Real Options in Change Management
I happened to stumble over a quote the other day. Unfortunately I have not found the English translation so I give you my own translation from Swedish.
“Those who wait for the right moment lose time.” (Girodano Bruno, Italian philosopher)
It is often so easy to think that we need to have this and that in place before we start this change initiative so therefore we do nothing right now. Seldom do you hear of anyone who have really assessed the consequences of waiting.
One way of changing the mindset is to use options theory. The theory was first developed to value financial options. But later also utilised in “real-life” for business strategy and product development projects. Real options has two aspects, the mathematics to calculate the value of the option and the abstract thinking of business decisions as a string of options or opportunities. The real option itself is the right, but not the obligation, to undertake some business or project action. This implies that management is active and adjust the direction as more information become available. This method enables decision-makers to leverage uncertainty and limit downside risk. There are a lot of literature available on real options, for example here.
For my MBA thesis I wrote about real options in the area of software development with a lot of uncertainty but I have recently come to think that it can also be used for change management. Usually change projects tend to look huge and difficult and risky before they are started … and I do not go against that. However, if we break down the project in smaller parts where each part gives information about the possible options available. These options could be to continue the project in the current direction or to take a different direction that management believes to be a more profitable path or possibly terminate the project. Terminating the project then is not a failure. It is good business sense to try something and then get out before too much money is spent on it. But then you know that this does not work for your business or in your company.
What should be avoided is waiting for the perfect conditions or all the answers to all uncertainties. That could take forever and then the change project will definitely not realise and value. Act and try to create different options for your company to change in a positive direction.
