Strategic risk management in enterprise risk management (ERM) is a crucial but often overlooked aspect. Although ERM has traditionally focused on financial and, more recently, operational risk, strategic risk is significantly more considerable. Studies by major public companies show that strategic risks represent approximately 60% of major market capitalisation declines. Only half (approximately 30 percent) of the operational risks and about 10 percent are financial risks.
What is Strategic Risk?
In what is often confused with — operational risk, it can be easy to describe the strategic risk. Good work means doing the right thing, while good strategy means doing the right thing. Strategic risk arises when a company is not prepared to meet market needs in due time.
How to Handle Positive Risk?
Not all risks are negative, there will be some positive risk. Positive risks are the one that can bring benefits outcome to the company.
- The first thing you want to know is that the risks you can exploit. This means finding ways to increase the probability of this risk.
- Next, the risk may be shared by you. Sometimes you are unable to fully exploit the risk alone and you increase the opportunity to achieve the most successful outcome from the risk by involving others.
- At last, you can’t do anything and that’s exactly what you ought to do. Nothing. There’s nothing. It can also apply to negative risk, as it is sometimes the best thing you can do not do in the context of your project when faced with a specific risk.
Do you know there is a process for risk management?
Risk Management Strategies and Processes
1. Risk Identification
- You can’t resolve a risk when you didn’t This is first step for a company to have a risk management. Any event that can cause benefits or problem is a risk. Risk can be external or internal. Gather all the information even a small event.
2. Risk Analysis
- After you have identified your risk, you can start to analyse your risk. The aim of analysis is to understand those risk and know their influence to the company. Group them according their type might help your work easier.
3. Risk Assessment and Evaluation
- Now, you can rank those risk according to their serious level. The company need to decide whether the company can take this kind of risk based on their risk appetite.
4. Risk Mitigation
- Since that your company had decided which risks to be taken. Now, your company can start to solve the risk that your company do not want to take. At this phase, all the risk assessments and key risk indicators (KRIs) needs to be established.
5. Risk Monitoring
- At last, the company need to monitor all the risk and make adjustment when it is needed. Remember to keep track of them because sometimes it might go out of hand.
After that we can proceed to our next important phase of risk management, risk management approaches.
Risk Managemant Approaches
1. Risk Avoidance
You can avoid a risk impact altogether, as a best case scenario. However, you also give up all associated potential returns and opportunities by forfeiting every risk-bearing activity. You are responsible for what kind of risk-taking you want to do.
2. Risk Reduction
The reduction in risk introduces small changes to reduce both the weight of risk and the post-event rewards. Reduction requires manipulation of processes and plans but saves your business from serious loss when there is a high-risk event.
3. Risk Sharing
Risk sharing or transferring redistributes the burden of loss or gain over multiple parties. This could include company members, an outsourced entity or an insurance policy.
4. Risk Retaining
Sometimes companies decide that the risk is worth it from a business point of view and choose to keep the risk and deal with possible consequences. Companies often maintain a specific risk level that is more than the cost of their potential risk than a project’s anticipated profit.