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System development involves various risks such as financial, quality, delivery time, technical, and geopolitical risks.
Risk is a highly uncertain phenomenon. That’s why risk management is a crucial aspect of system development.
It is essential to identify risks, prioritize them, and take preventive measures in advance.
This article focuses on the theme of system development risks. It provides an overview of the types of risks, their causes, and how to manage them.
If you want to understand system development risks and learn how to properly avoid or mitigate them, this article is for you.
Akira Shimazoe
CEO of Solashi Japan LLC. Engaged in the development and operation of internal systems at Suntory. Founded Yper Inc., serving as CTO and CPO, contributing to product launch and growth.
What Are System Development Risks?
System development risks refer to potential issues that a project might face.
These are not yet actualized problems, but ones that could negatively impact the project in the future during the development process.
In project management, they are defined as "uncertain events that, if they occur, can positively or negatively affect the project’s objectives."
Source: PMI “A Guide to the Project Management Body of Knowledge (PMBOK® Guide)” 4th Edition, PMI (2009)
To avoid unexpected issues, it is crucial to identify potential risks during the planning phase and take preventive measures in advance.
System development risks can arise from various causes, such as lack of technical skills among project members or communication failures.
If these risks materialize, they may lead to schedule delays, budget overruns, and quality deterioration—potentially causing serious project setbacks or losses.
Why You Shouldn’t Ignore System Development Risks
If you neglect system development risks, they can escalate into the following issues:
- A system is delivered that differs from what was discussed or planned in early project phases
- Design errors or bugs lead to major performance failures
- Security breaches cause system downtime and data leaks
- The relationship between the client and development company deteriorates
- Legal disputes arise over payment issues related to development costs
Moreover, addressing issues after they occur often requires significant time and cost. The longer recovery takes, the greater the damage, potentially leading to complete project failure.
To prevent such risks, it’s important to first understand what kinds of risks exist in system development.
5 Types of Risks in System Development
System development risks can be broadly categorized into the following five types:
| Financial Risk | The risk of exceeding the budget due to development costs surpassing the estimated amount |
| Quality Risk | The risk of delivering a system that does not meet the quality expected by the client |
| Delivery Risk | The risk of not being able to deliver the system by the scheduled deadline |
| Technical Risk | The risk that technical challenges make system development difficult |
| Geopolitical Risk | The risk that political, military, or social tensions in a specific region negatively impact surrounding areas |
Let’s explain each type of risk in detail.
1. Financial Risk
Financial risk refers to development costs exceeding the initially agreed estimate.
For example, this occurs when specifications are changed or new features are added during development, increasing the workload unexpectedly and inflating the cost far beyond the original estimate.
In system development, it is standard practice for the client and developer to agree on an estimate before starting the project.
However, if the initial estimate is too optimistic or lacks clarity, unnecessary effort may be required, resulting in costs exceeding the original estimate.
Financial risk may lead to client dissatisfaction and a breakdown of trust with the development company.
2. Quality Risk
Quality risk refers to the delivery of a system that does not meet the quality expectations of the client.
If the required quality standards are not met, it may result in the client refusing to accept the system or frequent failures after release.
Causes of quality risks include lack of communication between the client and the development company, misaligned expectations, and insufficient technical skills of engineers.
For example, if there is a gap in understanding between the client and developer regarding functional requirements or non-functional requirements such as usability and security, the result may be a system that lacks critical features or fails to meet expectations.
Related article: What is Quality Management in System Development? Stages, Key Points, and Methodology Differences Explained
3. Delivery Risk
Delivery risk refers to the failure to deliver the system by the scheduled deadline.
Common reasons for delays in system development include:
- Frequent specification changes increased the required man-hours (time and workforce)
- Project members took leave, slowing down progress
- The schedule was too tight, making it difficult to maintain proper progress
- Natural disasters occurred, forcing temporary suspension of work
In order to meet deadlines, new members are sometimes added to the project midway through development.
However, bringing new members up to speed with the project’s goals and requirements takes additional time and effort not originally planned for.
