The Strategic Risk Management Process in 7 Steps
Business risk management (ERM) today is a systematic, corporate-wide method for detecting and resolving a variety of enterprise risks, including operational risk, financial risk, compliance risk, and strategic risk.
The potential for losses or harm can be reduced and risk can be effectively managed and mitigated by organizations with strong ERM systems. Business Risk Management combines distinct strategies, methods, and plans for each risk category since those risks influence the business differently.
1. Describe the Business Plan
The first stage in SRM is to understand the company’s business strategy and objectives. Building a solid basis for integrating risk management with the business plan begins with this crucial stage.
Without this preliminary planning, the assessment would just produce a list of possible hazards without explaining why they matter or how they should be prioritized.
2. Determine Strategic Risks
The following phase is to acquire information on the strategic risks that might cause variation in corporate performance or prevent the business from reaching its objectives. These dangers might include everything from the departure of top management to failed Companies, financial difficulties, or the entry of new rivals.
Typical techniques for identifying strategic risks include:
- key leaders and senior managers during interviews
- Financial report and investor presentation analysis
- Auditor reports, both internal and external
- compliance or safety staff surveys
3. Establish and Verify The Strategic Risk Profile
Risk management professionals then evaluate the hazards that have been found and create a strategic risk profile. Considering the risk culture and the requirement for risk-related communications, the profile’s depth will vary. The risk profile should be validated by key executives and board members before being refined and finalized by the SRM team.
4. Establish Key Performance Indicators (KPIs) to Measure The Success Of Srm
The effectiveness of the SRM program and the achievement of the organization’s SRM policies and initiatives must be evaluated using concrete KPIs. KPI metrics track the program’s development, offer performance oversight, and help with resource allocation.
SRM KPI examples include the following:
- Amount of hazards found
- Increased risk severity or frequency
- Amount spent on risk management
5. Identify Important Risk Factors (Kris)
KPIs measure the past performance of the SRM program. KRIs are forecasting tools that alert users when risk exposure is increasing. They help companies foresee new hazards and assess how they could influence their strategic objectives.
KRIs and KPIs work together to help businesses analyze the present and potential consequences of risk occurrences on their business strategies.
6. Create, Share, And Carry Out an Srm Action Plan.
Implementing the steps and controls necessary to reduce strategic risk calls for a thorough action plan. Top management and the appropriate people must be informed of the strategy and top risks, such as:
- to increase awareness of dangers
- Facilitate risk management
- improving the risk culture
7. Monitor and Report on Strategic Risks
Regular risk assessments and monitoring are essential to the organization’s capacity to handle strategic risks effectively. To adjust SRM processes and controls as necessary, risk personnel must continuously monitor results and KRIs.
The strategic management of risk for your Business Risk management in seven ideal steps can save your business from many unfortunate happenings, which is why strategic risk management is an ideal technique.