For more information about integrating risk management in the strategy execution model and a discussion of risk scorecards, see Risk Management and Strategy Execution Systems. [12], Final Thoughts: Moving Forward with Strategic Risk Management. While significant effort can go into an initial risk assessment and strategic risk profile, the real product of this effort should be an action plan to enhance risk monitoring or management actions related to the strategic risks identified. Strategic risk management, or thinking about the bigger picture and the future of the company. This philosophy focused on ensuring that resources used in risk management are justified economically based on the relative amount of risk and cost-benefit analysis. endstream endobj startxref (go back), [4] Ram Charan, Owning Up: The 14 Questions Every Board Member Needs to Ask (San Francisco: John Wiley & Sons 2009). The second step for an organization is to integrate strategic risk management into its existing strategy setting and performance measurement processes. What happens when the risk you take pays off? Again, the maturity and culture of the organization should dictate how this performed. Read Also: The State of Fintech in 2017. Clearly the potential impact of strategic risks is significant enough to deserve the attention of the board and its directors. In this course you will learn the fundamental tools and techniques of strategic risk management including: Describe risks using a three part statement; Understand how risk attitudes affect your project; Create useful tools to track risk ; Communicate risk information to stakeholders; Develop a risk management plan; Create a meaningful risk matrix Its the objective of risk management to decrease Integration of CI into this process will increase to identify risks in advance. This would include integrating risk management into strategic planning and performance measurement systems. endstream endobj 830 0 obj <>/Metadata 34 0 R/PageLayout/OneColumn/Pages 827 0 R/StructTreeRoot 55 0 R/Type/Catalog/ViewerPreferences<>>> endobj 831 0 obj <>/Font<>/ProcSet[/PDF/Text]>>/Rotate 0/StructParents 0/Tabs/S/Type/Page>> endobj 832 0 obj <>stream (go back), [7] Mark L. Frigo and Richard J. Anderson, Strategic Risk Assessment: A First Step for Improving Risk Management and Governance, Strategic Finance, December 2009. For organizations with more developed performance measurement processes, the Kaplan- Norton Strategy Execution Model described in The Execution Premium may be useful. A second focus is the communication of managements expectations regarding risk to help reinforce the message that the understanding and management of risk is a core competency and expected role of people across the organization. (2007) is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments. Adding formal risk discussions to their agendas on a regular basis. [9] This model describes six stages for strategy execution and provides a useful framework for visualizing where strategic risk management can be embedded into these processes. Financial risk management, which emerges from the effects of markets on an entitys assets; this includes risks to credit, price and liquidity. The risk management plan also depends on how the risks are prioritized by the organization. Explicitly identifying strategic uncertainties and requiring that senior management take responsibility for these uncertainties is different from most traditional risk management practices, which are generally focused on more near term uncertainties such as supply chain, or reputation risk. Stage 2: Translate the strategy This stage includes developing strategy maps, strategic themes, objectives, measures, targets, initiatives, and the strategic plan in the form of strategy maps, balanced scorecards, and strategic expenditures. Stage 6: Test and adapt This stage includes profitability analysis and emerging strategies. Purpose Of The Risk Management Plan [Provide the purpose of the Risk Management Plan.] 11, No. A complete understanding of the risk your project is subjected to will even make you plan Developing and planning remedial measures can provide a lot of advantages and other positive impacts to a business and the projects that it will execute. (go back), [8] Mark S. Breasley, Bruce C. Branson and Bonnie V. Hancock, Developing Key Risk Indicators to Strengthen Enterprise Risk Management, COSO, 2011 p.2. Management should take the lead in conducting the assessment, but the assessment process should include input from the board members and, as it is completed, a thorough review and discussion between management and the board. Based on relative priorities risks are given weightage, for example a certain organization may be more concerned about the physical and legal risks, whereas another organization may be focusing on operational or strategic Conducting an initial assessment can be a valuable activity and should involve both senior management and the board of directors. Measurement. (go back), [6] Charan, Owning Up: The 14 Questions Every Board Member Needs to Ask, p. 28. At the board level, strategic risk management is a necessary core competency. Even if we all want to experie Other more significant risk events can be catastrophic, resulting in losses that can not only impair an organizations ability to meet its objectives, but may also threaten the organizations survival. The risk assessment process is of critical importance and provides quality information to the decision makers in the startup management. After the definition ERM and SRM should consider integrating with the Competitive Intelligence process. The level of detail and type of presentation should be tailored to the culture of the organization. Stage 1: Develop the strategy This stage includes developing the mission, values, and vision; strategic analysis; and strategy formulation. These dialogues and discussions may be