While sticking to the original schedule is important, it is not uncommon for actual progress to deviate from the plan.
To avoid delays in system development, it is important to set a realistic plan and allocate sufficient time and personnel.
4. Technical Risk
Technical risk refers to situations where technical problems on the part of the development company make system development difficult. Examples include:
- Specifications and designs are too complex, making implementation difficult
- System bugs cannot be resolved
- The project becomes too technically challenging to continue development
These risks often stem from overloading the system with too many requirements or making it overly complex.
If the development company lacks the technical capability to implement the functions the client wants, it becomes difficult to achieve the desired level of quality.
In some cases, this could even lead to the suspension of the entire system development project.
5. Geopolitical Risk
Geopolitical risk refers to threats that arise from political, military, or social tensions in a specific location that can impact other regions or the world as a whole.
These risks can also affect business activities in Japan. In the IT industry, attention to geopolitical risk increased after Russia's invasion of Ukraine began in 2022.
Japanese companies, financial institutions, and government agencies often use cloud services, business software, and critical infrastructure provided by overseas vendors. Offshore development is also quite popular.
Offshore development refers to outsourcing system development to foreign countries such as Vietnam or the Philippines, where development costs are lower than in Japan.
Depending on the political stability of the outsourcing destination, there is a potential for geopolitical risks to arise.
Examples include soaring development costs due to currency fluctuations or inflation, restrictions or withdrawal of development operations, and cross-border cyberattacks.
Geopolitical risks in system development also include the possibility of being unable to continue business operations entirely due to government directives.
5 Key Points for Managing System Development Risks
To manage risks in system development, it is essential to focus on these five key points.
Let’s go over each point in detail.
1. Hold Thorough Initial Discussions
To avoid financial risks in system development, it is crucial to establish detailed plans during the initial discussion phase.
The initial phase refers to the concept, planning, or early stages of the project. It’s best to conduct discussions between the client and the development team before entering the requirement definition stage.
The primary causes of financial risk are sudden specification changes or additional functions.
It’s important to align expectations regarding the purpose of the system, implemented features, number of engineers involved, and time required for each development phase.
Based on this shared understanding, ask the development company to provide an estimate.
The estimation is refined through the following steps:
- Initial Estimate (before kickoff phase)
- Rough Estimate (requirement definition phase)
- Detailed Estimate (internal design phase)
By proceeding with development based on as accurate an estimate as possible, you can avoid scenarios where actual costs greatly exceed the estimate. As a result, you can mitigate financial risks.
2. Build Shared Understanding Between Client and Developer
To avoid quality risks in system development, it’s essential to clearly define both functional and non-functional requirements and ensure a shared understanding between the client and the developer.
Clients should clearly communicate what kind of features and performance they want to implement.
It’s also vital to choose a development company that listens carefully to your system needs and current IT challenges. Accurate listening leads to precise quality requirements and system design.
However, to avoid quality risks, you must not leave everything to the development company. The client should understand the development flow and implementation methods and actively resolve any unclear points through communication.
3. Build a Flexible Schedule
In real-world system development, unexpected problems such as sudden specification changes, bugs, or team member absences can arise.
To avoid delivery risks, it is important to create a schedule with sufficient buffer time to account for such issues.
Before starting development, verify whether the schedule allows for on-time delivery and whether there’s enough flexibility to respond to delays.
However, even with a buffer, development may not always go as planned. Keeping track of daily labor and cost progress helps make timely adjustments and avoid falling behind.
4. Conduct Detailed System Testing
To avoid technical risks, it is important to conduct thorough testing at each detailed level of the system.
Verification involves assessing whether each development task and process produces output that meets the required specifications and instructions.
Assessment refers to the series of tasks that analyze and evaluate risks in system development and determine how to address them. Through this process, the feasibility of system implementation can be verified.
To avoid or mitigate risks in system development, detailed system verification is essential from the early stages of the project.
5. Choose a development country with low geopolitical risk
When considering geopolitical risks, it is recommended to outsource system development to countries with low geopolitical risks.
