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Syllabus D. Risk D1. Identification, Assessment & Measurement Of Risk

D1f. Changing risk assessments

Changing risk assessments

The belief that risks do not change very much is only true in static environments.

In reality, the changeability of risks depends upon the organisation’s place on a continuum between highly dynamic and completely static.

Risk assessment is a dynamic management activity because of changes in the organisational environment and because of changes in the activities and operations of the organisation which interact with that environment.

Examples:

  1. A new product launch

    The new product will obviously introduce a new risk that was not present prior to the new product. 

    It may be a potential liability from the use of the product or a potential loss from the materials used in its production.

  2. A change in legislation

    Changes in the environment might include changes in any of the PEST (political, economic, social, technological) or any industry level change such as a change in the competitive behaviour of suppliers, buyers or competitors. 

    In either case, new risks can be introduced, existing ones can become more likely or have a higher impact, or the opposite (they may disappear or become less important).

The best way of initiating a change management risk assessment is by dividing all the things that come under the scope of the change management program into three groups:

1) Items that remain the same after the change

Examples of this category include patents, building and machinery, key personnel, and
other capital assets. 

Such items normally do not pose any risks during the change management process.

2) Items poised to change

This includes assets that have no value to the company’s core business. 

This includes outdated equipment, space that is standing idle, underused positions in the company, redundant processes, and even redundant staff. 

Replacing or eliminating such items either reduce expenses or enhances revenue flow.

Risk assessment for this second list need to focus on:
ensuring such items are really not needed for the company’s core processes

3) Items that could go either way

The major scope of risk assessment lies in this group of items, to determine whether possible changes in such items pose a risk to the organisation.

The best approach towards risk-assessment for items in this third list is through effecting a trade-off. 

For instance, curtailing the assembly line might curtail expenses and lead to better operating efficiency, but it might come as loss of morale to staff and loss of prestige owing to running a reduced set up. 

Risk assessment entails comparing the benefits of efficiency with the losses owing to loss of morale and prestige.