Do you know what risks your company, institution, or nonprofit faces when trying to achieve key business objectives? Understanding and prioritizing strategic risk assessment can help you manage the risks and protect the entire organization from harm.
Strategic risks, as opposed to financial or security risks, can also pose a serious threat to the vision and key objectives set by a board. Understanding the components of strategic risk assessment and implementing processes to manage strategic risk minimize failure and strengthen the effectiveness of your company or organization.
Below, we’ll cover some risk assessment examples and outline steps to include in a risk assessment template to help your board effectively identify and manage strategic risk.
What is a strategic risk assessment?
Strategic risk assessment is the process of identifying and managing the specific risks that affect an organization’s ability to achieve key objectives. Strategic risks can harm or weaken the corporation’s goals and objectives, potentially affecting shareholder value and the viability of the entire company.
With such high stakes, it’s important to develop processes to identify, analyze, and monitor strategic risks. Some examples of strategic risk include:
- Launching new products, projects, or services.
- Emerging technology.
- Transitions in upper-level management.
- Mergers or acquisitions.
- Fluctuations in markets or industries.
- Consumer demand shifts.
- Law or regulatory changes.
While the specific risks vary depending on company structure and objectives, the process of developing risk management procedures remains the same, whether for corporate risk assessment or organization risk assessment.
What is the role of the board in strategic risk management?
The board’s role remains integral to successful strategic risk assessment. As a board typically sets key objectives, it should also establish proper risk management processes to protect and ensure company or organizational success.
While the board may not have direct involvement in managing strategic risk, the board oversees organizational risk management by creating policies and procedures to identify, monitor, and mitigate strategic risk. By providing proper governance and oversight, the board can ensure those policies and procedures are implemented and followed. A lack of oversight could diminish achieving strategic objectives, or result in failing to meet them altogether.
Company risk assessment should remain at the forefront when boards evaluate strategic objectives or consider new strategies for growth. While strategic risk isn’t always negative — high-value objectives may be realized through calculated risk — it’s crucial for a board to evaluate strategic risk in planning, decision-making, and execution.
Understanding the process: Strategic risk assessment checklist
Successful strategic risk assessment reflects the key values of the company or organization. As board setup and responsibilities vary, the execution of strategic risk assessment may vary as well.
When establishing risk assessment procedures, typically management or executive officers perform an initial strategic risk assessment, with input from the board. Collaboration remains key, as risk affects goals, growth strategies, and execution of objectives.
Once a risk assessment process is created, the board oversees implementation and ensures the company or organization follows the process.
A risk assessment checklist:
- Define strategies of your company or organization.
- Collect data and input regarding strategic risk.
- Analyze and prioritize risks.
- Develop and adopt a strategic risk plan.
- Communicate and execute the strategic risk plan.
- Monitor and review the strategic risk plan.
Six steps to put strategic risk assessment into action
1. Define strategies of your company or organization
Depending on the structure and leadership of your board, your company or organization may have previously identified and recorded overall strategies. If not, this first step includes understanding your organization’s mission and key goals, the stakeholders involved, and how you plan to achieve these long-term goals.
Defining strategies in a formal way remains important, because decision-makers must understand the trajectory of the organization before determining top risks. Once strategies are defined, this informs a risk assessment template and allows for future modifications.
2. Collect data and input regarding strategic risk
The collection of data and input from stakeholders and other qualified personnel is a key step in strategic risk assessment. This includes gathering data about potential risks, and input from the board, officers, employees, or other professionals involved in identified areas.
Information can be obtained through interviews, surveys, reports, or presentations, leading to further discussions and input. Platforms enhancing secure board collaboration and data collection enable stakeholders to see the big picture so they can connect the data for empowered decision-making. This step also allows for recording of data and ideas, making the process formal and comprehensive.
3. Analyze and prioritize risks
The next step of strategic risk assessment leads to analyzing and prioritizing risks based on the risk appetite and risk tolerance of a company or organization. This initial assessment takes a deep dive into strategic risk, with the analyzing and verification of collected data.
Analyzing data allows your company or organization to prioritize risks in a profile, assessing top-ranking risks in conjunction with their probability of occurring, and related consequences. In this manner, top risks can be thoroughly vetted and enable the development of an explicit action plan. In addition, prioritization allows for the proper allocation of resources and avoidance or reduction of the risk.
4. Develop and adopt a strategic risk plan
The development and adoption of a strategic risk plan becomes a culmination of the entire strategic risk assessment process. Once a strategic risk action plan is developed, it’s important to obtain feedback to ensure the actions properly relate to the identified risks. This way, potential discrepancies can be determined and altered, if necessary.
After review, formal adoption ensures the company or organization follows the plan and monitors results. Adopting an action plan enhances the capability of a company or organization to properly identify, manage, and monitor strategic risks that could impair its vision and operations.
5. Communicate and execute the strategic risk plan
Once a plan is adopted, strategic risk cannot be managed unless the action plan is communicated and mobilized. The plan must be shared with key personnel in a company or organization charged with managing strategic risk, and they must possess a thorough understanding of strategies to avoid or reduce risk.
Proper execution relies on efficient management and a management structure providing oversight to ensure appropriate guidance and direction. This promotes enhanced performance and a commitment to the vision of a company or organization.
6. Monitor and review the strategic risk plan
The last step cannot be overlooked, because a company or organization should not take a one-time approach to its strategic risk plan assessment. A board should analyze the strategic plan on a scheduled basis, based on key indicators, to ensure the organization continues to meet objectives.
The strategic risk action plan may need to be modified due to internal or external influences, or because of a change in overall strategies and goals. As a company or organization grows, adjustments likely become necessary for continued success. Monitoring and reviewing strategic risks regularly works to control risk and protect the value of the company or organization.
5 Tips for Successful Risk Assessment Performance
1. Identify Strategies and Target Goals
Understanding your company’s strategies and goals, and how they relate to strategic risk, remains the foundation for a strategy risk assessment. Periodic review of these components ensures your risk assessment strategy remains viable and effective.
2. Determine Key Performance Indicators (KPIs)
KPIs enable your company to measure and track performance. Decide which KPIs will best assist your company in defining and measuring your key objectives.
3. Review Strategic Risks
Review and examine strategic risks to determine if the risks could still affect your company or organization, and if the risks retain the same priority. Modifications may become necessary based on your company’s path or progress.
4. Develop Key Risk Indicators (KRIs)
KRIs help your company or organization monitor risk by showing developing risks. This allows your company to monitor and prioritize the severity of the risk, and set action in motion at the appropriate time.
5. Document and Measure Results
Effectual monitoring and documenting remains key in the strategic risk assessment process. This enables your company to gauge progress and spotlight where changes need to occur. This also sets proper procedures in place for future success.
How OnBoard Assists in Your Risk Assessment
Since strategic risk assessment plays a critical role in the effectiveness of achieving strategic objectives, it’s imperative to establish and maintain proper risk assessment procedures.
OnBoard Board Management Software optimizes your strategic risk assessment by providing seamless board collaboration, improved accuracy in monitoring and reporting, and customized control of sensitive data for the highest level of security and compliance.
OnBoard’s leading privacy and security technologies limit risk and ensure data handling and management follows strict national and international information security and data protection standards.
Ready to centralize your board’s experience, roles, and terms into a single, easily accessible resource? Request your free trial of OnBoard to see how we can help.
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