If you're considering offshore development, the level of geopolitical risk varies depending on the country of outsourcing.
Countries where conflicts or terrorism frequently occur, or regions with active anti-Japanese movements, are not highly recommended. Whenever possible, choose politically stable and Japan-friendly countries for offshore development.
Vietnam, in particular, is considered a country with low geopolitical risk. Although it has a one-party system led by the Communist Party, it maintains a balanced approach with liberalism and capitalism and has built a friendly relationship with Japan.
Compared to other emerging countries, Vietnam enjoys a relatively stable social climate, making it a highly popular choice for offshore development. For more details, please see “8 Reasons Why Vietnam Is the Best Choice for Offshore Development and How to Choose a Good Company.”
When considering offshore development, it is crucial to always check the geopolitical risks of the country. By outsourcing to a country with low geopolitical risk, development can proceed with greater peace of mind.
The Risk Management Process in System Development
In system development, there is a management method called risk management.
Risk management refers to the activities of predicting and managing foreseeable risks and minimizing their impact on project teams and organizations.
By implementing proper risk management, it becomes possible to anticipate risks and respond appropriately when they occur. Let’s go over the steps of the risk management process.
- Identify and list potential risks
- Analyze the risks
- Evaluate the risks
- Control the risks
Steps 1 to 3 correspond to the assessment process mentioned earlier. Based on these steps, you can determine the priority order for controlling the risks.
1. Identify and list potential risks
List and identify potential issues in system development. Organize how these issues might affect the project.
It’s important that all project members participate in risk identification. By viewing from multiple perspectives, the chance of overlooking risks is minimized.
To identify risks, it’s helpful to use a risk management sheet or a checklist for risk mitigation. You can also use both in combination.
By utilizing these tools, you can visualize the risks inherent in system development and take the appropriate countermeasures.
System Development Risk Management Sheet
In a system development risk management sheet, record information such as the risk status, discovery date, and severity. Use Google Sheets or Excel to organize the following information.
| System Development Risk Management Sheet | |
| Item | Details to include |
| Risk Status | What type of risk may arise |
| Date Risk Was Identified | Date the risk was discovered |
| Person Responsible | Name of the person in charge of addressing the risk |
| Severity | Level of severity (High / Medium / Low) |
| Priority | Priority ranking such as A, B, C |
| Countermeasures | Alternatives, spec upgrades, budget reserves, etc. |
| Deadline | Deadline by which the issue must be resolved to avoid impact on the project |
| Status | Not Started / In Progress / On Hold / Completed |
Checklist for Risk Mitigation
The checklist for risk mitigation includes items related to schedule, cost, team structure, personnel, and more, which should be reviewed one by one.
| Schedule | ☐ Are the completion conditions for each phase clearly defined and feasible? ☐ Are there any inconsistencies in the schedule across multiple related projects? |
| Cost | ☐ Is the relationship between cost and deliverables unclear? ☐ Are the assumptions behind the cost estimates clearly defined? |
| Team Structure & Personnel | ☐ Are the responsibilities and roles of both the client and vendor clearly defined? ☐ Is there a clearly designated and unified point of contact at the development company? |
| Work Environment | ☐ Are there any issues with the workspace or development environment? ☐ Are there any security issues, and are employees strictly adhering to confidentiality policies? |
| Quality | ☐ Are all requirements fully reflected and prioritized based on user needs? ☐ Are too many requests being incorporated into the requirements? |
2. Analyze the Risks
Once the risks have been identified and specified, the next step is to analyze them.
A common method of analysis is to evaluate the level of impact and probability of occurrence on a 3- or 5-point scale.
For impact level, evaluate how the risk might affect cost, schedule, and quality. For probability, consider how likely the risk is to occur.
In addition to these, difficulty of implementing countermeasures or the degree of vulnerability can also be used as evaluation metrics.
3. Evaluate the Risks
After analyzing the risks, evaluate them based on the analysis results.