the most beneficial activities of the assessment and afford an opportunity for management and the directors to come to a consensus view of the risks facing the company, as well any related risk management activities. As shown by Figure 1, strategic risk assessment is an ongoing process, not just a one-time event. strategic risk management is a highly complex exer-cise, fraught with difficulties. Risks can produce either good or bad results. Strategic risk management is the process of identifying risks, analysing their potential effects and taking necessary action to mitigate them. This helps focus personnel on what those key risks are and potentially how significant they might be. Just as ERM requires customization to suit a companys unique objectives, culture, and business model, the integration of risk management and strategic planning also requires a company to Depending on how the data gathering was accomplished, this step could involve validation with all or a portion of the key executives and directors. 4 Exploring Strategic Risk: A global survey Most companies are not just making strategic risk management a higher priority; they are changing how they do it. *Larger facilities may find it appropriate to establish more than two committees while the smaller facilities may need only one committee. Many of these processes are updated throughout the project lifecycle as new risks can be identified at any time. At a minimum, the profile should clearly communicate a concise list of the top risks and their potential severity or ranking. Matteo Tonello is managing director of corporate leadership at the Conference Board. ?^G_]JN:DV"|/5l.SC!,QWav1 ?b&LtNG~:K!NuC oR]5HP}N For some organizations, simple lists are adequate, while others may want more detail as part of the profile. The first aspect of strategic risk acts as the foundation for all essential organizational functions. The strategic risk assessment process is designed to be tailored to an organizations specific needs and culture. Risk Management Plan (RMP) has been deemed to be releasable as a public record and is subject to the Kansas Open Records Act known as KORA. Enhancing the accuracy of risk management analysis to the companys strategic setting activities. Some risks may reflect exposures that, although harmful, will not threaten the overall health of an organization or its ability to ultimately meet its business objectives. Management teams and boards must challenge themselves and their organizations to move up the strategic risk management learning curve. Strategic risk management then can be defined as the process of identifying, assessing and managing the risk in the organizations business strategyincluding taking swift action when risk is actually realized. Strategic risk management is focused on those most consequential and significant risks to shareholder value, an area that merits the time and attention of executive management and the board of directors. (go back), [11] Mark L. Frigo and Richard J. Anderson, A Strategic Framework for Governance, Risk and Compliance, Strategic Finance, February 2010. (go back). Most of the time strategic objectives are already broken down into more tactical KPIs and targets by the strategy department or HR, so this save To facilitate the analysis, the model can be divided into two main steps: prior and after strategy formulation. 4 Validate and finalize the strategic risk profile The initial strategic risk profile must be validated, refined, and finalized. (go back), [3] Mark L. Frigo, Strategic Risk Management: The New Core Competency, Balanced Scorecard Report, 11, no. 0 Expressed in short words risk management is the continuing process to identify, analyse, evaluate and treat loss exposures and monitor risk control and financial resources to mitigate the adverse effects of loss (Marquette University, 2015). Strategic risk reviews would be part of the ongoing strategic risk assessment, which reinforces the necessary continual, closed-loop approach for effective strategy risk assessment and strategy execution. Share OptionsPrintEmailMoreFacebookLinkedInStumbleUponTwitterPinterestRedditDiggTumblrLike [], Posted by Matteo Tonello, The Conference Board, on, Posted Saturday, August 25, 2012 at 3:51 am, Posted Tuesday, August 28, 2012 at 12:29 pm, Harvard Law School Forum on Corporate Governance, Strategic Risk Management: A Primer for Directors The Harvard Law School Forum on Corporate Governance | Accounting and Small Business /Beverly Shares, 3. For example, a temporary data center outage can result in a short-term problem or customer dissatisfaction, but once recovered, the organization can quickly be back on track. Once you recognise and acknowledge that strategic risk is inherent in the business, it pays to manage it. %PDF-1.6 % Governance also helps to clarify top leaders expectations, which are expressed both directly (using Policies,which express W (go back), [2] Enterprise Risk Management, Standard & Poors to Apply Enterprise Risk Analysis to Corporate Ratings Standard & Poors press release, May 7, 2008 (www.standardandpoors.com). Embed ERM into the business fabric of the organization. As noted in a 2011 COSO report, Linkage of top risks to core strategies helps pinpoint the most relevant information that might serve as an effective leading indicator of an emerging risk. [8]. X2PeAlE n%Hm8Y}! Liability Risk. This plan seeks to unify and further professionalize emergency Information gathered in Step 1 may be helpful to frame discussions or surveys and relate them back to core strategies. This article focuses on two key aspects of the relationship between risk and strategy: (1) understanding the organizations strategic risks and the related risk management processes, and (2) understanding how risk is considered and embedded in the organizations strategy setting and performance measurement processes. Focus initially on a small number of top risks, 5. Strategic Risk Management. [11]. Companies set rulesbut the culture determines how employees follow them. [6] We believe that corporate culture plays a significant role in how well strategic risk is managed and must be considered as part of a strategic risk assessment. What do executives say is their biggest risk management challenge? A risk is an event or condition that, if it occurs, could have a positive or negative effect on a projects objectives. Operational risk management, such as damage to property or other risks that cant be planned for. These are the risk exposures that can ultimately affect shareholder value or the viability of the organization. 