Evaluating Effects of External Factors on Success of NPD Projects Chan-sik Kim, Jong-seong Kim, and Hoo-GonChoi Department of Systems Management Engineering, Sungkyunkwan University, Suwon, Republic of Korea Se Won Lee Department of Management, Dongguk University, Seoul, Republic of Korea Email: hgchoi@skku.edu Abstract—In this study, a framework is suggested to prioritize the handling of external factors or uncontrollable variables that affect the success of new product development (NPD) projects. Many NPD projects fail because of unexpected changes that arise in the environment surrounding a firm. In particular, the success of a project is partly affected by various external factors such as the economic cycle, technological development, customer needs, currency exchange rates, inflation rate, oil price, and stock prices. Therefore, a project manager requires a framework to measure the impacts of these factors scientifically. Here, a multi-response optimization (MRO) method with a loss function is used for developing such a framework. The success factors and external factors of NPD projects are set as the dependent and independent variables, respectively. A priority value generated by this method represents the optimized weight given to a success factor. The difference between the optimized and original weights is then minimized by a given loss function. An illustrative example is described to show how the developed framework can be used to determine the optimized priority with minimum loss. The results of this study may be useful for effective GO/STOP decisions at each phase of the development process for a given NPD project of a firm. Index Terms—NPD project, success factors, external factors, multi-response optimization, loss function. I. INTRODUCTION The importance of new product development (NPD)to survive the tough competition in the market is recognized by typical firms. Competitive advantages come from a product or service being better in terms of quality, cost, delivery, and technology. However, the failure rate of NPD projects is very high [1]. The Product Development and Management Association (PDMA) reported that about 41% of NPD projects carried out by the top 20% of companies have failed in terms of profitability [2].A typical reason for such failures is an error in decision making under an environment of incomplete information and extreme uncertainty. For an NPD project to be successful, the decision maker must consider factors including the customers’ needs, company’s strategies, Manuscript received November 15, 2012; revised December 29, 2012. technological opportunities, and company’s resources to deduce the goals[3]. Therefore, a project manager must determine the various external factors that impact the project to allocate the firm’s resources efficiently. Many external factors are involved in NPD, and these affect a project either positively or negatively. The manager must develop effective and efficient plans to respond to such external factors, which include the economic cycle, technological development, customer needs, currency exchange rates, inflation rate, oil price, and stock prices. The manager should also prepare criteria to evaluate the performance of the project. To make a GO/STOP decision, these evaluation criteria can be applied to each of the five NPD phases: requirement analysis, conceptual design, detailed design, test and verification, and production ramp-up. In this study, such criteria are defined as success factors. The manager can set the success factors—which include customer satisfaction, market share, innovativeness, return-of-investment (ROI), patents, lower cost, and effective management— differently in each phase. That is, he or she can give a different priority or weight to each success factor. In this study, the success of an NPD project is assumed to be dependent on external factors. This implies that the relationships between external factors and success factors can be quantitatively established. If a project manager gives particular priorities or weights to certain success factors, then he or she can observe the importance of external factors related to those success factors. On the basis of the importance of external factors defined as either priorities or weights, the manager can develop a response plan for the external factors. This study adapts the multi-response optimization (MRO) method to determine the relationships between success factors and external factors. MRO methods have been widely used for cases involving a linear relation between the independent and dependent variables(e.g., regression models). Unlike regression models, however, this method further optimizes the dependent variables by minimizing the differences between nonlinear regression results and target values. A framework is suggested in this study to determine the importance of external factors in terms of priority or weight under a given set of priorities or weights for Journal of Advanced Management Science, Vol. 1, No. 1, March 2013 118 ©2013 Engineering and Technology Publishing doi: 10.12720/joams.1.1.118-123