A Value-based Approach to Innovation

Innovation is a very popular topic these days. A quick Google search on the word "innovation" shows that the use of the word over time has gone through the roof in the back half of the 20th Century until now:
Use over time for: innovation

I've read in many places (such as here) that the word innovation hasn't always had the positive connotation it has today, but in previous centuries was a derogatory term akin to the idea of "winging it" where you had to improvise because you hadn't planned properly or hadn't thought things through.

In the modern use of the term it's really supplanted the word "invention" to simply mean "coming up with something new." To be honest I prefer the word "invention" in the engineering world because it carries the idea of actually planning something, but hey, we don't always get to choose the buzzwords doing the rounds these days!

Innovation = Risk?

I love new ideas and new technologies, and, in my own poop-treatment world, I'm bowled over by the number of initiatives, businesses and people driving innovation. However, what I don't see is a lot of discussion on handling the risks associated with innovation, or - more specifically - a way of gauging whether the risk of the innovation is worth it in the long run.  I don't want to be a party-pooper when it comes to innovation, but I also hate to see us innovating just for the sake of innovation.

The Concept of Value

I've been through a number of "value engineering" (VE) exercises, both as the evaluator and also as the recipient of the evaluation.  It can be a frustrating process but I think it's a worthwhile exercise.

A fundamental concept in VE, is that value is quality over cost, or benefit over cost. So in principle you can improve the top line of quality or benefit and increase value with the same cost, or marginal cost increase, or simply look to reduce costs whilst trying to maintain the desired quality.  In the equation, we can use actual currency for each of the parameters if the quality can be quantified in monetary terms to give value in actual dollars, euros etc. More often though, quality is a non-currency improvement (e.g. more flow can be treated) or even a non-numerical benefit (e.g. more reliable, or more flexible).

So this equation can be used to assess value quantitatively or qualitatively.

Innovation Value

So, how about extending the concept of value to innovation i.e. an "Innovation Value" in which we see the value we get from innovation in terms of improved quality and/or lower cost, but include a term that takes account of risk too?  The equation would be something like:

This gives us now a way to conceptualize the extra value we get from innovating whilst also acknowledging and maybe even quantifying risk factors.

If the innovative idea has low or no risk, then Risk = 1.0 and we assess the idea the same way as any VE idea.

If the innovative idea has a high risk, then Risk > 1.0 and we can crank that factor up according to some scale that takes into account the risk profile.

I guess we can also think about innovation as a way to reduce risk, in which case Risk < 1.0 i.e. the innovative idea is less risky than the status quo.

Quantifying Risk - Conventional Approach

Risk is commonly assessed using a matrix of severity (or consequence) versus likelihood:

In this matrix, items in the "Acceptable" range can be scored with the Risk at or near 1.0, then items in the yellow range have increasingly larger Risk values from, say, 1.1 up to 1.5, and then items in the red zone can have larger multipliers of 2 or 3, or perhaps are simply designated "not acceptable," depending on the appetite for risk?   

It might look something like this...

Quantifying Technology Innovation Risk

Now the conventional approach to quantifying risk is subjective but very flexible.  In thinking about poop treatment and technology innovations, I can think of three factors that might influence how we score risk: Deviation from the Norm; Development Level; and Complexity.

1. Deviation from the Norm

How far does the innovation deviate from the "norm"? If the technology is simply an adaptation of an established technology or a simple add-on to something existing, then perhaps the risk is pretty low (Say a 1.0 - 1.2 in our matrix). However if this is a very different approach, using fundamentally different ideas and perhaps very different technologies that haven't been used in this particular application before, then it might be pertinent to use a higher risk factor (1.5 - 2.0).

2. Development Level

At what stage of development is the technology? The US government and others commonly use the "Technology Readiness Level" (TRL) to define how ready a technology is to full-scale application. Here's the version used by NASA:

So, if we have a technology that's already at TRL 9, we give it a risk factor near 1.0, but lower TRL values have increasing risk factors.

3. Complexity

Finally, is the innovation more or less complex (more to go wrong) than the conventional solution? If it has more parts and pieces that can go wrong, or relies on something more complex in order to make it work, then it should have a higher risk factor.  Conversely, if the innovation is inherently less complex than the conventional system, then it wouldn't be crazy to apply a factor of less than 1.0!

Pulling it all together

So, like a good engineer, let's take that simple equation, add in all my factors and come up with something way more complicated... well, maybe not too much more complicated (score me down on my innovation!) to give something like...

Hmm, I dunno, perhaps it needs a few exponents added to each factor to make it needlessly more complicated?!