Many organizations have learned lessons from the global financial crisis. One lesson is the need to link strategy and risk management and to be able to identify and manage risk in a highly uncertain environment. They must focus risk management on creating value for the organization as well as protecting the business. There are ways for organizations to develop effective and integrated strategic risk management with a focus on reducing liabilities to create value.
Strategic risks are those risks that pose a threat to a company’s ability to set and execute its overall strategy. While each organization has its own identity, it is crucial to have a general working understanding of strategic risk management, which is focused on the most consequential and significant risks to an organization’s value.
Organizations need to have a clear understanding of corporate strategy in order to implement this. Strategic risk management methods and techniques focus primarily on uncertainty from a relevance and importance perspective in achieving strategic objectives. The assessment elements may also include timing, impact to reputation and impact to various stakeholders. The methods and techniques are forward-looking over the strategic planning time horizon:
• Use scenario planning and stress testing (not as predictors, but for alternate strategy planning purposes)
• Incorporate emerging and dynamic risks as considerations
• Integrate change management for effective response to changing conditions
• Strongly link your planning, allocation and management of capital and funding needs
I was recently in a meeting with the Risk Management Department for an organization that owns and operates restaurants throughout the United States. While discussing this topic, it became evident that operational risk management and strategic risk management for this particular organization were extremely strong. The organization emphasized employee training because no matter how much innovation and planning you do, a business is only as good as its front line people. Training and understanding are crucial for managers and employees to implement risk management procedures. This is the key to reducing liabilities. The relationship between Strategic and operational risk management is the link between design and implementation. The stronger the link, the more successful the strategy can be.
Darren C. Audino is a partner at Weber Gallagher in the Mount Laurel office. He represents businesses in general and product liability matters. He may be reached at DAudino@WgLaw.com.
Published (and copyrighted) in South Jersey Biz, Volume 6, Issue 5 (May, 2016).
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