New goods and services are created so that people can solve many tasks better than before, or do and create what they could not before. However, innovation also carries certain dangers. How risky an innovation will turn out to be depends almost entirely on people's choices.
And it turns out that the more conscious their choice, the lower the risk in innovation.
The more complex the system that includes innovation, the more likely and more serious the consequences of risks will be. Almost all the dangers and risks associated with innovations do not come from the innovations themselves, but from the infrastructure facilities into which they are introduced.
The essence is that all innovations are obtained as a result of a compromise between risk in innovation and efficiency. To minimize risk, unexpected results and consequences, users, companies and politicians should be aware of how to make rational choices when it comes to new products and services.
Innovation risk is not a simple doctrine. The relevance of the study is justified by the need to identify and manage such a risk, the formation of a suitable financial and industrial environment.
Concept and doctrine
Risk is a universal concept. Each step of social development implied certain difficulties and problems in innovative work. Financial productivity depends on high quality product features. Innovative problems as a complex concept are studied next to such disciplines as innovative management, risk management in innovative activities, psychology, etc. The difficulty of identifying risks is studied in almost all research papers.
Innovation risk is a complex multidimensional doctrine. To successfully work in the field of risk, specialists are required to have expert knowledge in the field of economics. Effective risk management contributes to the competitiveness of the company in the domestic and international markets and increases the financial and industrial potential necessary to fulfill the state tactics of innovative development in general. Innovation productivity indices are the ability to manage operational risks, as well as the ability to predict the dangers of innovation. Businessmen play an organizing role in risk management. As a result, they help establish a hierarchy of innovative ties in the existing economy and the financial system as a whole.
Factors
Innovation is constantly associated with certain risks for the organization. An organization is required to consider five key factors for innovative risks:
- It is possible that the new business model will not create a competitive advantage. It must be tested first.
- An economically powerful competitor copies innovations and turns them into an industry standard. Therefore, innovations become a common solution for every company in the industry and lose their own innovative status. This destroys the competitive advantage for the innovator.
- A follower can learn faster (for example, correct errors at startup) and more accurately achieve a result than the innovator himself.
- The innovator overestimates his innovative and organizational capabilities (for example, change management, financial resources).
- Incorrect market understanding. The new product is excellent in terms of conviction and technical specifications. Despite these features, not a single client wants to pay for them, since their price is higher than the expected benefit (for example, in relation to a product already developed). Another option is that customers do not behave as expected (for example, do not accept pricing in terms of innovation).
All of these dangers pose a risk of losing resources to the innovator and can be detrimental.
Classification and types
Depending on the reasons that cause them, the risks of innovative development are classified as follows.
A number of reasons that cannot be changed or limited are constantly influencing management decisions. Such factors include tax and regulatory acts, natural and geographical conditions, social morality, social principles, etc.
These reasons pose pure risks of innovation processes. However, it must be emphasized that the same risks can be classified as pure or not included in this group. For example, when illustrating the nature of the manifestation of net risks, it is most often proposed to take into account natural and geographical hazards.
Political dangers are associated with the political situation in the state. They appear when the conditions of the industrial and commercial process are violated for reasons not directly dependent on the business entity.
Natural and climatic hazards are hazards that are associated with manifestations of natural forces: earthquake, flood, storm, fire, epidemic, etc.
Speculative innovative risks of enterprises are entirely determined by the decision of the company's management. Often, speculative dangers are uncertain, their analytical estimates change over time.
Financial risk is the risk that the borrower will not pay the principal and interest. It can also become a problem in which the issuer, which issued debt securities, fails to pay interest on them or the main amount of debt.
Such uncertainty increases not only risk, but also a beneficial effect. More pronounced speculative dangers are manifested in such areas of work, which depend on market conditions. Therefore, speculative dangers are often called dynamic risks.
