A Starter’s Guide To Strategic Risk Management

James Lam Associates, a consulting firm for risk management that works closely with CISOs, CROs, CFOs, and CEOs, conducted a study on the principal reason organizations suffer financial distress.

The research found that 61% of incidents were due to strategic risks, 30% to operational risks, and 9% to financial risks.

In spite of such high numbers, a number of organizations still ignore strategic risk management which is key to business continuity. In this blog, we will understand the nuances of strategic risks and how it fits into the enterprise risk management strategy (ERM). 

TL;DR Strategic risk impacts an organization’s ability to achieve core business objectives. It is measured using the calculation of the economic capital (EC) and Risk-adjusted return on capital (RAROC). Strategic risk management is a five-step process that includes strategy planning, defining the risk appetite, quantifying the risk profile, analyzing multiple scenarios, and continuously monitoring risks.  Strategic risks can arise from internal factors such as employees, leadership, finance, etc., as well as external factors like regulatory changes, political standing, and industry trends.

What is strategic risk?

Strategic risk refers to a risk that impacts an organization’s ability to achieve core business objectives, caused by bad planning and execution. Some of the causes include changing consumer demands, regulatory updates, acquisitions, mergers, competitive threats, leadership changes, market/industry changes, etc. 

Strategic risks can arise during both the development and implementation of a company’s business strategy. The board of directors and senior management are responsible for guiding the execution and must anticipate key factors that could become threats. 

What is strategic risk management?

Strategic risk management (SRM) detects and analyzes risks that can harm a business’s core strategy and suggests m