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The role of risk management in managing change Essay

Times have changed and our thinking about the way we manage our improvement activities has to change. Good is not good enough. Only the very best will attract customers in today’s competitive environment. We have to excel in all parts of our organization. We have to have an organization that “wows” the customer, not just satisfies them. Research confirms that as much as 60 per cent of change initiatives and other projects fail as a direct result of a fundamental inability to manage their social implications.

1 Change is inevitable and we must embrace it if we are going to be successful in this challenging world we live in. Everything changes as well as each organization and, according to Waring and Glendon, change management has become a core element of management rhetoric. 2 In this paper we’ll take a look at changes which each organization may face, discover why they appear and how they may be connected with risks. We will also discover the role of risk management in managing change. Types of Change

In any organization setting, change is inevitable. But not all types of change are the same – there is a distinct difference between continuous change, as in continuous incremental improvement of EXISTING products, programs, services and processes, and discontinuous change, as in reengineering using a “blank sheet” approach or new technology that relies on a complete departure from existing systems and infrastructures3. Continuous change is evolutionary, whereas discontinuous change is revolutionary, and therefore extremely disruptive.

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When a leader, and presumably the leadership team, calls for any type of change to occur, but especially discontinuous change, they are essentially saying to the organization “life as we know it will never be the same”. And here the process of managing change starts. Three Basic Change Management Definitions4 In thinking about what is meant by “change management,” at least three basic definitions come to mind: 1. The task of managing change. 2. An area of professional practice. 3. A body of knowledge. The Task of Managing Change

The first and most obvious definition of “change management” is that the term refers to the task of managing change. The obvious is not necessarily unambiguous. Managing change is itself a term that has at least two meanings. One meaning of “managing change” refers to the making of changes in a planned and managed or systematic fashion. The aim is to more effectively implement new methods and systems in an ongoing organization. The changes to be managed lie within and are controlled by the organization.

Perhaps the most familiar instance of this kind of change is the change or version control aspect of information system development projects. However, these internal changes might have been triggered by events originating outside the organization, in what is usually termed “the environment. ” Hence, the second meaning of managing change, namely, the response to changes over which the organization exercises little or no control (e. g. , legislation, social and political upheaval, the actions of competitors, shifting economic tides and currents, and so on).

Researchers and practitioners alike typically distinguish between a knee-jerk or reactive response and an anticipative or proactive response. An Area of Professional Practice The second definition of change management is “an area of professional practice. ” There are dozens, if not hundreds, of independent consultants who will quickly and proudly proclaim that they are engaged in planned change, that they are change agents, that they manage change for their clients, and that their practices are change management practices. There are numerous small consulting firms whose principals would make these same statements about their firms.

And, of course, most of the major management consulting firms have a change management practice area. Some of these change management experts claim to help clients manage the changes they face – the changes happening to them. Others claim to help clients make changes. Still others offer to help by taking on the task of managing changes that must be made. In almost all cases, the process of change is treated separately from the specifics of the situation. It is expertise in this task of managing the general process of change that is laid claim to by professional change agents.

A Body of Knowledge Stemming from the view of change management as an area of professional practice there arises yet a third definition of change management: the content or subject matter of change management. This consists chiefly of the models, methods and techniques, tools, skills and other forms of knowledge that go into making up any practice. The content or subject matter of change management is drawn from psychology, sociology, business administration, economics, industrial engineering, systems engineering and the study of human and organizational behavior.

For many practitioners, these component bodies of knowledge are linked and integrated by a set of concepts and principles known as General Systems Theory (GST). It is not clear whether this area of professional practice should be termed a profession, a discipline, an art, a set of techniques or a technology. For now, suffice it to say that there is a large, reasonably cohesive albeit somewhat eclectic body of knowledge underlying the practice and on which most practitioners would agree – even if their application of it does exhibit a high degree of variance. To recapitulate, there are at least three basic definitions of change management5:

1. The task of managing change (from a reactive or a proactive posture) 2. An area of professional practice (with considerable variation in competency and skill levels among practitioners) 3. A body of knowledge (consisting of models, methods, techniques, and other tools) No the least important when exploring what the change is caused by and how to handle it are people’s responses to it, their attitude and desire/resistance to accept the change. Responses to Change6 Innovators (about 2-3%) These are change junkies… it doesn’t matter what the change is, they will always sign up first.

