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What's "strategic risks" and how to effectively manage?(2-April-2015)
by 趙永祥 2015-04-03 19:07:27, 回應(0), 人氣(1619)


Edward Chao

What's "strategic risks" and how to effectively manage?

Governmental Counseling consultant, Small and Medium Enterprise Administration,Ministry of Economic Affairs,Taiwan.Top Contributor

What's strategy risks and how to effectively manage?

This session is intended to discuss about another risk which called "Strategic risks".

I. The definition and specific characteristics of "Strategic risks"

Strategic risks can be defined as the uncertainties and untapped opportunities embedded in your strategic intent and how well they are executed. As such, they are key matters for the board and impinge on the whole business, rather than just an isolated unit. A company voluntarily accepts some risk in order to generate superior returns from its strategy. A bank assumes credit risk, for example, when it lends money, many companies take on risks through their research and development activities.

Strategic risk management is your organisation’s response to these uncertainties and opportunities. It involves a clear understanding of corporate strategy, the risks in adopting it and the risks in executing it. These risks may be triggered from inside or outside your organisation. Once they are understood, you can develop effective, integrated, strategic risk mitigation.


II. Strategic risk managements: How to manage strategic risks effectively?

In fact, strategic risks cannot be managed through a rules-based control model. Instead, you need a risk-management system designed to reduce the probability that the assumed risks actually materialize and to improve the company’s ability to manage or contain the risk events should they occur. Such a system would not stop companies from undertaking risky ventures; to the contrary, it would enable companies to take on higher-risk, higher-reward ventures than could competitors with less effective risk management. 

Take for example, one of the large companies, BP accepted the high risks of drilling several miles below the surface of the Gulf of Mexico because of the high value of the oil and gas it hoped to extract. Strategic risks are quite different from preventable risks because they are not inherently undesirable. A strategy with high expected returns generally requires the company to take on significant risks, and managing those risks is a key driver in capturing the potential gains. 

Far from holding back the business, strategic risk management is about augmenting strategic management and getting the full value from your strategy. In a typical instance, a conventional approach to setting and executing strategy might look at sales growth and service delivery. Rarely does it monitor the risks of a shortfall in demand.

Effective strategic risk management can be built around a clear understanding of how much risk your business is prepared to take to deliver its objectives, and a timely and reliable evaluation of how much risk it is actually taking.

Dr. Chao 
12-February-2015

Comments

  • Ken Hackshaw

    Ken

    Ken Hackshaw

    Director/Lead Consultant KHBC Limited- Managing Director Trinidad and Tobago Risk Management Institute (TTRMI)

    very interesting piece. Thanks for sharing

     Edward Chao likes this
  • Edward Chao

    Edward Chao

    Governmental Counseling consultant, Small and Medium Enterprise Administration,Ministry of Economic Affairs,Taiwan.

    Top Contributor

    Dear Ken Hackshaw, 
    Welcome to join discussion.

    Kind regards.

    edward

  • Mohammed .

    Mohammed

    Mohammed .

    Director - Enterprise Risk Management

    Top Contributor

    Nice thoughts; Thanks Dr. Chao

     Edward Chao, Trevor L. like this
  • Trevor Lilley

    Trevor

    Trevor Lilley

    Operational Risk Manager available for contract or permanent opportunities in Operational Risk, SOX, and Audit/mgt

    I think you need to take this further in that strategic risks may also need to be considered against the cumulative impact of a detrimental event occurring. For example black swan type effect as the impact must be considered against the widest impact and subsequent contagion activity.

     Edward Chao likes this
  • Steven Kalavity

    Steven

    Steven Kalavity

    Geophysicist - Acquisition & Data Processing, ISO QMS

    Strategic risk management of complex enterprises requires timely and high fidelity data and knowledge sharing to allow rapid fact-based decision making. For example, the uncooperative and poor communication culture(s) at Macando hindered critical information from being shared so that the right/best decisions could be made. The technology and control processes had been developed to prevent catastrophe. It was not a technology issue, but a communication and management issue. System and process management presents the greatest risk and needs to be strategically considered.

     Edward Chao likes this
  • Edward Chao

    Edward Chao

    Governmental Counseling consultant, Small and Medium Enterprise Administration,Ministry of Economic Affairs,Taiwan.

    Top Contributor

    Dear Steven Kalavity, 
    I agree with your comments 'Strategic risk management of complex enterprises requires timely and high fidelity data and knowledge sharing to allow rapid fact-based decision making.'

    I'm very appreciated that you join discussion.

    Kind regards.

    Edward

  • Steven Kalavity

    Steven

    Steven Kalavity

    Geophysicist - Acquisition & Data Processing, ISO QMS

    Thank you Edward. I appreciate your post.

