Reading Material<\/p>\n
Opening Thought: From:\u00a0https:\/\/www.workiva.com\/blog\/5-steps-effective-strategic-risk-managementStrategic risk management is a crucial, but often overlooked, aspect of\u00a0enter<\/p>\n
prise risk management (ERM). Traditionally, ERM has focused on financial and operational risk. However, the fact is that\u00a0strategic risk is far more consequential.\u00a0<\/p>\n
What is strategic risk?\u00a0<\/p>\n
Simply put, strategic risks are risks that a company takes that could potentially result in a major loss.\u00a0<\/p>\n
A company that has superior and unmatched manufacturing processes will still fail if their consumers no longer want their products. This was the lesson that was learned by even the most efficient buggy whip makers once Henry Ford introduced his Model T in 1908. Cellphone handset manufacturers faced a similar crisis when the Apple\u00ae\u00a0iPhone\u00ae\u00a0arrived on the scene.<\/p>\n
What is strategic risk management?\u00a0<\/p>\n
Strategic risk management is the process of identifying, quantifying, and\u00a0mitigating any risk\u00a0that affects or is inherent in a company\u2019s business strategy, strategic objectives, and strategy execution. These risks may include:\u00a0<\/p>\n
Shifts in consumer demand and preferences<\/p>\n
Legal and regulatory change<\/p>\n
Competitive pressure<\/p>\n
Merger integration<\/p>\n
Technological changes<\/p>\n
Senior management turnover<\/p>\n
Stakeholder pressure<\/p>\n
As industry expert\u00a0James Lam\u00a0says, strategic risk is the big stuff, and\u00a0prioritizing strategic risk management\u00a0means sweating the big stuff first.<\/p>\n
Strategic risk is a bell curve<\/p>\n
Like any risk, strategic risk falls along a classic bell curve, with results along the x-axis and likelihood along the y-axis. The expected result of a given strategy would represent the peak of this curve. Most strategic planning considers only this peak while ignoring the slopes to either side.<\/p>\n
But imagine two strategic initiatives, each with a similar expected result. One falls along a narrow, steep curve, indicating a low risk of failure and little upside opportunity. The other is represented by a wider bell, with greater chances of both under- and over-performance. Which to choose? The answer depends on an individual company\u2019s appetite for risk.<\/p>\n
Strategic risk management: shifting the curve<\/p>\n
Now imagine a third curve with that same expected result. This one rises steeply from the left but slopes more gently downward on the right. Here, downside risk has been minimized, and upside opportunity increased. That is the goal of strategic risk management: to shape the curve in a way that favors success.<\/p>\n
How do you measure and manage strategic risk?\u00a0<\/p>\n
As the saying goes, you can’t manage what you can’t measure.<\/p>\n
In order for us to understand how to manage strategic risk, we must first take a look at how to measure it. A key tenet of enterprise risk management (ERM) is measuring risk with the same yardsticks used to measure results. In this way, companies can calculate how much inherent risk their initiatives contain.\u00a0<\/p>\n
Strategic risk can measured with two key metrics:\u00a0<\/p>\n
Economic capital\u00a0is the amount of equity required to cover unexpected losses based on a predetermined solvency standard. This standard is usually derived from the company’s target debt rating. Economic capital is a common currency with which any risk can be quantified. Importantly, it applies the same methodology and assumptions used in determining enterprise value, making it ideal for strategic risk.\u00a0<\/p>\n
Risk-adjusted return on capital (RAROC)\u00a0is the anticipated after-tax return on an initiative divided by its economic capital. If RAROC exceeds the company’s cost of capital, the initiative is viable and will add value. If RAROC is less than the cost of capital, it will destroy value.\u00a0<\/p>\n
Five steps to becoming effective<\/p>\n
Managing strategic risk involves five steps which must be integrated within the strategic planning and execution process in order to be effective:<\/p>\n
Define business strategy and objectives.\u00a0There are several frameworks that companies commonly use to plan out strategy, from simple SWOT analysis to the more nuanced and holistic balanced scorecard. The one thing that these frameworks have in common, however, is their failure to address risk. It is crucial, then, that companies take additional steps to integrate risk at the planning stage.<\/p>\n
Establish key performance indicators (KPIs) to measure results.\u00a0The\u00a0best KPIs offer hints\u00a0as to the levers the company can pull to improve them. Thus, overall sales makes a poor KPI, while sales per customer lets the company drill down for answers.<\/p>\n
Identify risks that can drive variability in performance.\u00a0These are the unknowns, such as future customer demand, that will determine results.<\/p>\n
Establish key risk indicators (KRIs) and tolerance levels for critical risks.\u00a0Whereas KPIs measure historical performance,\u00a0KRIs are forward-looking leading indicators\u00a0intended to anticipate potential roadblocks. Tolerance levels serve as triggers for action.<\/p>\n
Provide integrated reporting and monitoring.\u00a0Finally, companies must monitor results and KRIs on a continuous basis in order to mitigate risks or grasp unexpected opportunities as they arise.<\/p>\n
Strategic risk represents the greatest dangers\u2014and opportunities\u2014your company faces. By taking steps to manage it at the enterprise level, companies can shape their future success while minimizing downside exposure.<\/p>\n
Questions 1 & 2:<\/p>\n
How can the success of an organizations risk management be measured?<\/p>\n
How can the success of an organization’s level of project quality be measured?<\/p>\n
Note: Your initial post should be at least\u00a0450+ words\u00a0and in APA format (including Times New Roman with font size 12 and double spaced<\/p>\n
Question 3:<\/p>\n
Create a three page paper with three references other than your text. Explain how the concepts of risk control and quality are related within the project management discipline.\u00a0 How do the two knowledge areas impact one another?\u00a0 Explain the work in these two areas from a strategic perspective.<\/p>\n
Note: No answer length restriction, answer based on question.<\/p>\n","protected":false},"excerpt":{"rendered":"
Reading Material Opening Thought: From:\u00a0https:\/\/www.workiva.com\/blog\/5-steps-effective-strategic-risk-managementStrategic risk management is a crucial, but often overlooked, aspect of\u00a0enter prise risk management (ERM). Traditionally, ERM has focused on financial and operational risk. However, the fact is that\u00a0strategic risk is far more consequential.\u00a0 What is strategic risk?\u00a0 Simply put, strategic risks are risks that a company takes that could potentially […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[10],"class_list":["post-79012","post","type-post","status-publish","format-standard","hentry","category-research-paper-writing","tag-writing"],"_links":{"self":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/79012","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/comments?post=79012"}],"version-history":[{"count":0,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/79012\/revisions"}],"wp:attachment":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/media?parent=79012"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/categories?post=79012"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/tags?post=79012"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}