They like to tinker, they like to work with concepts and build prototypes. Early Adopters (10-15%) Much like the Innovators, they want to work with an early version (complete with bugs) because they see advantages, not just in the new way of doing things, but in being an early pioneer. They are the ‘beta testers’. Early Majority (30-40%) These are the ones who constitute a critical mass in any change effort. Without a substantial number of these folks on board, the change will fail. They are pragmatists who want a proven, workable version of the change, complete with a ‘how to’ manual.

Because they are pragmatists, they don’t necessarily talk the language of the Innovators and Early Adopters. The majority of them are psychologically and behaviorally incompatible with the first two groups, and a chasm, to use Moore’s term7, exists between the Early Majority and Early Adopters. There are some however who are “bilingual”, that is they can talk the language of the Innovators and Early Adopters, and these are the ones who will cause change to happen. Late Majority (30-40%) These are the ones who will only change if they have no other option, when change becomes inevitable.

They will look to the Early Majority for proof that the change works, and will insist on a risk free version of the change. They have a very low tolerance for risk. Laggards (1-2%) These are the ones who will never adopt the change. They see no sense in it at all, no personal benefits. They hold completely different attitudes and values from the other four groups. To manage change one should foresee and discover possible risks on the way of any supposed change, educate and prepare the employees involved in such changes. 8 According to M. Cristensen and M.

Overdorf9, there also three ways the manager can use to cope risk and, accordingly, with change that may be caused by it. They are: 1. creation of new organizational structure within corporate boundaries in which new process can be developed; 2. spinning out an independent organization from the existing gone and developing new processed and values within it required to solve the problem; 3. acquiring a different organization whose processes and values close match the requirements of the new task. “How Can We Manage Change? ” Perhaps the real question to be given is “How Can We Manage The RISKS Associated With Change?

” For if there were no risks, any changes wouldn’t be needed. Risk Definition The simplest and possibly best definition of risk is: The possibility of loss, injury, disadvantage or destruction10. It is possible to gain some insight by considering the types of risks such as programmatic, technical, cost, schedule and sometimes supportability. There is also the consideration that acquisition risks are a part and often mingled with risks such as encountered in other venues such as health, safety, insurance/underwriting , finance, business, environment and politics.

However, what happens very often with elaborate definitions is that much time and energy are wasted trying to characterize a risk as opposed to managing it. Risks are so often interwoven as to type as to be Gordian knots, and a “cut the knot” attitude is best. The recommendation here is that if a customer (either a contracting agency or a superior agency) requires some elaborate set of definitions (e. g. , through contract terms) then use them (i. e. , apply the Golden Rule), but otherwise avoid the trap of too much definition to the detriment of content.

The leftmost column of this risk definition matrix will be the risks, and across the top will be the categories: programmatic, technical, cost, schedule, supportability and others as appropriate. Each risk has the applicable items of the categories checked. This approach is easy to implement and it avoids needless discussions that will not contribute in proportion to the time spent. Columns for ownership, criticality, priority, and relative rankings can be added as the understanding of the risks evolve, producing a useful graphic for risk management briefing.

There are two definitions of risks that are currently fashionable within some procurement circles: proposal risks versus performance risks. The definitions tend to vary among sources. The preferred definitions are: Proposal Risks: Those risks inherent in the venture, i. e. , to design and build a disposable external tank for a reusable spacecraft is inherently risky. Thus, an RFP for such a tank has embedded risks no matter who undertakes the development. Performance Risks: Those risks inherent in the proposed approach. A given contractor can implement an approach that has risks above and beyond those inherent in the venture.