829 0 obj <> endobj It is critical, however, to gain sufficient validation to prevent major disagreements on the final risk profile. [10] At this stage, boards may also want to consider developing a risk scorecard that includes key metrics. (go back), [9] Robert S. Kaplan and David P. Norton, The Execution Premium (Cambridge, MA: Harvard Business Press, 2008). In this stage, the strategic risk management action plan can be reflected in the operating plan and dashboards, including risk dashboards. One organization we worked with developed a resources follow risk philosophy to make certain that resources were appropriately and efficiently allocated. 6, November-December 2009. The overall goal of a risk management plan is to manage risk in a way that ensures a successful project outcome. This step also establishes a foundation for integrating risk management with the business strategy. 2 Gather views and data on strategic risks The next step is to gather information and views on the organizations strategic risks. For some organizations, this may be accomplished through relatively simple processes, such as adding a page or section to their annual business planning process for the business to discuss the risks it sees in achieving its business plan and how it will monitor those risks. [5]. Integrating Strategic Risk Management in Strategy Setting and Performance Measurement Processes. The planning process enables managers to clearly identify risks, and then develop and document risk mitigation strategies and contingency plans. (go back), [10] Mark L. Frigo and Richard J. Anderson, Strategic Risk Management: A Primer for Directors and Management Teams, 2012. 5 Develop a strategic risk management action plan This step should be undertaken in tandem with Step 4. the strategic planning process. The first focus is the communication of the organizations top risks and the strategic risk management action plan to help build an understanding of the risks and how they are being managed. This section of the Risk Management Plan provides a general description for the approach taken to identify and manage the risks associated with the project. Risk and Strategic Management The Division of Risk and Strategic Management leads Caltrans strategic and enterprise risk management processes, tracks and reports progress, and promotes risk conscious decisions that are aligned with the department's mission, vision, goals, and values. The risk culture is an integral part of the overall corporate culture. Here, the strategic risk management framework would be used to develop risk-based objectives and performance measures for balanced scorecards and strategy maps, and for analyzing risks related to strategic expenditures. One organization we worked with developed a resources follow risk philosophy to make certain that resources were appropriately and efficiently allocated. Just as strategic risk management is an ongoing process, so is the need to establish an ongoing linkage with the organizations core processes to set and measure its strategies and performance. [1] Effective Enterprise Risk Oversight: The Role of the Board of Directors, COSO 2009, p. 1. hVn0= This is also an opportunity to ask what these key individuals view as potential emerging risks that should also be considered. In conducting this step, a strategy framework could be useful to provide structure to the activity.a. The following are illustrative examples. [2]. [7] It is anchored and driven directly by the organizations core strategies. Published 11 November 2012 Emergency Management Agency Strategic Plan. Hence, risk management plans can deal both with potential added value and expected value deductions. This is not just an internal guide. APPENDIX B: KEY TERMS 5 INTRODUCTION. It includes reference to all other risk management documents and tools (e.g., Risk Register, WBS) The most important lesson from the challenging disasters of 2017 is that success is best delivered through a system that is Federally supported, state managed, and locally executed. Emerging risks can be considered part of the ongoing strategic risk assessment in this stage. Any strategic plan should include risk management training for all its leadership to ensure the organization remains a healthy organization. called strategic risk management is the subject of this paper. A strategic risk assessment is a systematic and continual process for assessing the most significant risks facing an enterprise. This will guarantee proficiency in Collection and Strategy development and Integration. while significant prog-ress has been made at dHs theoretical, structural, In this stage, the strategic risk management action plan can be reflected in the operating plan and dashboards, including risk dashboards. This is a type of action plan that is the output of risk identification and analysis. These two areas not only deserve the attention of boards, but also fit closely with one of the primary responsibilities of the board risk oversight. A concert promoter develops a strategy for a summer music festival that they expect When breaking down any objectives it is important to follow theMcKinsey MECE principle (ME Mutually Exclusive, CE Collectively Exhaustive)to avoid unnecessary duplication and overlapping. As discussed above, there is a clear link between the organizations strategies and its related strategic risks. Strategic planning is viewed as a process for determining where an organization is going over the next few years typically 5 to 20 years. It documents how youll assess risk, who is responsible for doing it, and how often youll do risk planning (since youll have to meet about risk planning with your team throughout the project). [] full article via Strategic Risk Management: A Primer for Directors The Harvard Law School Forum on Corporate Gove. Governanceinvolves establishing a system that maintains order. These steps define a basic, high-level process and allow for a significant amount of tailoring and customization to reflect the maturity and capabilities of the organization. 