Commercial risk is associated with production, commercial or monetary work, the main task of which is to generate income. It is the result of the combined action of all the reasons that determine different types of risks: monetary, political, commercial, financial, etc. The assessment of commercial risk is carried out on the basis of the principles of absorption and risk addition: if the dangers do not depend on each other, assessments are pessimistic, if the dangers give rise other risks, their estimates are formed in accordance with the laws of probability theory and mathematical statistics. Commercial risks are associated with the stable operation of production, financial or monetary work.
Currency risk is studied as the risk of financial losses that are associated with a change in the exchange rate of foreign currency against the state currency in the process of conducting foreign trade, credit, monetary operations, operations on stock or money exchanges. For exporters and importers of innovations, monetary risk arises in situations where the cost of innovation is expressed in foreign currency. The exporter loses income in relation to its own state currency in the period between the conclusion of the contract and payment under it. For the importer, losses occur when the rate changes.
Portfolio risks are connected with a portfolio of investments. The strategic distribution of assets describes a method for placing a portfolio with long-term forecasts based on indicators such as efficiency, variance, and covariance. Tactical asset allocation is determined based on short-term forecasts of how funds should be distributed at a specific point.
If the financier is interested in increasing the income from his own cash investments and seeks to increase the cost of borrowed capital in order to implement the innovation, then the innovator, on the contrary, is trying to lower the cost of attracting investments and thereby increase its profit. As it follows, the risk of one is the chance of the other.
Business risk (commercial) appears in entrepreneurial work and is associated with the likelihood of profit falling to a level that does not cover business costs. It appears as a result of the impact of adverse changes in the market situation (market risks) or an incorrect market policy (marketing risks), which is associated with the need to reduce prices under the influence of competition or with the impracticability of the process of selling products (goods, services) in the planned volume.
A prerequisite for management is uncertainty. Innovative activities are more risky than other areas of commercial activity. In the criteria for the inconsistency of the situation in the economy, the problem of the risk of losses when a company invests in innovation becomes relevant and relevant. Innovative risk assessment is carried out according to the same rules as commercial risk assessment. Unlike commercial, innovative dangers are associated with the commercialization of new types of products and services.
Modern classification
There are several types of innovative risks that are more consistent with current criteria. Among them are:
- The dangers of the wrong choice of innovative projects. A prerequisite for this type of risk may be an insufficiently reasoned choice of values ββof the financial and market tactics of the company. For example, in the case of dominance of short-term interests when making decisions over long-term ones (the desire to quickly distribute profits among owners reduces the possibility of increasing the share of innovative products on the market in a couple of years). The possibilities of the company's market position in the future can be incorrectly assessed. At the same time, its financial stability (the desire to increase profits due to the growth in sales of a profitable product) can lead to additional costs for the development of resource-saving technologies.
- The risk of inability to provide an innovative project with a sufficient level of cash. It contains the risk of a lack of finance for the development of the project (the company was unable to attract investors due to an incorrectly drawn up business plan) or the risk of a wrong choice of sources of allocation of financial resources (inability to implement the project from its financial reserves, lack of available sources of borrowed funds, etc. .).
- Risk of failure to fulfill business contracts. This is the risk of the counterparty refusing to sign the contract after negotiations (in the event of a sharp change in the financial situation) or the risk of signing the contract on extremely unprofitable conditions. This also includes the risk of concluding contracts with incompetent partners, the risk of non-fulfillment of contractual obligations by partners on time (depends on sharp fluctuations in the financial situation).
- Marketing risks of current supplies and sales. Almost always, these risks are determined by the lack of mastery of the company's marketing services or their absence at all.
- Risk associated with the protection of intellectual property rights. The likelihood of this kind of risk occurring is especially relevant for companies producing innovative products. The main prerequisite for its appearance in enterprises is the imperfection of patent law.
The productivity of innovative work directly depends on how accurately the risk assessment and examination was carried out, as well as on how the methods for managing it are correctly defined.
Analysis Basics
When conducting an analysis of innovative risk, special methods are used. They are divided into:
- high-quality (description of all project risks);
- quantitative (determination of changes in project effectiveness under the influence of risks).
