UNDERSTANDING AND MANAGING STRATEGIC RISK

Many organisations do not understand the link between strategic risk and strategy. Some simply describe risk as being about enterprise risk management, but this ignores the basic tenet of risk management – that it is about taking opportunities.

Strategic risk underpins all strategy and supports strategic decision making. Why is this so difficult to understand? Probably because people do not readily link strategy with risk. More organisations now understand that unless there is a well formed risk appetite then they are more likely to fail because there is a disconnect between the opportunity and an understanding of strategic risk.

Strategic risk is informed by hindsight, insight and foresight. Strategic risk decisions are also informed by the organisational capacity, strategic agility, the organisation’s business idea, having a competitive advantage, being able to do what you say and in some cases being able to disrupt the market.

Hindsight risk is an important tool in strategic risk. This enables decision makers and boards to understand where the organisation has come from and what it is capable of. It also ensures that those making strategic decisions actually understand the organisation’s capacity to execute strategy. It enables decision makers to be sure that if they are making strategic risk decisions the organisation can support them. If the organisation cannot initially support the decision then this will also be part of the strategic risk decision making process. This means that if change is required then the strategic risk conversation will include the need for such change.

Jul-Sep 2014 Issue

Neill Buck & Associates