Life-cycle risk

The fact that consultants have been invited into a change process suggests that risk is an issue. The nature of any change is built on the premise that the future can be envisioned and delivered. The reality is that this is impossible to guarantee. As such, you need to always be aware of the trade-off between the risks being taken and the associated reward.

Any risk/reward balance will fit onto one the four quadrants shown in Fig. 7.8. The first is the commodity quadrant, where the service being delivered is of little risk and any corresponding reward simply reflects the accepted market rate. There is no premium and little opportunity to maximize income. This is akin to the delivery of a training programme or undertaking some desk research on a company's market position. Although this is seen as a low-value area, the benefit is that the effective consultant can use this as a launch pad to sell products and services that sit in the high-reward quadrants.

Next is the safe option, where the company is happy to pay a premium over the standard rate because of their confidence in your competencies. It might be that a relationship has built up over time or that you have a particular niche expertise or that you have a trusting relationship with the client.

The last quadrant is headed as gamble simply because if you choose to take a high-risk contract for a low fee there is a chance that you will not achieve a payback. This scenario is often found with consultants who have just started. As new entrants, they need to gain income streams and market share fast and one way to achieve this is by taking the jobs that other companies won't and in some cases for less money. Although this is a good way to enter a new market, it is dangerous to operate this quadrant for long as eventually the odds will stack up against the consultant.

Wherever you sit in the matrix, there will be two key questions to ask: what chance is there that something will go wrong?; and how can I ensure that unseen problems are managed? This breaks the risk element into two areas — risk assessment and risk management. The scientist who developed the Saturn 5 rocket that launched the first Apollo mission to the moon highlighted these succinctly:

You want a valve that doesn't leak and you try everything possible to develop one. But the real world provides you with a leaky valve. You have to determine how much leaking you can tolerate.

—(Anon, 1996)

Your job in an assignment is to determine the extent to which the project might fail and to do everything in your power to ensure that it doesn't.

Risk assessment

Although the issue of total risk is considered at the outset in the construction of the contract, risk in the Clarify stage is more about assessing the dynamics that will have to be managed.

Risk is not a cold probability calculated at the outset. It is a continuous process of qualitative and quantitative analysis of what could happen and what should happen during the project. The key with risk management is often not to try and stop problems from happening; rather it is about determining what problems can be tolerated without damaging the process.

Consider a project where the consultant has been asked to manage a large corporate project. Fig. 7.9 shows that the consultant has thought through the key issues that might affect the change. The reality is that halfway through the process there is an unexpected change of CEO and this results in significant changes. Replacing the CEO is outside the consultant's control and all he or she can do is ensure that any fall-out from the change is minimized. No matter how much you plan, it is impossible to anticipate all the risk factors. However, you can develop a state of mind that assumes that problems will happen and so be more prepared when they do.

One of the factors that will indicate the degree of potential uncertainty is the extent to which the organization is viewed as risk-averse or risk-seeking. A former will avoid taking actions that have a potential for failure and will tend to take the safe option. The risk-seeking culture values both the rewards that come with risk and possibly the excitement associated with the gamble.

However, there is another factor in the equation that has as much impact on the success of the change — to what extent is the consultant risk-averse or risk-seeking? While the nature of the job might suggest that the consultant will have a risk-seeking nature, this clearly is not the case. Many people turn to the consulting profession as a way to develop a set of latent skills, a way to survive following redundancy or as a hook into a new market sector. This stresses the importance of risk assessment within the consultancy cycle, to understand the risk drivers for the client and consultant and what impact this might have on the relationship.

In clarifying the situation, you need to consider a number of key factors:

• The nature of the organization: to what extent does it adopt a risk-averse style of management?

• The nature of the consultant's engagement: to what extent do you feel that it is regarded as a high-risk venture?

• The personal biases of the consultant: are you risk-averse or risk-seeking?

If these three factors are in alignment then the assumed risk is minimal. However, if there is a degree of misalignment, then issues might start to surface as the project moves forward. The classic problem is a risk-averse consultant implementing a high-risk project in a risk-averse company.

However, once the variables are understood, steps can be taken to minimize the impact of uncertainty. This is risk management, or managing the uncertainty that can affect a successful outcome of the project. Since all projects will have unknown factors, at best the consultant can reduce their impact. At worst, the high-risk factors might cause failure. Good risk management can help to take the luck out of bad luck and build on the random opportunism of good luck.

Risk management

Risk is managed by using a set of tools to manage the issues that surface in the assessment phase. Although which you use will depend upon the context and content of the change, there are three simple tools:

• Pilot: For any proposed analytical or change process, it is wise to test the deliverables and variables in a controlled environment, using the process with a small team before rolling it out.

• Risk list: In considering the proposed change, you should attempt to agree with the client and consumer the potential risks over the life of the project. The risk list is categorized against a range of variables including probability, impact, owner, etc. Once the risk list is defined then a series of contingency plans are developed for each of the options.

• Contingency response: When faced with a potential problem, the best option is to build a planned response to take away the element of surprise. There is a range of generic responses for each of the perceived risk factors:

  - Do nothing: simply ignore the risk in the hope that it will disappear because of other factors.

  - Deeper diagnosis: gather further information on the issue in the anticipation that greater clarity will lead to risk reduction.

  - Alternative strategy: is the risk sufficiently large that an alternative approach is warranted, one that bypasses the problem and does not attempt to tackle it?

  - Ignore and plough through: is the change momentum such that there is a belief that any obstacle will be beaten?

  - Hedging: in some cases it is possible to build a basket of diverse responses so at least one of them will minimize or eliminate the problem.

  - Specific response actions: it might be that a response is built around all of the above, with the development of a highly complex response pattern to what is a highly complex problem.

At this stage in the cycle you will have a real feel for the setting and symptoms to be addressed and the potential risks that will be faced in dealing with them. Managing risk is difficult and more of an art than a science. You will never be able to predict with any accuracy what will happen, but you can ensure that all of the pegs are in the ground to ensure that when unplanned issues occur you will be able to reduce their impact.

Back pocket question Have I determined the extent to which known and unknown factors within the change process will have an impact on its potential for success?