Among the qualitative methods, the expert method, the method of analyzing the appropriateness of costs, the method of analogies are distinguished.
Among the quantitative methods, one can note: the method of adjusting the discount standard, sensitivity analysis, the method of scenarios, the Monte Carlo method (imitation).
One of the most popular methods is simulation. It is a set of procedures in which a special mathematical model of the probability of future situations is created. Further, this model is exposed to various types of simulation forecasts with different indicators and values. Each option is evaluated and compared against each other in terms of effectiveness.
Evaluation Basics
There is the following option for calculating the innovation risk assessment indicator:
R = Ζ© Wi * Pi,
where Wi is the risk weight;
Pi is the average probability of occurrence of the i-th risk.
The results of calculations by this technique allow us to identify the most significant of the possible hazard options.
Risk assessment of innovative projects is used to calculate probable indicators of dangers, neutralize them and create such industrial and financial criteria under which the appearance of this risk will be minimal.
Risk assessment is based on the ratio of costs that were caused by innovative risks and the duration of the situation.
This method allows you to use all the data that is associated with losses for a certain period of time.
When planning a companyβs budget, the amount of situation management associated with the occurrence of risk is calculated.
In general, the reasons for the occurrence of innovative risks can be taken into account when calculating the amount necessary for situations that are associated with the threat of unexpected losses due to innovations or loss of income.
This method is used to calculate resources for the elimination of administrative, labor, monetary infrastructure, industrial and financial risks that arise during the implementation of an innovative project. In addition, this method reduces time at the risk management stage of an innovative project and minimizes dangers.
Taking into account that the main resource of innovative companies is their internal resources, and also taking into account the risky nature of such projects, the development of a new way to manage these types of risks is required.
Management features
Innovation risk management is understood as a set of practical measures that reduce the uncertainty of the outcome of innovations, increase the usefulness of their implementation, and lower the cost of achieving the goal.
Among the main tasks of risk management in innovations are:
- predicting the manifestation of negative causes that affect the dynamics of the innovation process;
- assessment of the impact of negative causes on innovation and the results of innovations;
- development of ways to reduce the risks of innovative projects;
- creation of a risk management system.
The implementation of tasks and goals is assigned to the managers of innovative projects.
The reduction of the uncertainty of the results of innovations is achieved by creating information bases for similar projects and accumulating information about the degree and quality of their implementation. But a surplus of innovation information does not reduce uncertainty. To carry out risk management in innovation, it is necessary to ensure the relevance (sufficiency) of information for decision-making.
If the company management decides to master a new market sector for its own organization, then no perfect information base on the state of the initial market sector will reduce the uncertainty of work in the new area. All the accumulated information will be irrelevant and inappropriate for risk management.
The growing benefits of innovation are directly related to the change in innovation. The development of innovative projects implementation options is the main goal of innovation management theory. And since the number of options for implementing innovations is limited by the finite set, the methods of choosing alternatives provide completely satisfactory indicators. On this basis, a competitive selection of projects is used.
The cost of achieving an innovative goal is determined by the characteristics of the economic situation in which the innovator ventured to implement his project.
Consider the main difficulties of the innovation risk management process:
- The complexity of access to raw materials: if a company develops an innovation that requires the use of scarce raw materials, this makes purchases difficult, it will be seriously affected by any supply disruptions.
- The structure and values ββof society: people are of great importance. Some will benefit from the innovations, while others are responsible for their design and development. The producers and users of innovations can be the same individuals.
- Excellence in work: this is part of an innovative inventory. It should be used as a lever to create the maximum price.
- Transfer of innovative opportunities: if the performance of innovation competition among competitors is positive in the short term, their impact in the long term will be difficult to assess.
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- Ability to predict changes in the ecological system: clear forecasting is profitable and effective for innovations. For example, global warming forecasts drive clean technology innovation. Thus, several business opportunities emerged in response to the call for carbon footprint management. The companies involved improved their industrial processes and achieved competitive advantages.
