Unit 3 University of Sunderland CSEM04 ROSCO Unit 3: Risk and Opportunity Life Cycles CSEM04: Risk and Opportunities of Systems Change in Organisations Prof. Helen M Edwards

Unit 3 University of Sunderland CSEM04 ROSCO Overview Risk and Opportunity Life Cycles. Technical Definitions Risk, opportunity, or problem Risk Definition Is Risk Negative? Assessment of Risk and the Impact of Time. Risk Perception and Attitude Importance of perspective Risk averse v. risk taker Risk generic lifecycle Risk and Opportunity generic lifecycle Dealing with Risk (Risk Management)

Unit 3 University of Sunderland CSEM04 ROSCO Risk and Opportunity Life Cycles. Traditionally look at risk management –essentially inward looking –controlling/preventing risks Here also want to look at opportunity management –outward looking –seeking new opportunities.

Unit 3 University of Sunderland CSEM04 ROSCO Technical Definitions Risk is the possibility of loss, the loss itself or any characteristic, object or action that is associated with that possibility. –A loss is defined as an outcome that falls short of what was expected. “Expectations” are held/defined by stakeholders. –(Risk in the RISKIT method, Kontio 1997).

Unit 3 University of Sunderland CSEM04 ROSCO Risk, opportunity, or problem Risk and opportunity are inextricably linked with time (particularly the future). –Focus: determining the likelihood, cost/benefit of the outcomes of “what-if scenarios”. –Focus: uncertainty and decision analysis, based on existing data of past experiences, expectations and (often) prejudices. –As soon as an outcome is reached in a risk or opportunity scenario the risk/opportunity ceases to be an issue. But the outcome is either positive or negative.

Unit 3 University of Sunderland CSEM04 ROSCO Risk Definition In any particular context each risk needs to be defined. –The components that need to be assessed in order to estimate the overall risk need to be clearly identified and understood, –The measures that can be taken for the components need to be identified so that the risk can be monitored and evaluated –Therefore appropriate data needs to be collected at the appropriate time.

Unit 3 University of Sunderland CSEM04 ROSCO Is Risk Negative? We tend to think of risk as negative - –essentially we’re looking at a decision point and emphasising the negative results. –It’s a matter of perspective: –Thinking of changing a system? What can go wrong? - are these risks? What can we gain? Are these risks? –Thinking of staying with a system? How can we best use it? - are these risks? What opportunities might we lose? Are these risks?

Unit 3 University of Sunderland CSEM04 ROSCO Assessment of Risk and the Impact of Time. Risk = Probability x Impact. But…both the probability and the impact of an event happening can change over time.

Unit 3 University of Sunderland CSEM04 ROSCO Assessment of Risk and the Impact of Time. Risk assessment relies on the availability of relevant data and information. –Some risks can be readily assessed, others can’t, –but the risk assessment must always be “timely”.

Unit 3 University of Sunderland CSEM04 ROSCO Risk Perception and Attitude In assessing (and even identifying risks) people’s preconceptions and prejudices come into play. –In different groups the reaction to a risk-laden scenario can vary, with entrepreneurs keen to exploit opportunities and others looking to minimise their exposure to risk. –The reaction may vary depending upon: the amount at stake, the context of the risk and the time horizon.

Unit 3 University of Sunderland CSEM04 ROSCO Importance of perspective Issue: “New Technology to be used in system change” Risk perspective = no experience of this –how do we ensure this doesn’t cause problems? may lead to consideration of training staff in advance, bringing in experts etc. Opportunity perspective = we can become leaders in our field –should give potential for growth and market dominance how do we exploit/ensure this?

Unit 3 University of Sunderland CSEM04 ROSCO Risk averse v. risk taker Organisations and people tend to be on a spectrum of risk averse to risk taker risk averse: –Inward, focus on control on risks and resolution of problems risk taker (entrepreneur) –Outward, focus on looking for opportunities, expect the payoff to be worth the risk taken.

Unit 3 University of Sunderland CSEM04 ROSCO Risk generic lifecycle

Unit 3 University of Sunderland CSEM04 ROSCO Risk and Opportunity generic lifecycle Replace “risk” by “risk and opportunity” throughout

Unit 3 University of Sunderland CSEM04 ROSCO Dealing with Risk (Risk Management) The options available include –Proactive risk management. –Interactive risk management. –Reactive risk management. –Inactive risk management. Most risk management approaches are developed to help those who have an interactive risk management approach. Decreasing control