innovation development, can have severe societal consequences. A crucial aspect of the thematic analysis is the cross-referencing of identified risk elements with the phases of innovation: R&D, ramp-up, market, use, and disposal. The study found that risks like "partner dependency" and "governmental policies" can materialize at any stage of the innovation process, emphasizing their critical importance in risk management. Most risks, however, tend to manifest during the market and commercialization stage, often triggered by uncertainties in market acceptance. Hazardous risks typically emerge during the use and disposal phases, highlighting the long-term implications of innovation risks.

The review also identifies and examines 23 risk management methods applied in innovation. These methods are largely implemented during the identification and evaluation phases. The context setting phase, while important, is often weakly addressed, relying on informal stakeholder participation. The identification phase often utilizes methods such as expert or stakeholder consulting and literature review to determine a list of risks. The evaluation phase involves numerical approaches like Fuzzy Evaluation and Analytical Hierarchical Process and Lifecycle Assessment (LCA). The treatment phase often applies traditional methods, such as the risk matrix, and emphasizes managing risks rather than avoiding them. The capitalisation phase emphasizes reporting on both successes and failures. A significant portion of the methods (50%) include human interaction, such as brainstorming and workshops.

  • Research Perspectives and Future Directions

The systematic review highlights several critical research perspectives and future directions. Firstly, while a comprehensive categorization of risk factors was provided, it is crucial to explore how the criticality of each risk factor varies based on the type of innovation (radical vs. incremental, technological vs. non-technological). For example, radical innovations like nanotechnology can carry more significant societal risks than other types of innovations. Therefore, future research should focus on linking the criticality of different risk factors with specific innovation types. Secondly, the study emphasizes the need for collaborative methods in risk management in innovation projects. This suggests the need for ad-hoc approaches that focus on human interactions, consensus, and harmonized risk perceptions among stakeholders. The stakeholder's perception of risk also plays an important role, so there is a need to balance the perceived risks and benefits at both the individual and project levels, reducing the premature abandonment of high-potential innovations. To address this, the use of the Materiality Matrix (MM) is proposed. This approach, derived from Corporate Social Responsibility (CSR) practices, helps evaluate risk by crossing the importance of factors for stakeholders with the importance of the same factors for the company. The most relevant factors are visualized in the upper-right quadrant of a graph (Fig 6). Finally, it is suggested that this approach is used with other evaluation methods like the risk matrix or quantitative models such as Lifecycle Assessment (LCA), to enhance objectivity.

  • Conclusion

This literature review underscores the vital role of risk management in the success of innovation projects, which are increasingly important for the sustainability and competitive advantage of companies. The study identifies two main classes of risks in innovation: internal and external. Internal risks include financial, relational, organizational, and operational risks, while external risks consist of market, societal, and hazardous risks. The risks of relational, societal, and hazardous nature have been specifically highlighted for their significant impact on the context of innovation. The study makes practical implications for practitioners by clearly outlining the classes of risk, the main tools and techniques used, and the phases in which they appear, enabling project managers to anticipate them in the early phases of the innovation process. The study highlights the importance of human interactions and collaborative approaches, which are crucial, especially in radical innovations, as well as the increased importance of context definition and capitalization phases. The limitations include the reliance on existing literature, which might not fully capture complexities in real startup environments, and the lack of primary data collection methods such as interviews and surveys, which could provide a more in-depth understanding of the topic. Future research should analyze the link between the types of risk factors and their criticality, and the type of innovation being addressed. Finally, the Materiality Matrix (MM) approach is proposed as a research track for balancing multiple stakeholders' points of view in matters of risk estimation in the context of innovation.

(Orellano & Gourc, 2025)

References:

Orellano, M., & Gourc, D. (2025). What typology of risks and methods for risk management in innovation projects?: A systematic literature review. In International Journal of Innovation Studies (Vol. 9, Issue 1, pp. 1–15). KeAi Publishing Communications Ltd. https://doi.org/10.1016/j.ijis.2024.10.001

FAQ: Risk Management in Innovation Projects

1. Why is risk management crucial for innovation projects?

Innovation projects inherently involve uncertainty, making them riskier than traditional projects. Effective risk management is essential for making informed early decisions about whether to pursue an innovation, ensuring the project maximizes its value creation, and enhancing a company's competitive edge by helping to manage the potential downsides of innovative ideas. It also allows for a more structured approach to dealing with uncertainty throughout the process and can prevent premature abandonment of promising projects.

