What is strategic risk management?
You can deliver a project or programme on time, to budget, and meet all your declared objectives; likewise your business operations may appear to be on track. But if your overall strategy is proved incorrect, the business venture will, ultimately, be deemed a failure.
Strategic risk management looks at current market trends and tries to predict the risks to your organisation’s overall business strategy. By their very nature, strategic risks can be hard to quantify and hard to predict.
Why is strategic risk management important?
Strategic risks are, by definition, the risks of you not achieving your business strategy. This means that a business which fails to deal with its strategic risks faces failure if those risks eventually materialise; e.g. the risk of not achieving ‘x’ by a particular date.
For example, if a core part of your business’s strategy is introducing a new product to the market, that strategy will be deemed a failure if the market no longer wants that product.
How can organisations manage strategic risk?
There are a number of steps an organisation can take to successfully minimise strategic risk.
- Start by capturing a suitable statement of your overall business strategy. This should be done by the board of directors, and needs to be as specific and quantified as possible.
- This strategy statement then needs to be suitably communicated to at least two levels down within the organisation, or even the whole organisation if you are dealing with a small or medium sized business.
- Directors then need to break down the strategy into its constituent assumptions (approximately 10-20), testing each assumption in turn for its susceptibility to risk.
Assumption analysis is also a core component of ABCD risk management, which is itself an important tool in any strategic risk management.
The process of capturing assumptions is often one which is internal to the company or organisation in question, meaning that an external perspective is also required.
The importance of external perspective
External challenges to your business strategy will not be explicitly obvious unless you have a third party to point them out. External risks to business strategy can include the following:
- Market trends for specific products being offered.
- Competitors’ likely strategy, including pricing policy changes.
- Socio-political shifts or external crises which may impact your business strategy.
- Macro or microeconomic trends.
How De-Risk can help you
We know that any successful business strategy needs testing against the dynamic of a given marketplace.
We work by identifying the key assumptions underpinning a strategy through a series of interviews or workshops with senior management and industry experts.
From this initial analysis a number of discrete scenarios which can be developed and the assumptions analysed in each case, using an ABCD based approach. The risks to each scenario can then be clearly seen and the strategy adjusted to reduce the risks, or contingency plans developed to manage perceived risks. An ABCD based approach can also highlight some of the potential reasons why key assumptions underpinning a strategy may be unstable. This can be for a number of reasons:
- Poor publicity/litigation
- Changing customer tastes
- Micro-economic effects
- New entrants
- Substitute products
- New product developments
- Economic changes
- Mismatch to customer requirements
- Legislative changes
- Lack of anticipated synergy