1, JanuaryFebruary 2009. The risk management plan tells you how youre going to handle risk in your project. The ultimate value of this process is helping and enhancing the organizations ability to manage and monitor its top risks. 3 Prepare a preliminary strategic risk profile Combine and analyze the data gathered in the first two steps to develop an initial profile of the organizations strategic risks. In fact, nearly all respondents (94%) have changed their approach to strategic risk management over the Developing strategic risk management processes and capabilities can provide a strong foundation for improving risk management and governance. A risk management plan is a plan to treat identified risks. Risk Professionals. It is the process of determining goals, creating tactics, controlling variables, and monitoring results. For organizations that are early in this process, the seven keys to success for improving ERM as described in a 2011 COSO Thought Leadership Paper may be useful, and are applicable in strategic risk management: However the board decides to proceed, their leadership, direction, and overall oversight will be critical to the success of a strategic risk management process. It includes processes for risk management planning, identification, analysis, monitoring and control. The strategic risk assessment can complement and leverage the strategy execution processes in an organization toward improving risk management and governance. The risk that insiders (employees) won't act in the best interest of the A risk management plan should be periodically updated and expanded throughout the life cycle of the project, as the project increases in complexity and risks become more defined. It is difficult to measure risk, but it is even more challenging to create a strategy to manage something that cant be or isnt properly measured. Build on existing risk management activities, 6. According to a new report from the Risk and Insurance Management Society (RIMS) and Marsh & McLennan, it all boils down to risk integration.. Survey results in the 2019 Excellence in Risk Management Report show that C-suite executives identified integration with strategic planning as the biggest performance gap in They need to explore what ifs with management in order to stress-test against external conditions such as recession or currency exchange movements. This post is based on an issue of the Conference Boards Director Notes series by Mark L. Frigo and Richard J. Anderson, director and professor of strategic risk management, respectively, at DePaul University. The recent credit crisis is an example of this type of risk. Category: Strategic Risk Management. Stage 3: Align the organization This stage includes aligning business units, support units, employees, and boards of directors. These internal and external risks pose a threat to the business strategy and objectives. Risk Management Plan is a document that describes the general approach to managing risks on the given project, including methodology, techniques, funding, timing, and responsibilities. To be most useful, a risk management process and the resultant reporting must reflect and support an enterprises culture so the process can be embedded and owned by management. (go back), [12] Robert S. Kaplan, Risk Management and Strategy Execution Systems, Balanced Scorecard Report, Vol. I have written about it three years ago. Corporate Governance Risk. This step is critical, because without these key data to focus around, an assessment could result in a long laundry list of potential risks with no way to really prioritize them. Strategic Risk Management and the Role of the Board. If you are a project head or a project manager, you have to ensure that you and your team will have a risk management plan at hand. Risk Assessment. It should be a short paragraph or two summarizing the approach to risk management on this project.The approach we have taken to manage risks for this project included a methodical process by which the project team identified, scored, and ranked the various risks. APPENDIX A: REFERENCES 4. [3] In Ram Charans book, Owning Up: The 14 Questions Every Board Member Needs to Ask, one of the questions posed is Are we addressing the risks that could send our company over the cliff? [4] According to Charan, boards need to focus on the risk that is inherent in the strategy and strategy execution: Risk is an integral part of every companys strategy; when boards review strategy, they have to be forceful in asking the CEO what risks are inherent in the strategy. Ultimately, if the strategic risk assessment process is not embedded and owned by management as an integral part of the business processes, the risk management process will rapidly lose its impact and will not add to or deliver on its expected role. The framework of risk management integration into strategic planning is shown in Figure 1. 