Understanding Strategic Risk

Many companies have taken measures in recent years to step up their risk management programs in order to cope with the shifting economy, given the shaky nature of the current financial climate. Nevertheless, some of these organizations, have made a fatal error while focusing on trying to stay afloat and facing down compliance risks as they arise and overlooked one of the most crucial principles in any fully developed risk management program. Not only should a risk management program be used to handle issues as they come up but in order to be as effective as possible it should also be used to help forecast and predict potential future risks, and develop strategies for coping with these issues if and when they arrive.

Strategic risk management is perhaps the most frequently neglected aspect of risk management that companies have only recently begun to take notice of. This seeks to identify and address all possible threats that could affect a company’s functions, this would be rather than focusing on individual departmental factors and risks. If proper determination is applied even though that it is really as vague and complicated as it sounds, a thorough analysis can be brought to bear these risk factors. Actual Risk and Opportunity Planning (AROP) is one method for conducting one of these analyses. The system comes to understand the threats presents by attempting to carefully examine and weigh both the risks and benefits represented by larger projects, and then determines how they can best be moderated. More and more companies are beginning to take a small step forward by incrementally developing a structure by which handle these risk factors while less than 20 % of companies have developed some kind of enterprise risk management program and much less a strategic risk program.

Three quarters of all threats which wind up bringing harm to an organization are unfortunately made up of strategic risks. The main issue here is that the conditions which yield these threats seem to be categorized as strategic planning issues, and consequently are not being processed by risk managers who could produce new findings on these possibly threatening situations. Being that strategy and risk are viewed as completely separate topics and are handled as such by two completely different departments is the root of the issue. This lack of communication is preventing companies from being able to take a closer more careful look at the most potentially harmful conditions present in their future planning.

Someone must first be given the authority to handle these changes and oversee the application of these solutions in order to take steps to correct these errors and implement a more versatile risk management program. The responsibility is often taken on by the CFO in organizations currently lacking any sort of risk management department, because they are ideally placed to help administer such a program and enter into communication with both board of directors as well as any other necessary departments. To be able to implement an effective risk management program is a big job. A far more difficult task is applying a strategic risk management system with the goal of marginalizing as yet unforeseeable risks. The long term benefits are well worth the benefits despite the hardships that may come with setting up such a program.

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