2. How does innovation risk differ from risks in traditional projects?

Innovation projects present unique risk profiles due to higher levels of uncertainty, often involving interactions with diverse stakeholders and lacking historical data. Traditional risk management approaches might not be adequate to address the full scope of innovation risks. For example, innovation projects can include relational risks stemming from collaborations, societal risks from political or media pressures, and hazardous risks related to unexpected impacts on the environment or human health; these are not always present or as prominent in traditional projects.

3. What are the main categories of risks in innovation projects?

The risks associated with innovation projects can be categorized into internal and external risks. Internal risks are those a company can control within its own operations, and are further divided into: financial risks, like high investment costs and revenue uncertainty; relational risks stemming from partnerships and data security; organisational risks that relate to risk tolerance culture and decision making, and operational risks such as knowledge management, product maturity, and resource availability. External risks, which are less directly controllable, are categorized into: market risks, such as customer acceptance and pricing; societal risks that involve governmental policy and media scrutiny; and hazardous risks that relate to unforeseen environmental and health impacts.

4. What are some examples of risks specific to innovation?

Beyond traditional project risks, innovation-specific risks include:

  • Relational Risks: These arise from dependence on external actors, opportunistic behavior from partners, misalignment in processes, and data security issues, stemming from collaborations critical to innovation.
  • Societal Risks: Public opinion, media scrutiny, or changing political priorities can drastically affect the viability of innovative projects, particularly those involving technologies like biotechnology.
  • Hazardous Risks: These include potential environmental damage and health impacts, especially from products like nanomaterials. These are often discovered during the use or disposal stages of innovation and can significantly impact societal acceptance.

5. How do different innovation phases impact the type of risks encountered?

The innovation process is typically divided into phases such as R&D (concept development), ramp-up (production stabilization), and market (commercialization). However, it's important to consider the use and disposal phases as well, since they're related to societal and environmental impacts. Financial and knowledge-based operational risks can occur throughout all phases. Market-related risks tend to manifest most significantly during the commercialization stage, which is when customer acceptance becomes the main challenge, while hazardous risks tend to become apparent in the use and disposal phases of a product. Relational and societal risks, particularly policy based ones, can arise at any stage.

6. What are the main risk management methods used in innovation projects?

Risk management in innovation projects involves a variety of methods applied at different stages. These methods include expert consultation, literature reviews, and participatory methods to define context. Identification methods involve brainstorming, risk listing, and failure mode analysis. Evaluation methods include fuzzy evaluations, lifecycle assessments, statistical modeling, and analytical hierarchical processes. Risk matrix is the main method used during treatment phase, and internal/external reporting is used for capitalisation. A significant portion of these methods involves human interactions, highlighting the need for collaborative approaches in managing innovation risk.

7. How can collaborative approaches improve risk management in innovation?

Innovation projects, particularly radical ones, require active participation from multiple stakeholders and partners. Collaborative approaches enable a more holistic understanding of potential risks and can facilitate consensus-building for risk management strategies. Methods that encourage stakeholder engagement help in better evaluating risks, especially when perceptions of potential benefits vary at individual and project levels and can contribute to avoiding premature abandonment of innovations. In essence, by ensuring diverse perspectives are considered, these approaches help ensure more robust and adaptable strategies.

8. What is a "Materiality Matrix" and how can it be useful for innovation risk management?

A Materiality Matrix (MM) is a tool that helps in the risk evaluation phase by mapping the importance of risk factors according to different stakeholders (including external stakeholders, internal team members, and leadership) and comparing it to the risk importance assessment of the leading company. It allows identifying and prioritizing risk factors that are relevant to all parties involved, thus ensuring a shared understanding and focus. By bringing together stakeholder perspectives, it facilitates a more balanced approach to risk management, helping to evaluate risks not only from the company's perspective but also from the point of view of all stakeholders. It can be paired with other methods like risk matrices for a more comprehensive assessment