One of the most important and yet overlooked parts of enterprise risk management is strategic risk management. Over the past years, we have seen enterprise risk management focus on financial and operational risk. But this be as it may, strategic risk management is still quite consequential.
From what has been revealed by several studies on various public companies, we have seen the fact that strategic risk actually account for up to 60% of the issues of decline in their market capitalization. This is way higher than what we see in the effects of operational risk and financial risk. Read more details in this post and see some of the basics that you need to know of when it comes to matters of operational risk, strategic risk management and its importance.
So what is strategic risk in the first place? By having good operations, this basically means that you will be doing things the right way. Doing things that right way means having good strategy. As such strategic risk arises in the case where a company has failed to provide for what the market may be in need of and as such cannot meet the demands.
For instance, in the event that a company has an unmatched manufacturing process, such a company will fail should such a time come where the consumers do not want their products.
Strategic risk management by and large is the process of identifying, quantifying and mitigating any risk that may be so affect or may be so consequential in a business strategy. These may be such issues like changes in the consumer demands and trends, changes in legal landscape of your operations, mergers and integrations, changes in technology and the like.
Measuring strategic risk is the first step that you need to do for you to be able to manage and mitigate its effects. By far and large, the strategic risk inherent or that you may be so susceptible to can be gauged using two metrics or measures. These are the economic capital and the risk adjusted return on capital. Find out more at this website - https://drivingoe.com/
Managing strategic risk by and large will involve five steps. These steps must for a necessity be integrated within the strategic planning and execution process for it to be as effective. First and foremost, you need to clearly define your business goals. Know what your key performance indicators are for you to be able to measure the results. What are the risks that can drive the variables in performance? Know what the key risk indicators are. Then you should avail an integrated reporting and monitoring system.
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