What is strategic risk?
Strategic risks are risks that a company takes that could potentially lead to a major loss. It is often a key factor in determining a company’s worth. It is particularly noticeable if a company encounters a sharp decline in a short period.
What is strategic risk management?
Strategic risk management can be defined as “the process of identifying, assessing, and managing the risk in the organization’s business strategy—including taking swift action when risk is actually realized.”
These risks may include:
· Stakeholder pressure
· Senior management turnover
· Technological changes
· Merger integration
· Competitive pressure
· Legal and regulatory change
· Shifts in consumer demand and preferences
Strategic risk management focuses on the most significant risks to shareholder value, an area that merits the time and attention of executive management and the board of directors.
This is made easier by using a tool like Execview to manage the risk and report on it.
How to Achieve Effective Strategic Risk Management:
To manage strategic risk, five steps must be followed within the strategic planning and execution process to be effective.
It is important as “managing strategic risks effectively can do more than just protect value by avoiding potential downsides; it can actually help create value by taking advantage of uncertainty and volatility to maximize gains and improve competitive positioning.”
- Define business strategy and objectives
There are different frameworks that companies use to plan out strategy i.e., SWOT analysis, balance scorecard, etc., however, the one thing that these frameworks have in common is their failure to acknowledge the risk. Given this, companies must take further steps to incorporate risk at the planning stage.
- Establish key performance indicators (KPIs) to measure results
KPIs are a great way to measure both your success and failures. These can be used to observe changes and study improvement opportunities over time.
- Identify risks
Risks are unknown situations that can affect variability in your KPIs and performance. It is important to produce a list of such risks so you can promptly recognize what is happening to solve the situation.
- Establish key risk indicators (KRIs) and tolerance levels for critical risks.
Whereas KPIs assess historical performance, KRIs foresee risks in advance. Setting your risk tolerance levels allows you to count on an automated tool to notify you in advance or manage the situation automatically when the threshold is met.
- Provide reporting and monitoring
To stay on track with how your organization is doing, it is important to regularly monitor risks and manage situations as they arise. Execview provides the answer for reporting the status of risks and their management to all stakeholders.
Strategic risks represent the highest dangers as well as opportunities that your company can face. Managing strategic risk allows organizations to reduce their danger of experiencing serve losses and failure. Therefore, it is vital to stay up to date with your strategic risk management well in advance – it is the key to organizational success. By taking steps to manage it, companies can shape their future success while minimizing downside exposure.
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“Change is inevitable. Progress is optional” – Tony Robbins.
Written by Keisha Parry