Profit & Loss Statement



Three Sources of Product Design Risk That Significantly Reduce Profits

If you design products there are three sources of risk that are typically poorly managed by most companies that are costing them a significant loss of profits. For some companies, the total losses can be millions of dollars.

The three sources of risk typically not effectively managed that can cost companies millions of dollars are:

  • Improper Customer Requirements
  • Improper Design Requirements
  • Improper product usage

Before we examine these three sources of risk in detail, let us define Risk.

What is Risk?

Risk is a very popular subject these days. The major quality management system standards such as ISO 9001:2015, ISO 13485:2016 and IATF 16949:2016 all require companies to implement Risk-Based Thinking to manage their businesses. To understand why Risk-Based Thinking is so important and why poorly managed Risk results in large losses in profits for many companies, one must begin by understanding what Risk is.

A Hazard is a potential source of Harm. Harm is physical injury or damage to the health of people or damage to property or the environment. Risk is a combination of the probability of the Hazard and the severity of the Harm. If a company wants to reduce Risk, they must reduce the probability of the Hazard occurring and/or the severity of the Harm when the Hazard occurs. Risk-Based Thinking is structured methodology for reducing Risk throughout the entire product lifecycle. Risk Management is the use of Risk-Based Thinking to reduce Risk to a level that is acceptable given the benefits the product will provide to the customer and company.

Let us now look at the three sources of Design risk that most companies do not manage effectively.

Ineffectively Managed Risk Source #1: Improper Customer Requirements

If one gets the Customer Requirements wrong, nothing else matters. Improper or incomplete definition of Customer Requirements is one of the most common mistakes made by companies. There are eighteen categories of Customer Requirements that must be considered when designing a product.

Ineffectively Managed Risk Source #2: Improper Design Requirements

Unfortunately, customers do not always talk in a language that companies can design to. Consequently, the Voice of the Customer must be translated to Design Requirements written in engineering terms that the design engineers can design to. There are three reasons why for the majority of products it is not possible to define a set of Design Requirements that will meet all the Customer Requirements all the time.

Ineffectively Managed Risk Source #3: Improper Usage

Finally, if a product is not properly installed, used and/or maintained correctly, a company can have a product failure even though they have:

  • defined the Customer Requirements and Design Requirements for a product correctly
  • defined the proper design specification to meet the Design Requirements
  • produced a product that meets the design specifications

There are three tools that can be used to reduce Risk due to installation, usage and/or maintenance errors.

To Learn More:

If you want to learn more about reducing product risk in general and the three improperly managed Risk sources specifically, click on the link below. Topics that will be covered include:

  • Customer Requirements include more than function
  • three reasons why it may be difficult or impossible to define Design Requirements which define a product that will meet the Customer’s requirements all the time
  • three tools to use to reduce risk due to installation, usage and/or maintenance errors

To learn more about risk-based thinking, check out this webinar:
Top Ten Things You Need to Know About Implementing ISO 9001:2015 Compliant Risk Based Thinking

And for a closer look at what makes up a good Design FMEA, watch this: Design FMEA Ratings – Deepening The Understanding