As business leaders emphasise operational efficiency and business continuity in the current economic climate, organisations are operating in a constantly changing environment where new risks and threats care arise (without warning) at any time. Risk assessment is an essential component of any organisation’s governance, risk management, and compliance (GRC) program.
Strategic Risk Assessment plays a critical role in the effectiveness of achieving strategic objectives, since it is driven by the business’s core strategies. It is imperative to establish and maintain effective risk assessment procedures with quantifying essential risks, as qualitative descriptions impede informed decision-making and resource allocation. By implementing a robust risk management approach, organisations can recognise potential risks and take initiative-taking steps to avoid or mitigate them and seize new opportunities that arise from uncertainty.
To strengthen their risk management awareness, organisations must adopt a holistic approach that is forward-looking, systemic and cross-silo, and based on factual understanding of risks. A “risk-aware” culture is equally crucial, with Executive Management, Corporate Boards, and Risk Managers promoting risk management as a mindset that is embedded in daily decision-making.
Why is Strategic Risk Management important?
Strategic Risk Management determines managing and monitoring identified strategic risks and for this purpose, an effective Strategic Risk Management Plan is essential. The action plan allows Risk Management Teams to prioritise each risk, predict the potential risk impact, and identify the appropriate risk response and required task(s) execution.
The Strategic Risk Management Plan provides key insights into:
- Clarifying the organisation’s risk appetite.
- Identifying the organisation’s focus on Key Risk Indicators (KRIs) to anticipate potential risks and trigger initiative-taking actions.
- Establishing reporting metrics and Key Performance Indicators (KPIs) to measure the program’s risk performance.
- Assigning internal roles, responsibilities, and accountabilities for risk monitoring and overall internal management.
- Guiding robust risk analysis, assessment, and mitigation treatment.
Additionally, the scope with implementing Risk Management software (SaaS) provides performance tools that efficiently streamlines Strategic Risk Management. The benefits of integrated risk reporting and dashboards help to simplify the monitoring of significant risks, then allowing the organisation to mitigate new risks as they emerge.
What is the purpose of a Strategic Risk Assessment?
A Strategic Risk Assessment is a systematic, continuous process for organisations to evaluate its strategic risks and understand how those risks are being managed across the enterprise. By linking risks to the business strategy, this allows Risk Managers to identify the leading indicators of current and emerging risks and how those issues might threaten the business’s survival.
The risk assessment process supports the organisational culture, as the Executive Management Team, Board of Directors, and Senior Management own and govern the risk approach. These personnel work together to embed the assessment of risk into the business model and operational enterprise. Additionally, they also monitor that the Strategic Risk Management Program delivers the expected risk mitigation outcomes.
How to identify Strategic Risks and implement your Strategic Risk Assessment?
With recognising and executing action on strategic risks, it is critically important to effectively manage and mitigate risks and thereby, any potential costly problems. The review of your Strategic Risk Management toolkit and approach will indicate the need for two (2) factors:
- An in-depth understanding of your current organisation situation – including your target customers, market sector, competitors, and the business environment.
- A clear awareness of your organisation’s core strategic goals and objectives – from conception to proposed execution.
To achieve accurate insights into your strategic risks can take considerable time and resources investment, but it is extremely worthwhile to gather critical data on both areas. By access to more concise and structured information, your Risk Management Team will be able to implement efficient processes and realignment of safeguards that facilitate organisational success. They will also have several choices with different approaches when investigating and identifying strategic risks.
Initiate “What if” discussions and facilitate input from ALL Stakeholders
Explore your ‘what-if scenarios’ by gathering collective feedback from stakeholders and employees.
By tapping into a holistic view of risk factors collaboratively, with expanded perspectives about your organisation and experiences across different departments by Strategy Managers, Change Managers, Risk & Compliance Managers and Risk Managers – may uncover different risks and unexpected possibilities due to cross-collaboration discussion.
Any (and all) potential risks are worth considering! That is why your engaged participants should be encouraged to explore opportunities derived from ‘what-if scenarios’ and make suggestions for any viable risks that impacts their operational areas. Notwithstanding, even if there is an extensive list, this can simply be reduced through elimination but by underestimating risks can lead to organisations failing to being unprepared in the future.
Actioning your Strategic Risk Assessment Process
A Strategic Risk Assessment is a critical step in the organisation’s Strategic Risk Management program. There are several steps with putting Strategic Risk Management into action but initially it commences by assessing the types of strategic risk that can affect your organisation.
Understanding your organisational strategy and objectives
With measuring the potential consequences of strategic risks, your first task is to adequately understand the organisation’s strategy and objectives. This is because you enable the prioritising of potential risks.
Gather collective data from stakeholders on their Strategic Risk perspectives
By interviewing your key Executives and stakeholders, you gather important data on how employees across the organisation view their strategic risk perspectives. The gathering of collective data may be conducted with both internal and external personnel, who would be affected by strategic risks and provides an overall experience to validate findings.
By utilising Risk Management software, techniques, and automation AI tools, this can assist with collecting highly informative data with assessing risks that could affect your organisation. However, what it also enables for the organisation is with effectively providing more clarity with the strategic direction across the business, maps out processes that needs improving, and sets real-time risk alerts. This directly benefits cross-functional teams with reducing bottlenecks to operational activities, reducing data errors, removing critical resources dependency, and increasing risk / regulatory compliance.
Prepare and create the Strategic Risk profile
With the information derived from the previous two (2) points, a Strategic Risk Profile for your organisation can be created. This can be displayed on a Heat Map to outline what the top strategic risks have been determined and how severely they rank in terms of potential detrimental impacts to business operations.
Validate the agreed Strategy Risk profile
The creation of any Strategic Risk Management Plan can only be validated when key Executives, Board of Directors, and Senior Management agree on the organisation’s risk profile.
Ideate and develop an Action Plan
The primary focus of this entire process is developing an Action Plan. What this step identifies is the outline of how the organisation plans to face, mitigate, or overcome strategic risks. It also involves defining the various methods by which strategic risks will be managed and mitigated as they occur.
Communicate and execute the Strategic Risk Management Plan
When the Strategic Risk Management Plan has finally been created, then you must share the insights and messages cross-functionally across the entire organisation. Simply defining your organisation’s risk culture is what allows your key stakeholders, team members and all employees to act ethically in accordance with the change directive.
Summary
An effective adaptive strategy-making process relies on the ability to manage the interactions between external and internal uncertainties that will affect strategic outcomes. There is the realisation that Strategic Risk Management is about reconciling your ‘predict and plan’ mindset with one that ‘monitors and adapts’; research focuses exclusively on the latter approach.
With any strategy implementation, prior to execution, there are two (2) uncertainties:
- Does the strategy make sense in the first place?
- If yes, can you execute your new strategy?
Organisations with a ‘monitor and adapt’ culture of strategy execution are successful because they impose a harmonious continuous improvement process that combines both current operational learning, as well as the organisation’s need for co-ordinated Action Plans. This helps align your current strategy with your risk appetite and tolerance. By involving all relevant stakeholders in identifying, assessing, and prioritising the risks that could affect your strategy – ensuring that all employees are on the same page, committed to the singular vision and direction.
A risk-aware culture fosters a transparent and accountable environment for ‘open’ and ‘honest’ communication. By creating a safe and supportive space for cross-functional discussion where you can experiment and explore innovative ideas and solutions, you create a collaborative culture of innovation and creativity. With the ability to learn from your successes and failures but also improve your risk management capabilities (and maturity), this transcends your organisation with enhancing its efficiency, effectiveness, and agility in delivering value to achieve future goals.
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