For example, a developer may elect to base key design decisions on analytical data rather than empirical data to reduce costs at some increase in risk. These definitions must be addressed during a proposal if they are included in the RFP, but after an award they are probably not too useful to a performing organization. Some sources (e. g. , Reference 2) define the proposal risk as being the risk associated with the contractor’s approach and the performance risk as being related to the contractor’s track record. Risk Management Definition

Basically, risk management is the sum of all proactive management-directed activities within a program that are intended to acceptably accommodate the possibility of failures in elements of the program. “Acceptably” is as judged by the customer in the final analysis, but from an organization’s perspective a failure is anything accomplished in less than a professional manner and/or with a less-than-adequate result.

It is management’s job to do the planning that will accommodate the possibilities. The customer is the final judge, but internal goals should be to a higher level than customer expectations. Risk management as a shared or centralized activity must accomplish the following tasks: Track the risk management efforts and manage accordingly The highlighted activities are those that must be reserved for management’s attention and action in those cases for which a risk management staff/secretariat are employed.

This list exclusive of the management functions is consistent with the list espoused for years by the Defense Systems Management College (DSMC): risk planning, risk assessment, risk analysis and risk handling. The managerial functions are highlighted to once again emphasize that management is responsible and accountable for risk management.

Assess Options for Risk Management Risk management options are usually cited as risk handling options subdivided as avoidance, control, assumption, risk transfer, and knowledge and research. Generally, the assessment of management options is a hip shot since the necessary decisions must occur early in a program when things are still fuzzy. However, if experienced personnel are given the facts, one can expect very good decisions since there is seldom any real mystery about the practicality of options available. (The practicality of any option is usually just an issue of schedule and funding.

) Avoidance: Use an alternate approach that does not have the risk. This mode is not always an option. There are programs that deliberately involve high risks in the expectation of high gains. However, this is the most effective risk management technique if it can be applied. Control: The DSMC Risk Management Guide (RMG)12 defines this mode as: “Controlling risks involves the development of a risk reduction plan and then tracking to the plan. ” The key aspect is the planning by experienced persons. The plan itself may involve parallel development programs, etc.

Assumption: Simply accepting the risk and proceeding. A word of caution: There appears to be a tendency within organizations to gradually let the assumption of a risk take on the aura of a controlled risk. This mental evolution is the kind of wrongly conditioned thinking that led to the Challenger failure. Risk Transfer: An attempt to pass the risk to another program element. Typically, used in the context of a government agency passing the risks to a contractor. There are some discussions in the DoD13 acquisition literature that this mode trades government risk for profit to the contractor.

This belief is apparently founded on elementary economic theory and the mistaken belief that an executive in a procuring agency has avoided risks by passing the buck. What the executive will have done is, at best, a CYA exercise. Knowledge & Research: The DSMC RMG14 cites this mode as not being “true” risk handling, but rather a technique for strengthening other techniques. From a management perspective this approach can best be viewed as an adaptation of the approach used by graduate students for their theses: intensive study associated with specialized testing.

In effect, the student develops intellectual ownership of his problem in all of its aspects: theoretical, empirical and practical. Essentially, this mode is simply doing one’s homework. Development Risks A development effort always entails a measure of risk because such an effort always involve aspects that are new to the performing organization. The new aspects as a minimum are limited to “reach” aspects of the end item. For example, an experienced design-and-build team that is extending the performance range for a single parameter of a system probably has a minimal risk.

However, a team formed as a result of winning a major proposal for stretching all envelopes for all subsystems of a complex system has many risks, some only remotely associated with the stretching of the performance envelopes. Such multiple risks situations are major challenges and are the most interesting from a management perspective15. The management of risks associated with the development of the objective products is the emphasis in the next section of this note. Here, the focus is on some of those things that engender risks, but that are not directly aimed at the specification or SOW for the objective products.

These are specific risks experienced in start-up situations. Organizational excellence Organizational excellence is designed to permanently change the organization by focusing on combining and managing the five key pillars of the organization. These pillars are16: 1. Process management 2. Project management 3. Change management 4. Knowledge management 5. Resource management By effectively managing these five key pillars and leveraging their interdependencies and reactions, an organization can bring about an amazing transformation within itself.