Here, determine the priority for risk management. The highest priority should go to risks with both a high impact and a high probability of occurrence.
Even if the probability is high, risks with low impact — such as design errors or test oversights — may not require immediate action but should still be improved for future success.
Risks with low probability but high impact should be carefully evaluated and addressed early on.
If new risks emerge or existing ones change, be sure to reassess their priority accordingly.
4. Control the Risks
After completing the risk evaluation, the final step is to control the risks.
Here, use the previously mentioned risk management table to avoid pre-identified risks. You must also respond quickly to any risks that do occur.
By following the above steps in risk management, you can minimize risks in system development.
However, risks are always changing. Early detection is crucial. Risk monitoring should be continuous, and it is important to manage progress while staying updated with the latest developments.
Choosing the Right Development Company Is Crucial for Risk Management
To effectively manage risk, choosing the right system development company is essential. Below are some key points for selecting a partner.
1. Check Compatibility with the Project Manager
The first key point is compatibility with the project manager (PM), who oversees the entire project.
If your company lacks in-house project management resources, you may rely on the development company for that role.
The PM is responsible for planning and executing tasks related to cost, schedule, and quality. If compatibility is poor, it can lead to miscommunication and misunderstandings early in the project, resulting in increased effort for corrections and higher costs.
Therefore, make sure to assess in advance whether the PM is compatible with your team and easy to communicate with.
Also, since the contract relationship could last several months to over a year, check if they explain technical terms in simple language, propose win-win solutions, and are reliable for long-term collaboration.
At Solashi Co., Ltd, we have project managers with experience in launching businesses. We provide not only system development but also consulting and support for IT implementation.
We can also offer advice on risks related to system operations, hidden costs, and improving a business culture that overly relies on outsourcing. If you are considering launching a startup or a new business, please feel free to contact us.
Japanese PMs Handle Communication
Looking for an Offshore Development Company
For such individuals, we recommend Solashi’s Vietnam offshore development
2. Confirm Whether a Project Management System Is in Place
In system development, it is essential to establish an organizational structure that allows centralized risk management for the project.
By having the entire organization understand the risks, you can respond quickly when problems occur. Check if the system development company has such a structure in place.
For example, a helpful reference is the "PMBOK (Project Management Body of Knowledge)."
PMBOK is a globally recognized methodology that systematizes project management. Other frameworks include ISO 21500, the international standard version of PMBOK, and PRINCE2, developed by the UK government.
By managing projects in accordance with these methodologies, it is possible to prevent fluctuations in development processes and deliverables.
However, risk management should not rely on individuals. A system must be in place so that anyone in the organization can respond effectively.
To avoid issues such as a decline in quality due to changes in personnel, or inconsistency in on-site work performance among engineers, be sure to confirm whether the system development company has a solid project management framework in place.
Having Trouble with Risk Management in System Development? Contact “Solashi”
We have provided a comprehensive explanation of risks in system development and key points for managing them.
If you are facing challenges with risk management in system development, please consult with Solashi Co., Ltd.
We are an offshore development company based in Vietnam. In addition to system development, we offer hands-on support and IT implementation consulting services. Our team includes several Japanese project managers with experience in launching businesses and working with startups.
We can propose system development risk management strategies tailored to your specific situation, so don’t hesitate to contact Solashi Co., Ltd.
Akira Shimazoe
Representative of Solashi Japan LLC. Born in April 1989 in Fukuoka Prefecture. Graduated from the Graduate School of Information and Mathematical Sciences at Osaka Prefecture University. Joined Suntory System Technology Co., Ltd., an IT subsidiary of Suntory Holdings, in 2014. Broadly responsible for the development, operation, and implementation of vending machine delivery management, efficiency improvements, and sales management systems. Founded Yper Inc. in 2017, serving as CTO and CPO. Contributed to the launch and growth of the app-linked delivery bag "OKIPPA." Selected for Toyo Keizai's prestigious "Amazing Venture 100" and Forbes' "Forbes 30 Under 30 Asia 2019."