     Edward Chao likes this
  • Dominic Pelletier,PMP, MBA

    Dominic

    Dominic Pelletier,PMP, MBA

    Project Manager at SaskPower

    Mr Chao

    I really like your post! There is lots to gain from risk management at all level within the organization. Risk will help you understand if gain will happen in pursuing a business model for example, acquiring a new business or as you mentioned in BP case, drilling scenario. But risk management is as always, subjective to the organization risk tolerance and doing risk management at higher level of the business, as @Steven mentioned, takes time and experience, which in most organization, one or both is missing.

    We do enterprise risk management but this is not nearly where it should be. But that is a starting point and hope we keep doing better in our organization

    Thanks for your post

     Edward Chao likes this
  • Edward Chao

    Edward Chao

    Governmental Counseling consultant, Small and Medium Enterprise Administration,Ministry of Economic Affairs,Taiwan.

    Top Contributor

    Dear Dominic Pelletier, 
    According to my experiences, strategic risk management is your organisation’s response to these uncertainties and opportunities. It involves a clear understanding of corporate strategy, the risks in adopting it and the risks in executing it. These risks may be triggered from inside or outside your organisation.

    As you have mentioned in your comments which said 'management is as always, subjective to the organization risk tolerance and doing risk management at higher level of the business. We do enterprise risk management but this is not nearly where it should be.'

    Thanks for your comments and sharing in this discussion.

    Kind regards.

    Edward

     Steven K. likes this
  • Cliona O'Hanrahan

    Cliona

    Cliona O'Hanrahan

    Senior Project Manager specialising in Digital; Financial and Telecom Projects; Project Management SME across all areas

    Dear Dr Chao 
    First off thanks so much for the posting and great to read your thoughts of risk at this level. 
    All the best

     Edward Chao likes this
  • Guan Seng Khoo, PhD

    Guan Seng

    Guan Seng Khoo, PhD

    Head, ERM, GRC at Alberta Investment Management Corporation (AIMCo)

    Strategic risk is 1/10th desire, and 9/10th implementation. Sometimes, a mediocre strategy well-executed may yield a far better result than a perfect one poorly done!

     Edward Chao likes this
  • Edward Chao

    Edward Chao

    Governmental Counseling consultant, Small and Medium Enterprise Administration,Ministry of Economic Affairs,Taiwan.

    Top Contributor

    Dear Cliona O'Hanrahan, 
    It's my pleasure to provide practical and risk-related issues in Risk Management Online, LinkedIn. 
    Hoping we can share the experiences and viewpoints with each other. 
    Nice to meet you in Risk Management Online

    Kind regards.

    Edward.

  • Edward Chao

    Edward Chao

    Governmental Counseling consultant, Small and Medium Enterprise Administration,Ministry of Economic Affairs,Taiwan.

    Top Contributor

    Further Discussion on the issue 'What's "strategic risks" and how to effectively manage?'

    Strategic risks can be defined as the uncertainties and untapped opportunities embedded in your strategic intent and how well they are executed.

    In fact, different types of strategic risks in business may involve upstart competitors, new product failures, or new technology suddenly replacing existing technology in a marketplace. At various times, a sudden shift in consumer buying behavior may pose a serious strategic risk to manufacturers and retailers. Growth of a company’s sales base may also stagnate for a variety of reasons, and this might pose a challenge to a company’s continued profitability. As we know, one of the more common scenarios that can expose a company to strategic risks is the upstart competitor that experiences a mercurial rise in sales.

    Taking for some examples as follows. A company may have experienced decades-long market dominance in selling a type of software. A competitor then comes along with an innovative software product that consumers prefer over the first company's product. The resulting market erosion experienced by the first company may force that firm to invest heavily in innovation, in an effort to stay competitive with the newer firm.In a typical instance, a conventional approach to setting and executing strategy might look at sales growth and service delivery. Rarely does it monitor the risks of a shortfall in demand.

    'Strength of brand' may be a factor in how a company manages strategic risks. A company that has a strong brand among consumers is often better positioned to withstand intrusion from competition because it can continue to bring new products to the market that strategically make use of the brand’s reputation. If a company experiences a scandalous failure in a product launch that damages the brand’s reputation, for example, that type of strategic risk can affect its reputation for years.


    Kind regrds.

    Edward 
    26-March-2015

     Steven K. likes this
  • Edward Chao

    Edward Chao

    Governmental Counseling consultant, Small and Medium Enterprise Administration,Ministry of Economic Affairs,Taiwan.

    Top Contributor

    Further Discussion on the issue 'What's "strategic risks" and how to effectively manage?'

    Up to now, strategic risk has become a major focus in risk-control managements, about 81% of surveyed companies now explicitly managing strategic risk – rather than limiting their focus to traditional risk areas such as operational, financial and compliance risk. Also, many companies are taking a broad view of strategic risk that doesn’t just focus on challenges that might cause a particular strategy to fail, but on any major risks that could affect a company’s long-term positioning and performance.


