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The aim of the paper is to describe how Volvo Construction Equipment uses a virtual product development process to analyze potential risks, find root causes and optimize future product development. A model based method is used to analyze a potential risk in the design of Wheel Loader transmissions. The risk was recognized from failure mode and effect analysis (FMEA), and a simulation model using AMESim modeling tool was developed to analyze the behavior of the new design. Together with test rig result, it is proved that the model based method gives a considerably accurate prediction of the system behavior. By using the model based approach, lead time for development process is reduced and important feedbacks from simulation model are obtained on early stage of the development. This paper further presents the use of the simulation model as a tool to predict the potential risks in the extreme operating conditions, which are difficult to test on the vehicle test bench.