Achieving Excellence In today’s worldwide marketplace customers do not have to settle for second best. Overnight mail brings the best to everyone’s doorstep. The Internet lets your customers shop internationally so it is easy for them to get the best quality, reliability, and price, no matter who is offering it. Customers are concerned about the products they purchase, but they are equally or more concerned about dealing with organizations who care, who are quick to respond, and who will listen and react to their unique needs.

This demands that, in order to succeed in the twenty-first century, organizations need to excel in all parts of their business. You must have an organization that excels at what it is doing, but also is recognized for its excellence to win today’s savvy customers. Conclusion To cope with risks which stand on the way of changes, any organization should, first of all, identify changes17 that are needed to increase the work effectiveness. Managing means first of all managing changes. 18 And changes in their turn may be either avoided by means of managing risks or accepted as being a way of organization’s development.

One more thing to be noticed: a manager should think about his organization’s capabilities as well as about individual people’s capabilities,19 the most important of which are recourses of the organization, its processes and values. And, ideally, each company should tailor the team structure and organizational location to the process arid values required by each project. 20.

References: 1 H. James Harrington, The five pillars of organizational excellence Handbook of Business Strategy, Volume 6 Number 1, 2005. 2 Waring A.and Glendon A (1998), Managing Risk, London, Thomson Learning, p 127 3 The Planning of Change (2nd Edition). Warren G. Bennis, Kenneth D. Benne, and Robert Chin (Eds. ). Holt, Rinehart and Winston, New York: 1969. 4 The Planning of Change (2nd Edition). Warren G. Bennis, Kenneth D. Benne, and Robert Chin (Eds. ). Holt, Rinehart and Winston, New York: 1969. 5 The Planning of Change (2nd Edition). Warren G. Bennis, Kenneth D. Benne, and Robert Chin (Eds. ). Holt, Rinehart and Winston, New York: 1969. 6 Geoffrey Moore, Crossing the Chasm, Harper Collins, 1991.

7 Geoffrey Moore, Crossing the Chasm, Harper Collins, 1991 8 Russel D. Archibald, Managing High-Technology Programs and Projects, 3rd edition, John Wiley&Sons Inc. , New York, 2004, p. 114 9 Clayton M. Christensen; Michael Overdorf, Meeting the Challenge of Disruptive Change, Harvard Business Review, March 2000 v 78 I2, p. 66 10 “Risk Management, Concepts and Guidance,” Defense Systems Management College, Ft. Belvior, VA 22060-5426 11 “Risk Management, Concepts and Guidance,” Defense Systems Management College, Ft. Belvior, VA 22060-5426.

12 “Risk Management, Concepts and Guidance,” Defense Systems Management College, Ft. Belvior, VA 22060-5426 13 DoD Directive 5000. 1, “Defense Acquisition,” March 15, 1996 (and associated documents). DoD Directives 14 “Risk Management, Concepts and Guidance,” Defense Systems Management College, Ft. Belvior, VA 22060-5426 15 “System Engineering Management,” B. J. Blanchard, John Wiley & Sons, Inc. , 1991 16 H. James Harrington, The five pillars of organizational excellence Handbook of Business Strategy, Volume 6 Number 1, 2005.

17 Russel D. Archibald, Managing High-Technology Programs and Projects, 3rd edition, John Wiley&Sons Inc. , New York, 2004, p. 115 18 Russel D. Archibald, Managing High-Technology Programs and Projects, 3rd edition, John Wiley&Sons Inc. , New York, 2004, p. 116 19 Clayton M. Christensen; Michael Overdorf, Meeting the Challenge of Disruptive Change, Harvard Business Review, March 2000 v 78 I2, p. 66 20 Clayton M. Christensen; Michael Overdorf, Meeting the Challenge of Disruptive Change, Harvard Business Review, March 2000 v 78 I2, p. 66.

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