835 0 obj <>/Filter/FlateDecode/ID[<3AAE86907DDB77479796A87BEAB675C9>]/Index[829 14]/Info 828 0 R/Length 53/Prev 66611/Root 830 0 R/Size 843/Type/XRef/W[1 2 1]>>stream Reflecting the dynamic nature of risk, these seven steps constitute a circular or closed-loop process that should be ongoing and continual within the organization. The Strategic Risk Management Alignment Guide and Strategic Framework for GRC (Governance, Risk and Compliance) would be useful for aligning risk and control units toward more effective and efficient risk management and governance, and for linking this alignment with the strategy of the organization. )RNje8[X-5eRKfgSPbee4EWyG; >Vz^TPoA=u:)\4F]o&Ng]l 0fW MblXho &m&:19SB(*'WYuNM#B Q2$ytde1V2g5? At the risk of stating the obvious, the first step to effective security risk management is to have a strategic plan. this paper examines dHss progress inte-grating strategic risk management concepts into its budget allocation decisions. The risk management plan evaluates identified risks and outlines mitigation actions. Risk Management includes loss prevention and avoidance activities, the purchase of insurance coverage, and self Regarding risk culture, Charan provides the following insight: Boards must also watch for a toxic culture that enables ethical lapses throughout the organization. Strategic risk management An approach to top-down risk management and alignment: a practical guide to risk strategy for boards of organisations. To maximize value when setting strategic objectives, it is imperative that management find an ideal balance between performance goals and targets and related risks. Contact Risk and Strategic Management Prior to strategy formulation, risk management should assess pre-strategy risks. At this stage, a strategic risk assessment could be included using the Return Driven Strategy framework to articulate and clarify the strategy and the Strategic Risk Management framework to identify the organizations strategic risks. Those facilities that have one committee should ensure that Organizations with solid governance are able to make intelligent decisions and steer the company toward a brighter future. S.ugb~xkH}'TLxWG[.Z]Y`Io 7: J;CFi,fON WsDpcv?8)*}iL|V$B2yqyq/p.v@8*. %%EOF Some organizations have welldeveloped strategic plans and objectives, while others may be much more informal in their articulation and documentation of strategy. (go back), [13] Mark L Frigo and Richard J. Anderson, Embracing Enterprise Risk Management: Practical Approaches for Getting Started, COSO, 2011. hb``` )003 !G LB.:Tw &I6Kh v"4s`j`;e4#wNb`8Hs00h002}e0 ,% Boards may want to consider engaging independent advisors to advise and educate themselves on these matters. But, we normally perceive risk in the most negative connotation at all times and always plan to mitigate this negative risk that we anticipate. The methods of integrating ERM with strategy will vary based on the company. This Director Note was based on a book authored by Dr. Frigo and Mr. Anderson, available here. In either case, the assessment must develop an overview of the organizations key strategies and business objectives. There are seven basic steps for conducting a strategic risk assessment: 1 Achieve a deep understanding of the strategy of the organization The initial step in the assessment process is to gain a deep understanding of the key business strategies and objectives of the organization. Risk Management and Insurance exists to provide protection and conservation of State of Washington and WSU resources (people, property, and money) through the management of risk. With this definition, it quickly strikes me that a risk can pay off in two different ways: you can either gain magnanimously from it or go plunging down in loss. Colorcoded reports or heat-maps may be useful to ensure clarity of communication of this critical information. 6 Communicate the strategic risk profile and strategic risk management action plan Building or enhancing the organizations risk culture is a communications effort with two primary focuses. This data gathering should also include both internal and external auditors and other personnel who would have views on risks, such as compliance or safety personnel. The assessment of the corporate culture and risk culture is an initial step in building and nurturing a high performance, high integrity corporate culture. Stage 5: Monitor and learn This stage includes strategy and operational reviews. Understanding an Organizations Strategic Risks and Related Risk Management Processes, A necessary first step for boards to understand their strategic risks and how management is managing and monitoring those risks is a strategic risk assessment. 4 Ways to Build Influence as a Risk Manager. As noted by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), In the aftermath of the financial crisis, executives and their boards realize that ad hoc risk management is no longer tolerable and that current processes may be inadequate in todays rapidly evolving business world. [1] However, especially for nonfinancial companies that may be relatively new to these topics, enhancing risk management can be a somewhat daunting task. It doesn't have to be complex, but it does have to be contextually relevant. risk management plan approval 3. Strategic management as defined by Nag et al. Key tactics used for risk response and communications amid the COVID-19 pandemic can be incorporated into future crisis management planning. Leadership should give ownership to knowledgeable and reliable experts for specific risks. Standard & Poors included the following attributes for strategic risk management in its 2008 announcement that it would apply enterprise risk analysis to corporate ratings: Managements view of the most consequential risks the firm faces, their likelihood, and potential effect; The frequency and nature of updating the identification of these top risks; The influence of risk sensitivity on liability management and financial decisions, and The role of risk management in strategic decision making.

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