DIMENSIONS OF RISK

Risk (or, more accurately, risk exposure) may be roughly defined as the product of the probability of an unsuccessful outcome with the extent of loss suffered when that outcome is experienced. Thus, risk is high when either unsuccessful outcomes are very likely, regardless of consequence, or when unsuccessful outcomes are less likely, but with high consequence of loss.

These meanings are distorted slightly in the vernacular of program management. A research program is often referred to as a “high-risk, high-payoff” activity when it is attempting to achieve a major break-through, but with uncertain likelihood of success. Long-term basic research programs are generally intended to be of that type, in this positive sense: for researchers, a “high-risk, high-payoff” program has a higher likelihood of failure but a larger impact if successful, while a more conservative “low-risk” program—focused, perhaps, on achieving incremental gains in an established technology area by following routine scientific approaches—carries a higher likelihood of lesser impact. This notion of risk is almost always approached in a qualitative manner, as it is rarely the case that probabilities of failure and consequences of success can be usefully quantified.

How can a program manager think systematically about questions related to risk when very few of the variables of interest can be quantified and when programs exhibit diverse kinds of risk? In this section, several dimensions of risk are identified, along with some examples of strategies that can be used to mitigate the risks and thereby move innovations closer to adoption. This framework enables program managers to put names to risks and strategies and to identify the risk focus at a particular stage of program execution; addressing too many risk issues at once in a program can compound overall program risk to unacceptable levels. On the other hand, sequencing risks necessarily entails some “willing suspension of disbelief” with respect to typical risk issues later on, such as scaling and integration.

An example of potentially high-risk investment by government is the development of new concepts for system protocols and architectural interfaces. The risk derives primarily from a combination of achieving the technical goals (for example, aggressive improvements in security and scaling for the Internet Protocol) and achieving acceptance among stakeholders and impact on the mission applications. Box 4.4 illustrates how risk emphasis changes as a technology is evolved.

The sections below consider several kinds of risk issues that are relevant to research-program management. They illustrate the diversity of kinds of risk issues and the need, when defining research and transition



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