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Analysis of risk management in innovation activity process

Conference Paper · September 2017

DOI: 10.1109/ITMQIS.2017.8085883

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 ANALYSIS OF RISK MANAGEMENT IN
INNOVATION ACTIVITY PROCESS
Andrey S. Nechaev
Department of Industrial Management
Irkutsk National Research Technical University
Irkutsk, Russia
n-a-s@mail.ru
Dmitrii V. Ognev
Department of Economics and Management
Irkutsk National Research Technical University
Abstract— The importance of enterprise innovation risk
management is constantly increasing, because it has influence on
the company's leading positions, increasing its competitiveness in
the domestic and international markets. It also helps to increase
the economic and production potentials that are necessary to
implement the innovative development strategy of the state as a
whole. There are certain problems in the field of innovation
management. At present time, there is no unified assessment
methodology of risk impact of the enterprise innovation activity.
Each enterprise uses independently developed methods for
calculating the risk based on the ratio of risk costs to the risk
time. It leads to errors in the valuation of identified risks and
their negative outcomes and, as a result, in this situation the risk
management effectiveness is reduced. The authors of the article
propose a classification of the main types of risks in an
innovation project. On the basis of the proposed classifications,
an innovation risk management model for enterprise has been
developed.
Keywords— innovation management, innovation project
management, classification of risks in an innovation project
I. INTRODUCTION
Risks are the results of any economic decisions because
uncertainty is an inevitable condition of management.
Innovation activity always involves a risk, which includes the
constant number of factors. Their impact on the results of
activities cannot be accurately calculated in advance.
Choosing a particular project, it is necessary to evaluate its
effectiveness, uncertainty and risk factors.
The economic behavior of the entrepreneur in market
circumstances is based on the entrepreneur's chosen individual
program according to his capabilities at his own risk. Market
participants are initially deprived of previously known,
unambiguously specified parameters, which are guarantees of
success: greater market share, access to productive resources
at fixed prices, sustainable purchasing power of monetary
units, unchanged attitude towards norms of entrepreneurial
and other economic activities.
1 978-1-5386-0703-9/17/$31.00 ©2017 IEEE
Irkutsk, Russia
odv1974@rambler.ru
Oksana V.Antipina
Department of Economic Theory and Finance
Irkutsk National Research Technical University
Irkutsk, Russia
antipina_oksana@mail.ru
Innovation activity implies a risk more if we compare it
with other areas of entrepreneurial activity. It is so because
there is almost no complete guarantee of a successful outcome
in innovative entrepreneurship. This risk is several times less
in large organizations, because the scale of usual economic
activity offsets it.
In the management of the innovation risks of enterprises, it
is necessary to identify all possible types of risks, to be able to
identify them, and competently organize the work of risk
management departments. Risk managers need to use known
methods to assess the effectiveness of various risk
management measures and recommendations for their use, or
develop their own methodology aimed at the individual
characteristics of your enterprise.
II. PREVIOUS STUDIES
Nowadays the scientific community focuses on risk
management in innovation activity. The significant
contribution to the scientific development of separate
theoretical, organizational, economic aspects of identification
and risk management was made by the works of such authors
as: Balabanova I.T., Vasyukhina O.V., Barker A., Malone M.,
Knight F., Santa B. , Sharpa U., Schmidt S. and others.
At the same time, an analysis of modern economic
literature shows that nowadays a unified approach to risk
management of enterprise innovation activity has not been
developed both in domestic and foreign theory and practice. It
should also be noted that qualitatively developed risk
management programs allow top managers and risk managers
of enterprises to reduce economic losses and increase the
efficiency of innovative activities of enterprises.
A. Risk classification of an innovative project
The risks estimation of the innovative activity and the
definition of their influence degree to an economic situation of
the enterprises is a difficult multipurpose process. The existing
matrixes of a risks minimization do not give possibility to
allocate the most dangerous risks to make the effective
administrative decisions promptly. There is no algorithm of a
risks management promoting to make the actions directed on
minimization and neutralization of the enterprises innovative
activity risks consistently [1, 2].
On the basis of the conducted analysis of the risks various
classifications it was revealed that at first the quantity of the
risks kinds depends on the enterprise organizational structure
(the more divisions the enterprise has the more than various
risks kinds ). Secondly is necessary to define in what group or
a subgroup the risks enter as the same risk considered from
various steps of a scale of classification ranks has a different
sense for the various risks kinds characteristic. Besides we
notice that many researchers are limited by simple
classifications which only define a risk place in the relation to
other kinds.
To determine the impact of risks on the innovation activity
of enterprises, it is necessary to identify the main types of
risks. The authors compiled the following classification of
risks of innovative projects which is based on the analysis of
various sources of economic literature (Figure 1.)
Risks at the stages of the
innovation project
Fig. 1. Risks at the stages of the innovation project
Innovation activity is associated with a high degree of
uncertainty, which leads to innovations, their failure and
bankruptcy of the enterprise. It is clear that innovation activity
makes huge changes in technical and production processes;
thereby it increases the profit of enterprises.
Thus, most innovators before creating something new try
to analyze the innovation and identify the project risks. To
solve this problem, the authors propose a classification of the
main types of risks that must be taken into account in the
development of an effective management model [10].
B. The risk management model of enterprise innovation
activity
Risk management is of great importance for the
development of innovative activities of enterprises and their
normal functioning in a market economy.
To minimize and neutralize risks in the process of
innovation, we need an integrated management model which
should provide for specific ways of managing risks at a certain
stage of the innovation process.
The model of innovation risk management is presented in
Figure 2.

