I have written about the need for bigger businesses to recognise that they have three categories of risk: operational, strategic, and external. Operation risks are probably the best known and most studied. In this article I will look at strategic risk.
There are different types of strategic risk. These vary according to the nature of the business.
- High Risk, slowly evolving
- Diverse and complex risks
- A quick-changing risk environment.
Each of these requires a different approach, so you must first decide which type you are dealing with.
- Requires a manager with the ability and authority to make the necessary decisions and access to people with the right technical knowledge. It may well also require an external consultant.
- Requires a culture of risk-awareness throughout the business, but also a central Risk Management team to act as facilitators to other managers.
- Requires collaboration between line managers and embedded risk experts. The latter should support but challenge the former.
The role of top management is to strike a balance between risk, opportunity and cost based on information and analysis provided by the line managers and internal and external risk managers.