    Kind regards.

    Edward 
    26-March-2015

     Trevor L., Steven K. like this
  • Mokoena Portia

    Mokoena

    Mokoena Portia

    Risk Specialist at UNISA

    A very informative read Edward. I like your topic. Organisations normally have strategic objectives but one wonders sometimes if these were set with risk management in mind. It becomes a challenge when risk management comes as an after thaught.

     Steven K., Edward Chao like this
  • Edward Chao

    Edward Chao

    Governmental Counseling consultant, Small and Medium Enterprise Administration,Ministry of Economic Affairs,Taiwan.

    Top Contributor

    'How to manage strategic risks effectively' has been popularly discussed in finan-related industry for many years.

    Under risk managements' researchers or institutions, strategic risks cannot be managed through a rules-based control model. Instead, you need a risk-management system designed to reduce the probability that the assumed risks actually materialize and to improve the company’s ability to manage or contain the risk events should they occur. Such a system would not stop companies from undertaking risky ventures; to the contrary, it would enable companies to take on higher-risk, higher-reward ventures than could competitors with less effective risk management.

    In addition, 'strength of brand' may be a factor in how a company manages strategic risks. A company that has a strong brand among consumers is often better positioned to withstand intrusion from competition because it can continue to bring new products to the market that strategically make use of the brand’s reputation.

    Edward

    29-March-2015

  • Cliona O'Hanrahan

    Cliona

    Cliona O'Hanrahan

    Senior Project Manager specialising in Digital; Financial and Telecom Projects; Project Management SME across all areas

    Hi Edward mostly I would agree with your comments but we are facing a very fast based competitive environment where a lot of companies are not really assessing their risk in getting their products out. Actually I think and especially with digital projects where and if the business case is carefully outlined this does minimise risk in this area. Another really cool way of assessing risk at some level is through web analytics which can show what to be avoided going forward. I believe that yes in the very big and expensive infrastructure or legacy project risks must be assessed properly however in the small digital faced projects it really requires you as a project manager to run with the pack and get that product out the door. Where I do look at risk is during the UX process and I believe that this is a great way to position this exercise

     Edward Chao likes this
  • Edward Chao

    Edward Chao

    Governmental Counseling consultant, Small and Medium Enterprise Administration,Ministry of Economic Affairs,Taiwan.

    Top Contributor

    Hi, Cliona, thanks for your reply. I agree with your viewpoints concerning about assessing risks methods 'Another really cool way of assessing risk at some level is through web analytics which can show what to be avoided going forward and where you do look at risk is during the UX process'.

    Strategic risk management of complex enterprises requires timely and high fidelity data and knowledge sharing to allow rapid fact-based decision making. In addition, strategic risks cannot be managed through a rules-based control model. Instead, you need a risk-management system designed to reduce the probability that the assumed risks actually materialize and to improve the company’s ability to manage or contain the risk events should they occur.

    Thanks for your joining this issue's discussion.

    Edward.

     Steven K. likes this
  • Didier Verstichel

    Didier

    Didier Verstichel

    Senior Executive ICT, available for a new challenge

    One needs to be careful with the use and abuse of the words « Strategy / Strategic ». With a stretch of the mind, it is feasible to find a (minute) link between risk of whatever nature and the Strategy. It is a matter of risk taxonomy for which there is no standard. The BP case is a good example. As per their website “Operational risk is the potential for financial loss because of human, process or technology error.” Is a strategic risk a risk arising from the strategy execution or a risk affecting the strategy? In my use of the semantic, it is the latter, not the former. BP was hit by an operational risk. Take for instance an organisation which strategy is to expand its operations in the BRICA countries. Are those strategic risks or geo-political risks?

     Edward Chao likes this
  • Edward Chao

    Edward Chao

    Governmental Counseling consultant, Small and Medium Enterprise Administration,Ministry of Economic Affairs,Taiwan.

    Top Contributor

    Dear Didier Verstichel, 
    Very thankful for your comments.

    You have mentioned 'that The BP case is a good example. As per their website “Operational risk is the potential for financial loss because of human, process or technology error.” Is a strategic risk a risk arising from the strategy execution or a risk affecting the strategy?'

    In fact, risk management is as always, subjective to the organization risk tolerance and doing risk management at higher level of the business. Furthermore, strategic risk management is your organisation’s response to these uncertainties and opportunities. It involves a clear understanding of corporate strategy, the risks in adopting it and the risks in executing it. These risks may be triggered from inside or outside your organisation.

    I'm very appreciated with your comments. 
    Thanks for joining this issue discussion.

    Kind regards.

    Edward

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