Inadequate Non- Economic potential of the enterprise

Low level
legislation complian Price Organizati
of
ce with risk onal risk
insurance
standards
Commercial risks Country risks Investment risks

Stages of the innovation project

Ways to neutralize and minimize risks:
- regular monitoring of the internal and external environments
of the enterprise;
Investme Production Stage Closing a - increase the efficiency of use of all enterprise’s resources;
nt stage project - to find out differences in the behavioural motives of the
stage
actors and sources of risk in advance;
-the risk a) c) ecological - risk of - organization of the investment bank network specially created
of production and other financing to provide loans for capital expenditures in advance.
increasin risks: civil liability and
g the - risks refinancing
project technologic d) financial ;
cost al; risks: - risk of
estimate; - -credit; financing
-the risk administrati - interest rate and
of time ve; changes; refinancing Production capacity of the enterprise
extension - providing - currency; of works on
for raw and - risk of the closure
project energy; foreign of the
commissi - shipping; transferring project. Buyer’s refusal Production risks Techno- Esti-mated
oning; proceeds; risks logical risks risks
-the risk b) -foreign
of commercial exchange
increasin risks risk.
g the
Ways to neutralize and minimize risks:
amount
of defects during the whole project cycle - property insurance;
during - to establish the frequency of loss occurrence;
the work. - compulsory insurance of each entity of the transaction in favor
- country risks; - administrative risks; - legal risks; -
of the company for the term of a contract.
force majeure risks

2
Fig. 2. The model of innovation risk management (I) Indicators are based and calculated using
3. Financial
financial instruments

Infrastructure potential of the enterprise Indicators present the impact of innovation on

4. Resource production of goods, consumption level and use
of various resources
Property Risks associated Risks of Crimino- Indicators take into account the social results of
risks with the emerge- genic risks 5. Social
using innovations
maintenance ncies
Indicators take into account the impact of
6. Environmental innovation on the environment and the direct
impact on people