- Organizational flexibility: It is very important for companies to be environmentally flexible. The stronger and more aggressive the competition, the more flexibility is required to take the measures necessary to meet this competition. A rethinking of business practices is needed.
- Collective innovation network: innovation success is achieved mainly through interaction with networks and specific partners. This is especially suitable for small and medium-sized companies whose resources are limited. Reliance on a productive collective innovation network reduces dangers and accelerates return on investment and the innovation process. At the same time, it is necessary to ensure that all partners receive the right share of profits in the innovation chain. In addition, it is important to attract and choose the right partners who must be reliable.
Directions of minimization
Innovation risk reduction is to develop a process that spans three dimensions:
- threats: correctly identify the dangers and barriers that are associated with innovative implementation;
- action: developing appropriate tactics;
- Opportunities: introducing knowledge to gain an advantage over competitors least able to overcome the wave of risk.
Ways to reduce
The main ways to reduce risks are: distribution, diversification, limitation, insurance, hedging, risk avoidance, etc.
Risk sharing is usually carried out between project participants in order to evenly distribute the hazards that must be calculated under these conditions. It is necessary to keep danger under control, as well as take the necessary measures to overcome the consequences of risks.
Diversification can reduce risks due to multidirectional work in the field of sales and supplies, accounts payable, etc.
A simple example of multidirectional investments is a portfolio that consists of two or more securities. As a result, the decrease in the exchange price of some securities is almost entirely compensated by the growth of the rest, i.e., regardless of the situation on the market, the portfolio price remains unchanged, and investments are only subject to periodic risk.
A portfolio created in this way usually has less risk than any of its monetary assets.
The limitation of risks is ensured by the establishment of maximum amounts of costs, sales, loans. This method is used by banks to reduce the risk when issuing loans to business entities, when selling products on credit, determining the amount of capital investment, etc.
Insurance as a system of financial relations includes the formation of a special fund of funds (insurance) and its implementation by the method of payment of insurance compensation for various types of losses that were caused by adverse events (insured events).
Depending on the system of insurance relations, various types of insurance are distinguished: co-insurance, double insurance, reinsurance, self-insurance.
In case of collective insurance, two or more insurers take part in certain insurance interests of the same risk, concluding joint agreements in which each of them is responsible for the insurance amount in its own share of investments.
Double insurance implies the presence of several insurers with the same interests from similar risks, when the total insurance amount exceeds the insurance amount for each insurance contract.
In the case of reinsurance, the risk of payment of insurance compensation or the insurance amount that was accepted by the insurer under an insurance agreement may be insured either in whole or in part. In the event of an insured event, the reinsurance organization is liable in the amount of reinsurance obligations assumed.
Self-insurance - the creation of cash and in-kind insurance funds for specific business entities. The main goal of self-insurance is to quickly overcome temporary difficulties in the financial sphere of business.
Hedging is an effective method of reducing the risk of adverse changes in the price environment by concluding fixed-term contracts (futures and options). The method allows you to fix the cost of purchase or sale at a certain level and, thus, make up for losses in the main market due to income in the futures. By buying and selling fixed-term contracts, the businessman protects himself from price fluctuations in the market, thereby increasing the certainty of the results of his own production and economic work.
In management practice, from time to time there are times when it is necessary to get out of risky innovative projects or end a collective activity with colleagues. There are methods for avoiding risks for this:
- rejection of unreliable partners;
- rejection of risky projects;
- search for guarantors, etc.
Conclusion
Thus, innovative activity is characterized by a high level of uncertainty in the dynamics of the main reasons on which its indicators depend. Innovation may end in complete failure. Nevertheless, a significant number of businessmen who begin to introduce innovations prefer to calculate their dangers and opportunities, create bottlenecks and try to reduce the likely negative trends. These tasks are solved when developing a risk management system.
It should be noted that there is no single methodology for assessing the impact of innovative risk. Any company uses independently developed risk calculation methods. This approach leads to errors in assessing the costs of identified risks, negative results and lower management productivity.