Change is a Risky Business

acdevan (57)in #business • 7 years ago

Ensuring your company manages change and risk effectively can be tricky: Change and risk are often mutually exclusive in our organisations; you can’t embrace risk without some form of change taking place, and you can’t implement risk-free change. So what should you do? Stay safe and never change? Or, jump into risky situations whenever they arise because they might one day lead to success?

Well, the answer is neither. Change and risk can, and should, be integral parts of any organisation wishing to drive profit and enjoy success. And if done within the right parameters for your business it doesn’t have to be scary at all!

Risk management isn’t risk avoidance or risk aversion – it is the systematic approach to identifying, reviewing, prioritising and responding appropriately to the risk. Risk is defined by the individual or company and can arrive in a variety of ways including minor risk (e-commerce site suffers 5 minutes of downtime before recovering fully) to major risk (financial credit no longer available) as well as external forces (natural disaster floods the warehouse). But each of these can be mitigated, managed and resolved as long as a sophisticated, company-specific risk management process and system is in place. When managed correctly, this process becomes an opportunity-enabler instead of just a risk-reducer.

How? Identify and Manage

Forecasting

Set up your business platform so you can easily see when, where and why risk might appear – for example:

When are your peak periods throughout the year? Do you have enough staff, raw materials, resources etc to manage this increase?
What about the other times? Are there times in the year when there isn’t enough work for staff and you are paying more in salaries than you can afford? Can you have a dialogue with HR about these staffing concerns with clear and correct data?
Do you have visibility of your customer’s trends? Do they buy from you in cycles? Are you able to effectively manage the period when they decide to stop buying? Is your sales pipeline managed accordingly to bridge this gap?

Mitigate

Risk will occur and it is inevitable for any organisation; but it can be mitigated so that the effects are not as widely or deeply felt. IT is a great example of a department which relies on ‘what if’ scenarios and protocols but what about other departments? Does your company know the potential risks it could face in each business area? And is it suitably prepared to respond? For example:

Would your supply chain know how to handle a vendor who has recalled a piece from the market which they supply to you for one of your best selling products?
Are any of the raw materials you need dependent on seasons and/or quality or is anything that your day-to-day business imports from high risk countries (war zones, terror threat hot spots, natural disaster stricken locations etc)? If so, what’s the contingency plan, who leads it and what’s the associated risk?

Opportunity Analysis

Risk taking can enable opportunities to be identified and maximised; when approached properly. For example:

Your company is interested in buying a smaller competitor – do you know all the financial risks (and benefits) associated with such a purchase?
The product development team is gaining positive feedback during focus groups for a new, potentially lucrative product. Can you confidently analyse the risks and requirements before making the decision to go ahead?

As with any of these risk management approaches, a change management process must also be apparent within your organisation. What once could be depended on because of tradition, customer loyalty and market monopoly is now under scrutiny from competitors, consumers, clients and even your own employees. Without change taking place, your company is also sacrificing innovation, creativity, growth.

Just like risk management, change can come in many forms from the minor (change of coffee supplier for the office kitchen), to the major (company restructure); neither end of the change spectrum can be ignored (this in itself poses a big risk).

Could any of these situations apply to your company (if so, it might be time to review and implement your change management processes!):

One department in your company has been managed by 3 internal managers in the past 12 months. Staff are unmotivated, unproductive and several have already left.
A vital piece of machinery, dependent on the skills and expertise of a few key employees, needs replacing with a much more sophisticated and automated model. The machine requires 50% fewer human resources assigned to it.
Your company has been in talks about merging with a competitor. Several of their former employees were hired by your company and now are concerned about their future.

When faced with how to ‘manage change’ organisations are often clueless about where they should begin and what they can hope to achieve. But it can be intertwined with your risk management process: forecast, mitigate and identify the possible changes, then plan and prepare responses with the appropriate guidance (often external).