Thursday, June 24, 2021

Strategic Risk Management

A more mature organization will find it much easier to achieve the goal of implementing strategic risk management, whereas a less mature organization will obviously find it much harder.

Strategic risk as a key component of risk management, is for identifying, analyzing, planning and managing risks most critical to achieving an organization’s vision and strategy. They are risks that have a major effect on a company’s business strategy decisions, or are created by those decisions, especially at the strategic level. 

Traditional approaches to managing risk tend to focus on monitoring leading financial indicators and keeping tabs on regulatory changes. That’s still an important exercise, but not sufficient; the fresh approach to strategic risk management enhances the detection of future strategic risks and predictions of future performance

Managing strategic risks effectively can do more than just help a company avoid potential downsides: Many companies are immature in the way they do their Strategic Risk assessment and management. Often, not enough senior management time and focus is given, the resultant output is sub-standard and in the end, enterprise risk management is blamed as a time wasting and unproductive exercise. Business leaders today should contemplate: Is the 'strategic positioning' correct? In other words, is the firm going in the right direction and does it have the right plan and right resources to get there? Is the 'strategic execution' correct? Is the plan working, will the firm get where it wants to be and almost as important does it still want to be there? What are potential risks and opportunities, and can we prepare for those emerging changes timely to achieve expected results? Etc.

There are many out there that simply don't understand, or appreciate the benefits of risk and opportunity management to an organization, which always makes it difficult to introduce risk management in general, let alone Strategic Risk & Opportunity Management. In the past, companies had more time to respond to strategic risks, so they could afford to follow more of a “wait and see” approach. But now, technology innovations, along with relatively new trends in mobility usage, social media and rapidly expanding connectivity combined with globalization, have created a business environment of strategic impact, where even a small local problem can have a butterfly effect, almost instantly develop into some fatal failures. Thus, scrutinizing risks in strategic risk management and improving its effectiveness is an imperative to manage business transformation.

Innovation Management Risks: Being innovative more often means that you are doing something that hasn't been done before. Hence, a best judgment, qualitative approach is given for risk and innovation. Risk is part of innovation, but you can manage parts of these risks. The challenge is having a framework that allows you to say when to quit or simply “can do it” for a while. The best framework is that good because of underlying data and a systematic discipline to manage innovation risk effectively.

The innovation risk management would need to be flexible and applicable to a dynamic situation, where strategies are changing frequently and innovation in its basic nature is a high risk area; it follows that the primary focus of the risk management process would be to identify and control those risks that can be addressed; financing, market understanding, competitor analysis, identifying the space of opportunity, defining the scalability of the product, what timescale to allow before making a go/no-go decision.

Effective risk management requires logical scenarios by balancing two competing best practices: Innovative strategic risk management actually creates value by identifying opportunities to capitalize on uncertainty and volatility to maximize gains, improve competitive positioning as well as drive innovation and performance. There is local participation in the process -necessary to diffuse the culture of risk awareness and management, and central administration of risk management standards such as taxonomy, appetite, and techniques. Digital savvy organizations aren’t just increasing their focus on managing strategic risks; they are changing how they do it, most often by incorporating strategic risk management into their business strategy and planning processes.

-Concentrate on the WHY- give examples ( good to motivate and bad to frighten) preferably in your industry or area. A pilot approach makes calibrating the approach easier than a full scale rollout.

-Recommended start. Do a thorough analysis of the risks to the firm's strategy before setting the strategy.

Where to start? Some of your starting points will be defined by the level of risk and opportunity maturity already in the organization.

-Make a strategic roadmap for risk management (assigning owners, timeframes for treatments).
-Any final adjustments should be made to the plan at this point before it is finalized and published.
-Monitoring these risks is essential. Accountability needs to be in place and understood and reporting then in place

A more mature organization will find it much easier to achieve the goal of implementing strategic risk management, whereas a less mature organization will obviously find it much harder. As strategic risk management is a critical component of business strategy. After strategy has been made and communicated, the critical juncture is at this point, where you would then workshop with the Board, Executive and Management Teams in order to understand the risks to achieving your Strategic Plan, and take a scientific approach to prevent risks, manage opportunities and drive transformative changes confidently.



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