Change is a necessary and inevitable part of business, whether it relates to new technology, the socio-economic climate, the competitive landscape, or the regulatory environment. That also includes external shocks such as pandemics, weather disasters, and, regrettably, war and terrorist strikes.
An organization facing change can adapt to it with an effective change management program. This program encapsulates all the actions the company takes to implement and adjust to a change, while minimizing the potential for disruptions or losses.
Even well-planned change management programs, however, can fail to achieve their objectives due to change management risk. For an organizational change management program to deliver on its promise and protect the organization from the adverse effects of change, a change risk management program is essential.
What Is Change Management Risk?
Change is expected and inevitable for every industry and company, but that doesn’t make it any easier to accept or adapt to. If anything, human beings are naturally wired to resist change, even if the effect of the change is expected or known to be positive.
Our bias against change makes it challenging to deliver and manage change; that, in turn, makes it harder to adapt to new trends, recognize new opportunities, adjust to evolving laws or regulations, or implement new processes or technologies.
Over time, an inability to accept change harms a firm’s competitiveness and sustainability, increases costs, reduces profits, and erodes trust with customers, investors, regulators, and other stakeholders. It also undermines enterprise culture and employees’ motivation and engagement.
To prevent such adverse situations, a change management process or program is vital. This process guides organizational change from conception and preparation, through implementation and resolution.
Still, that program could fail to deliver on its desired goals. This possibility of failure is represented by the change management risk (also known as the change risk). Resistance to change is just one type of change management risk. Others include:
- Lack of stakeholder support
- No direction from senior management
- Lack of funds
- Inadequate team members to do the work
- Lack of governance and proper change management framework
- Ambiguity about the need for change
- Uncertainty or disbelief that the change could be positive
Companies must understand all these risks so that they can take proper steps, such as:
- Clarify the desired results (“future state”)
- Illustrate what is necessary to assure a successful change initiative and achieve the desired results
- Identify the barriers that may prevent a successful outcome from the change program
- Develop a robust, failure-resistant change management strategy and plan
Many companies don’t implement a change risk management process. But ignoring this institutional “muscle” makes adapting to a major change more difficult. Even worse, these companies fail to achieve the desired outcomes the change is meant to create.
The Benefits of Managing Change Risk
The number of firms that don’t actively manage change risk far exceeds that number the firms that do. Change risk management is essential to adapt to change successfully, and capture its benefits (or at least minimize its challenges).
Successful change requires alignment of the following:
- The firm’s strategic agenda
- Business model
- Strong leadership and “tone from the top”
- Supporting infrastructure, including governance, data, technologies, systems, and processes
Alignment among all these elements promotes the correct behaviors and beliefs among employees, and engenders a commitment to change throughout the enterprise. Both are essential to achieve the desired objectives.
Organizations that can effectively manage potential risks are able to reduce, mitigate, and manage the challenges that come with change and transformation. In some cases, they can also avoid these challenges entirely. Moreover, ongoing change risk management minimizes the chances that an undesirable or damaging circumstance will occur and result in losses or material damage to the organization.
Elements of Effective Change Risk Management
Effective and results-oriented change risk management requires a robust change risk management framework. This framework, which could be part of or adapted from the firm’s overall enterprise risk management (ERM) program, should consider all these elements:
- Change risk appetite
- Change risk taxonomy and controls
- Governance systems
- Processes and data to manage change delivery risks
The risk management team should also identify and address the risk factors that may create obstacles to successful change management. Capacity and workforce management are also required to monitor “change fatigue” and address change resistance, and also to create a robust change culture.
It’s also useful to prioritize change initiatives – especially if the firm is faced with numerous changes at the same time, which is not uncommon. Prioritization requires assessing each change project and implementing the projects that are most likely to have a tangible impact (positive or negative).
In addition, your organization’s leaders should take all these actions to decrease the risk associated with change and assure effective change risk management:
- Communicate the meaning and importance of change risk to all stakeholders
- Build a vision of what the business will look like “post-change”
- Build a change-supporting workforce and infrastructure
- Create a roadmap with milestones to ready the organization for change management
- Step up efforts to incorporate change risk management into business processes
All these activities help organizations to manage change risk. They also empower firms to avoid the negative consequences of change and adapt to change with great results.
How to Assess Risks Associated with Change
Change risk assessment is the process of identifying, analyzing, assessing, managing, and reporting on the risks that a change management program could face during or after change implementation.
To conduct a risk assessment, first identify the barriers or risks that might prevent the change or change management program from achieving its objectives. These barriers should inform the change management strategy and plan.
To pinpoint the barriers, the risk manager performing the assessment should:
- Identify the critical factors that are vital for success
- Interview all the stakeholders involved in the change management to get their inputs
- Get inputs from additional stakeholders when refining the change management plan
The assessor should also review “critical success factors” (CSFs) to determine whether anything is weak, not really critical, or missing. Identifying both organizational weaknesses and CSFs creates a clearer picture of what is required for a successful change initiative.
An assessment of identified risks is best done using a risk assessment matrix or tool. The tool allows for detailed risk identification and assessment. It also allows you to determine the probability and potential impact of each risk, to determine whether it is a low, medium, high, or critical risk. Based on this analysis, you can then prioritize the identified risks and implement appropriate risk mitigation strategies.
In sum, the step-by-step process to identify the risks associated with change and change management is:
- Identify and assess CSFs
- Identify possible barriers (risks) to the achievement of change objectives
- Assess these barriers using a change risk assessment matrix
- Prioritized identified risks
- Brainstorm and implement risk mitigation strategies
It’s also important to continue assessing and managing risks during and after change management. Keeping an eye on the change initiative can reveal new risks that may still prevent the organization from meeting its change objectives.
Reciprocity ROAR Can Help You Manage and Mitigate Business Risks
Risk is something you should expect and plan for whenever your organization faces some change. But this doesn’t mean that you should meekly accept every change risk or simply learn to live with its consequences. Far from it!
If anything, you should incorporate change risk analysis, assessment, and mitigation into your ERM strategy. Being active about change risk management increases the chances of successful change. And this is easiest to do with the right tool at hand. Try Reciprocity’s ROAR platform.
Effective change management requires effective change risk management; this is where ROAR can be your company’s best friend. This integrated risk management platform will show you where risks exist in your organization. It will also show where risks are changing.
Use this information to refine your change risk management strategy and improve your risk mitigation capabilities. ROAR will even help you with audit and compliance management, third-party risk assessment, and governance setup.