Ways to neutralize and minimize risks: Economic efficiency is such efficiency which leads to the
- formation of federal and municipal cadastres of natural preservation of labor fources, material or natural resources or
resources; allows to multiply the means of production, consumer goods
- organization of preventive measures related to accidents at and services that have been valued [3].
the enterprise;
- to abandon the use of temporarily free monetary assets in Scientific and technical efficiency can be estimated
short-term financial investments transaction in favor of the through the expected economic efficiency. The research
company for the term of a contract. results show that 15% of applied research is characterized by
potential economic efficiency and 85% - by expected one.
To determine the effectiveness of innovation risk
management methods, we propose to calculate the
productivity ratio of the enterprise's resources, such as
Innovative potential of the enterprise innovative, infrastructural, economic and production. This
ratio is calculated as the ratio of the amount of costs for
Risks of the planning Risks of the Risks of the neutralizing the risks of the enterprise's potential in the
phase of the formation phase of introduction or innovation activity, to the sum of the periods of risk
innovation the innovation decline phase neutralization:
of the
innovation
ri
Km  
tj
Ways to neutralize and minimize risks:  
- establishing a correspondence between the technologies for
the transactions, the staffing table and the risk management
system;
where K m is the coefficient of productivity of the
- application of integrated identification algorithm; innovative, labor, managerial, infrastructural, economic,
- application of the integrated algorithm of identification and financial and production capacities of the enterprise;
management of risks of innovative activity of enterprises
riis the costs associated with the economic, production,
innovation and infrastructure potential of the enterprise;
Fig. 3. The model of innovation risk management (II) t j  is the period of risk neutralization.
The proposed model of risk management has a direct
influence on indicators for the implementation of innovative III. DISCUSSION
projects. The following types of efficiency are distinguished Before creating something new the majority of innovative
depending on the expected results and costs (Table 1). entrepreneurs try to analyze the innovation and identify its
risks. To solve this problem, it is necessary to create an
TABLE 1. TYPES OF EFFICIENCY IN THE IMPLEMENTATION OF INNOVATIONS extended risk classification and a general risk management
system in innovation.
Type of There is no need to prove that risk management is of great
№ п/п Indicators
efficiency
importance for the development of enterprises’ innovative
activities and their normal functioning in a market economy,
Indicators are regarded as value of the results
1. Economical
and costs of implementing innovations
and.
The risk must be analyzed to the maximum permissible
Scientific and Indicators are regarded in terms of innovations, limit. The main goal of management, especially for the
2.
technical available use, level of utility, compact size
Russian economy, is to admit a possibility of adecreasing in
profits, but not a bankruptcy under the worst circumstances.

3
The important thing is the improvement of risk management
by the construction of various risk classifications. The creation
of a general risk classification represents a risk assessment
system, helps to find better method for managing the
innovation risk. Risk can be managed using a variety of
methods that can determine the degree of risk and take action
to reduce the risk in time [4].
Creation of a complete risk classification is a complex and
time-consuming process. That is why many authors of risk
classifications consider it is not appropriate to create a
complete risk classification because of its cumbersomeness
and inconvenient use in practice. Many of scientists use
simple classifiers, which only determine the place of a certain
risk in relation to other types of risks.
In order to characterize the risk and begin to minimize it, it
is necessary to establish which classification criteria it refers
to, then we can determine the nature and cause of the risk, and
in conclusion we can find the factors that affect this risk.
The proposed general risk classification allows to analyze
a certain risk with a maximum quality. It gives the economist
an opportunity to concentrate on missed signs. The obtained
information is very important, because if there is a lack of
information about signs and risk factors, it is impossible to do
a complete analysis and neutralization of risks.
The model of specific ways of enterprises’ innovative risk
management allows to neutralize the risks quickly and
qualitatively according to the potentials of the enterprise by
the proposed specific methods.
IV. CONCLUSION
At the present time innovation, scientific and technological
improvement are the basis for stable economic progress nearly
the entire world. These indicators provide an opportunity to
meet the needs of the population in various types of products
and services better using natural resources and different
materials economically enough. It leads to major
transformations in technologies of various types of industries.
Innovation is connected with the uncertainty of the
economic conjuncture, which is the result of the volatility of
supply-demand of goods, money, factors of production, and
also from many spheres of capital application and the variety
of criteria for investing funds, from limited knowledge of
business and commerce and a large number of other
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circumstances. In modern conditions, the most effective is a
comprehensive approach to the study of risks. On the one
hand, this type of approach makes it possible to get a complete
picture of the likely outcomes of the project, that is, it gives an
opportunity to analyze the positive and negative factors which
wait for the investor, and on the other hand, allows to usie
mathematical methods for risk analysis.
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